Rodkin believes Ardent Mills can be ‘go-to company’

by Eric Schroeder
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OMAHA — If and when the transaction closes later this year, the combination of the operations of ConAgra Foods, Cargill and CHS into Ardent Mills will create the “go-to company in terms of innovation, customer service and efficiencies,” said Gary Rodkin, chief executive officer of ConAgra Foods, Inc. Mr. Rodkin, commenting during an April 3 conference call with financial analysts, also said the creation of Ardent should generate “substantial cost synergies.”

“Ardent Mills will have a broad footprint and network of facilities in the U.S., Canada and Puerto Rico, including 44 flour mill locations, 3 bakery mix facilities and 1 specialty bakery,” Mr. Rodkin said. “We expect Ardent Mills to be accretive to our earnings over the long term, given the growth potentials and synergies, and we’re excited for the future of Ardent Mills.”

Mr. Rodkin said ConAgra believes the formation of Ardent Mills will contribute to long-term earnings growth potential, while “removing some volatility from our sales.”

The new milling company will operate as an independent joint venture of its three parent companies: Omaha-based ConAgra Foods; Minneapolis-based Cargill and St. Paul, Minn.-based CHS.  ConAgra Foods and Cargill each will own a 44% stake in Ardent Mills, with CHS owning a 12% interest.

John Gehring, chief financial officer for ConAgra, said during the conference call that ConAgra will account for its ownership stake in Ardent as an equity method investment. He added the Ardent transaction is not expected to have a material impact on fiscal 2013 results.

“We are very excited about the transaction and its potential to create significant value over time as cost synergies are realized,” Mr. Gehring said. “It will be modestly dilutive to earnings per share initially, as interest costs and higher amortization will not be fully offset by the cost synergies realized at first. However, over time, we expect a significant level of value creation from combining the flour milling operation — from combining these flour milling operations driven by compelling cost synergies.”

He said ConAgra expects Ardent to be self-financed through cash flow from operations and its own bank debt and credit facility, with the structure and amount of the Ardent Mills debt financing to be determined during the pre-close period.

“We, along with Cargill and CHS, intend to receive cash distributions from Ardent Mills at closing,” he said. “Based on initial estimates, we expect to receive a distribution of approximately $400 million, and we currently expect to use those proceeds to accelerate our debt repayment plans related to the Ralcorp acquisition debt.”

Cargill and CHS have been partners in Horizon Milling L.L.C. since the joint venture was formed in 2002, creating the nation’s largest flour milling company. Horizon operates 21 U.S. and Canadian flour mills with combined daily flour milling capacity of 321,000 cwts. The creation of Horizon more than 10 years ago was the last large merger involving a top three milling company until the Ardent announcement.

ConAgra, with 23 U.S. flour mills and 255,100 cwts in daily flour milling capacity, ranks as the No. 3 U.S. flour milling company, behind Horizon and ADM Milling Co.

Total daily wheat and durum flour capacity for Ardent Mills will be 576,100 cwts.

“All in all, we’re pleased with the very strong year that fiscal 2013 is shaping up to be,” Mr. Rodkin said. “In the third quarter, we achieved good profits for our base business, closed on a transformational deal, made significant investment in marketing and innovation, and we also set up our milling business for a great future as part of a focused joint venture.”
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