(Adding link to FACTBOX)
NEW YORK/CHICAGO, Sept 2 Commodity merchant
Cargill Inc said on Tuesday it will buy the global
chocolate business of its rival Archer Daniels Midland Co
for $440 million in a move to expand its production capacity in
The deal, which includes three North American chocolate
plants and three in Europe, is the biggest yet in Cargill's
effort over the past year to increase its chocolate making
footprint in a bet on long-term growth in demand.
The deal is a "major milestone in Cargill's chocolate growth
strategy," said Bryan Wurscher, president of Cargill Cocoa and
Chocolate North America, in a statement.
For ADM, it marks a refocus on its larger cocoa bean
processing operations, one of the industry's largest that
competes with Barry Callebaut, Cargill and other big cocoa
traders Olam International Ltd and Ecom Agroindustrial Corp.
It also comes just over four months after the company
ditched plans to sell its cocoa and chocolate business after
long-running negotiations collapsed and said it would instead
divest the underperforming chocolate operations.
Cargill had been in final-stage talks to buy the combined
operation, sources told Reuters last year.
The sale will also allow ADM to "redeploy capital for
higher-return investments," ADM Chief Executive Patricia Woertz
The agri-merchant has recently made a push into the food
ingredient market, scooping up Swiss-German natural ingredient
company Wild Flavors for about $3 billion.
ADM's stock rose 1 percent to $50.37.
The deal highlights diverging strategies by two of the
world's largest players in the niche cocoa market where
merchants struggle with higher costs and tighter margins due to
increased cocoa bean processing capacity.
The move downstream into value-added chocolate products may
protect Cargill from intense competition among cocoa processing,
which make butter and powder used in chocolate, traders said.
The company is one of the industry's largest bean processors.
Late last year, it announced plans double capacity at its
biggest European chocolate facility in Belgium.
The acquisition is also a bet on long-term growth in demand
in Asia, where consumers' appetites for candy and cookies is
burgeoning, and in North America, the world's second-largest
consumer of chocolate, where consumption has outpaced Europe and
Adding ADM's facilities will double the number of facilities
Cargill operates in North America and significantly increase its
European footprint where it operates seven plants.
"They see demand is good in chocolate and see it as a way of
getting a good deal on an existing business," Nick Gentile,
managing partner of commodity trading adviser NickJen Capital in
Even so, it comes as the cost of cocoa beans, a key
ingredient in chocolate, has jumped more than a third in the
past year, hitting three-year highs last week on concerns about
dwindling supplies. U.S. dairy prices have also soared.
Traders agreed Tuesday's deal will have less impact on the
tight-knit market than a tie-up of ADM and Cargill's cocoa
operations. Experts said a deal of that size would have raised
regulatory concerns, particularly in Europe.
About 700 employees are set to transfer to Cargill from ADM
as part of the transaction, which is expected to close in the
first half of next year, according to the companies.
ADM will end cocoa processing operations at a plant in
Hazleton, Pennsylvania, resulting in the elimination of about 90
jobs, the company said.
(Reporting by Josephine Mason in New York and Tom Polansek in
Chicago; Editing by Franklin Paul, Tom Brown and Andrew Hay)