* Firms to merge North American flour-milling operations
* Deal expected to close later this year
* Milling operations had total sales last year of $4.3 bln
* ConAgra, Cargill each to have 44 pct stake, CHS 12 pct
* Deal encompasses 44 flour mills, 3 bakery mix facilities
By Carey Gillam
March 5 Giant U.S. food and grain-handling
companies ConAgra Foods Inc, Cargill and CHS
Inc plan to combine their North American flour milling
businesses into a new venture that would control more than a
third of U.S. capacity, dwarfing all competitors in size and
Dubbed Ardent Mills, the operation would encompass 44 flour
mills with locations coast to coast, from California to
Massachusetts as well as bakery mix and specialty bakery
facilities, with footholds in Canada and Puerto Rico.
News of the plan caught many in the industry by surprise,
although officials said they have been in discussions about a
combination for well over a year, and prompted instant
speculation that U.S. officials might push back due to antitrust
The venture would control roughly 34 percent of the U.S.
market in terms of milling capacity, with total daily wheat and
durum flour capacity for the combined company around 576,100
Ardent marries ConAgra Mills with Horizon Milling, the joint
venture that Cargill and CHS formed in 2002. Horizon is
considered the No. 1 U.S. miller in terms of milling capacity
which is 290,500 cwt per day. ConAgra is third now, behind No. 2
ADM Milling, with 255,100 cwt per day. Horizon brings 21 U.S.
and Canadian flour mills to the deal, and ConAgra adds 23 U.S.
If antitrust concerns do develop, the government could
require some sort of asset divestitures. But Cargill Corporate
Vice President Scott Portnoy said in an interview that the
"complete asset footprint" of combined operations was a key
reason for the deal. He said Ardent did not want to close or
sell off any of the mills, even as some market watchers raised
questions about anti-trust issues.
"It is our anticipation that all the mills... are necessary
in order to provide the kinds of options that our customers
expect both in terms of specialized types of wheat and specialty
types of flour solutions as well as actually just efficient
supply chain access," said Portnoy, adding the partners were not
going to speculate on the government's response.
"We're going to work closely with the government if they
have questions. But we really believe in the merits of this
transaction," Portnoy said. "We are going to work very hard to
get this transaction done."
U.S. antitrust regulators will most certainly look at the
deal (and) it will likely go forward since no company has a very
big market share, said Evan Stewart, an antitrust expert with
the law firm Zuckerman Spaeder LLP.
"Given people's profit margins and other challenges in the
economy, you're going to see more things like this. Companies
are looking at ways to maximize profits," he said. "I think at
the end of the day it's hard to see how it would have a
detrimental effect on consumers."
ConAgra and Horizon's milling operations last year did
roughly $4.3 billion in combined sales, and officials see
additional growth opportunities, potentially acquiring more
assets, said Portnoy.
Analysts noted the efficiencies created would make the
partnership far more competitive globally.
"Any kind of consolidation in agribusiness which increases
efficiency in terms of the competitiveness that this new entity
will offer on the global market, is always welcome," said Rich
Feltes, vice president for research at R.J. O'Brien. "This is
good for U.S. agricultural competitiveness in the global flour
But some farmer groups expressed concerns that more
consolidation in the market could ultimately spell lower wheat
prices as fewer competitors bid for supply.
The milling company partners said their broader base would
help them better manage sometimes volatile swings in wheat
prices. But they said that farmers will benefit through enhanced
opportunities to connect the wheat they grow to the consumer
CHS, the nation's largest producer-owned cooperative, will
be a key supplier to Ardent, said Mark Palmquist, executive vice
president and chief operating officer of Ag Business, CHS.
The combined operations will improve research and
development for more nutritious and tasty products, as
innovation becomes more critical for consumer food products,
company officials said. Details about how research and
development work will be combined are yet to be worked out.
Omaha, Nebraska-based ConAgra and Minneapolis-based Cargill,
will each have a 44 percent stake in the joint venture. CHS,
based in St. Paul, Minnesota, will control the remaining 12
percent. All three companies will have representatives on the
Ardent board. The partners hope to launch the new company later
Horizon Milling President Dan Dye will become chief
executive officer of the new company, and Bill Stoufer, current
president of ConAgra Mills, will become Ardent Mills' chief
operating officer and chief integration officer. The
headquarters will be determined later, the companies said.
Each partner will contribute their respective milling
operations to Ardent Mills on a cash-free, debt-free basis in
exchange for the agreed ownership interests.
Sales for ConAgra Mills, currently part of ConAgra Foods'
commercial foods segment, were roughly $1.8 billion for the
fiscal year that ended May 27, 2012. Sales for Horizon Milling
were about $2.5 billion in its fiscal year that ended May 31,
Ardent Mills will be self-financed through cash flow from
operations and its own bank debt and credit facility, the
companies said. Cash distributions from Ardent Mills will be
delivered to the partners at closing, with initial estimates of
the total proceeds to be distributed ranging from $800 million
to $1 billion, they said.