PRETORIA (ResourceInvestor.com) -- Shares of Corn Products International (CPO) bounced off their 52-week low of $17.51 in Friday trading, closing at $21.01. Like the vast majority of publicly listed companies, CPO's shares have taken a battering in the past month-they traded as high as $38.11 on Sept. 12 only to fall and bounce of their 52-week low Friday.
It's risky calling any type of bottom in share prices with systemic risk in the financial system still high and the credit crisis not yet showing signs of abating. CPO has some good things going for it, nonetheless.
CPO and Bunge Ltd. (BG) management on June 23 announced that the latter would acquire CPO in an all-stock transaction valued in aggregate at approximately $4.8 billion, which was to include assumption of some $414 million in CPO debt. Bunge's shares were trading at $110.70 on June 23-they too bounced off their 52-week low on Friday, closing at $39.20. Clearly the original transaction terms are subject to some serious revaluation and renegotiation.
Rethinking a pending acquisition
Strategically, the opportunity to become part of a larger, more broadly diversified and vertically integrated multinational agribusiness concern was the primary motivation for CPO's management to support Bunge's acquisition bid.
In addition to extending its presence throughout the corn products value chain, incorporating CPO within Bunge's global operations would yield a significant amount of synergy. Bunge's management stated that it expects achieve estimated annual cost synergies and incremental profit opportunities of $100 million to $120 million, including savings in procurement, logistics and elimination of duplicate costs.
The original terms of the acquisition would see CPO shareholders receiving the equivalent of $56 worth of Bunge shares for each of their own. CPO's shares shot up from $42.90 reaching a year-to-date high of $50.75 on June 23, the day the acquisition was announced.
There haven't been any announcements recently regarding Bunge's acquisition of CPO. Back in June the two companies issued a press release explaining why both sides agreed to it, however.
Modus vivendi
"Combining with Corn Products provides a unique opportunity for Bunge to establish an integrated, global presence in the corn value chain, which is highly complementary to our existing operations," stated Alberto Weisser, Bunge Limited's chairman and CEO.
"Corn Products is the leading pure-play franchise in corn refining and will add higher-margin starch and sweetener products to Bunge's product portfolio, expand our operations in important growth markets, and diversify our revenue stream with a solid cash flow business."
CPO's chairman, president and CEO Sam Scott added his enthusiasm and reasons for supporting the deal: "I am excited by this combination. It represents a terrific opportunity to create value for our stockholders, enhance opportunities for our employees and provide benefits to our global partners and customers.
"Our stockholders will have an ongoing equity interest in a combined company that is well-positioned to serve customers around the world with a broad product portfolio, integrated distribution network and innovative products."
Go or no go
Analysts at employee-owned, Virginia-based brokerage Davenport like CPO whether or not it winds up being acquired by Bunge. They upgraded CPO from neutral to buy on Thursday, setting a price target of $36.
"At the current $22 stock price, CPO is about 60% below the implied takeout value of $56 at the time of the announced transaction. We believe that either the deal will be reworked or the CPO shareholders will not approve the deal...In our opinion, CPO would continue to succeed as a stand alone company given its strong fundamentals," they wrote.
Davenport's analysts are confident in CPO's ability to improve margins and earnings momentum by lowering costs, expanding into value-added businesses, better balancing capacity and adding services for a worldwide customer base.
They're also of the mind that the acquisition by Bunge may well be cancelled in light of recent market turmoil and the drastic downturn in equity markets and economic growth forecasts. "We believe the pending acquisition of Corn Products by Bunge is becoming increasingly less likely to happen either at current terms or at all.
"Given the significant decline in Bunge stock since the deal was announced and the corresponding fall in CPO valuation, we believe CPO shareholders and its Board should question the current deal," they maintain.
Dividend declared; Upcoming quarterly earnings report
With 34 plants spread across 15 countries CPO is a leading worldwide producer of dextrose, a major supplier of starch, high fructose corn syrup and glucose. Last year, the company generated $3.4 billion in net sales and diluted earnings per share of $2.59.
CPO is scheduled to release its Q3 2008 financial results at 7:30 a.m. October 24 before the markets open. Chairman, president and CEO Sam Scott and vice president and CFO Cheryl Beebe will host a conference call an hour later which will be broadcast live via the Internet at the .
The company's board of directors on Sept. 17 declared a $0.14 per share quarterly dividend effective October 2.
