Moskow: Deal puts focus 'on what Bunge does best'

by Eric Schroeder
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Bunge expects $35 million of potential revenue synergies from its IOI Loders Croklaan stake acquisition.
 

NEW YORK — After closing at $75.75 on Sept. 11, the share price of Bunge Ltd. fell nearly 8% to below $70 per share on Sept. 12 following the company’s announcement it has entered into an agreement to acquire a 70% stake in IOI Loders Croklaan for approximately $946 million. At the market’s close on Sept. 14, the company’s share price had rebounded a bit to $72.83.

Despite the share price decline, Credit Suisse views the transaction “as an important enabler for Bunge’s strategic efforts to expand its value-added capabilities in food and ingredients and smooth out the volatility of its business.”

Robert Moskow, Credit Suisse
Robert Moskow, a research analyst with Credit Suisse

“Up to now, the Food Ingredients division always looked like a hodge-podge of assets in disparate regions producing disparate products (tortillas in Mexico, milled corn for Kellogg in the U.S., vegetable oil in Brazil, bottled oil in Ukraine, Walter Rau in Germany),” Robert Moskow, a research analyst with Credit Suisse, wrote in a Sept. 12 report. “Combining Bunge’s expertise in seed oils with Loders’ tropical oils puts the focus clearly on what Bunge does best (global vegetable oil) and creates a comprehensive portfolio with stickier, higher margin specialty products.”

Mr. Moskow said Bunge expects to achieve $45 million in cost synergies from leveraging its vertically integrated supply chain and sharing SG&A infrastructure. Bunge also expects $35 million of potential revenue synergies from the deal, primarily related to expanding Loders’ geographic reach to Latin America and South Asia.

Credit Suisse has set a target price of $90 per share and given Bunge an “outperform” rating. Mr. Moskow said several risk factors could lead Credit Suisse to change its price and rating, including if Bunge’s board refuses to engage or accept a takeover offer by Glencore, if farmer suppliers in Brazil remain reluctant to commercialize crops, or if over-supplied grain markets globally continue to pressure margins. 
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