Schroder: Wheat milling acquisition ‘fits what we are good at’

by Eric Schroeder
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WHITE PLAINS, N.Y. — The acquisition of the wheat milling business of Mexico City-based Grupo Altex S.A. de C.V. should make Mexico “an important part of Bunge’s North American portfolio” going forward, said Soren Schroder, chief executive officer of Bunge Ltd.

In an Oct. 24 conference call with analysts to discuss third-quarter results, Mr. Schroder discussed the impact of the purchase of Grupo Altex, which was announced on Oct. 23. A leading Mexican wheat miller with six mills and annual processing capacity of approximately 17.6 million cwts, Grupo Altex “fits what we are good at,” Mr. Schroder said.

As part of the acquisition, Bunge will get an expansive product portfolio that includes products made from many varieties of wheat, including bread flour, prepared flours for baked foods, tortillas and pizza, and semolina for pasta. Additionally, Bunge will receive the company’s brands and its innovation center.

The acquisition comes a little more than year after Bunge secured a majority equity stake in Harinera La Espiga S.A. de C.V., a wheat milling business in Mexico that produces flours and bakery mixes under such brands as Espiga, Esponja, Francesera, Chulita, Galletera and Pastelera. Prior to last year, Bunge held a 31.5% interest in the company with Grupo Neva, S.A. de C.V. and Cerrollera, S.A. de C.V.

“Added to La Espiga … (Grupo Altex) really gives us a very nice national position in Mexico,” Mr. Schroder said. “It makes us a leading wheat miller with the best assets. It’s a business that has steady EBITDA margins. It is very much linked to agribusiness. Our ability to procure and manage risk around wheat flows is strong. And it fits our focus on B2B customers in North America, and globally, as well.

“So this is a very nice acquisition that fits what we are good at, and yes, we would like to pursue more of the same kind.”

Mr. Schroder said Bunge expects EBIT contribution from the Grupo Altex business to be about $35 million in fiscal 2014, perhaps a little higher.

“This is a very accretive acquisition,” he said. “It is an acquisition that is also in a space we feel very comfortable, so we consider the risks in achieving those returns to be very modest.”

Late last year, Decatur, Ill.-based Archer Daniels Midland Co. sold back its stake in Mexico-based Gruma S.A.B. de C.V. Asked whether ADM’s experiences served as a cautionary tale for Bunge as it looked to expand in Mexico, Mr. Schroder said the company has been studying Mexico “intensely” for the past several years, and it “wasn’t a quick decision that we reached.”

“We have been able to observe and look at the Mexican flour milling industry through the eyes of La Espiga for a number of years,” he explained. “We have been — we were partners there first for well over 10 years, and so understanding the Mexican flour milling business, I think we got from the inside.

“That’s what gave us the confidence to acquire the majority in that business a couple of years ago. And based on that and some, I think, very diligent and thorough work on the industry itself, we reached the conclusion that the collection of assets that Altex represents really would be the best way for us to expand.

“It is quite a different business than Gruma, as you correctly point out, so I don’t think you can really compare them, but I would give you confidence — or comfort — that we have studied this and we think we know — we know what we are doing.”
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