Why Corn Products is moving into Europe
After the closure of the US$1.3bn acquisition, Corn Products expects to see around 6 per cent of its sales coming from Europe. North America will account for around 55 per cent of sales (it was previously 62 per cent), South America 24 per cent (from 27 per cent), and Asia Pacific 15 per cent (Asia and Africa were at 11 per cent).
Ilene Gordon, chairman, president and chief executive officer was quizzed about how the addition of Europe will enhance Corn Product’s business during an open conference call about the acquisition.
“It really helps us serve our global customers who are expanding especially in Eastern Europe,” she said. “While a lot of business is moving from Western to Eastern Europe, being located in Europe positions us to serve those customers.”
While 6 is not a large percentage, it will increase the company’s leverage with customers either located in Europe, or located in other regions but with a European presence.
“I think it really helps to be able to sit down with global food companies – and some very large ones right now, the big five or six – and be able to say ‘look, as you bring on new products, we can help you design those products, and the features and textures that you want to deliver, and we can do it for you globally, and serve global markets, and take into account global tastes’.
“I think that really does give us an advantage.”
The company has no concerns about competition approval for the transaction, which is expected to close in Q3, because there is very little overlap between the businesses of Corn Products and of National Starch.
Market landscape
Some analysts have commented that the deal could mark the start of more consolidation in the starch industry.
Speaking to our sister site FoodManufacture.co.uk, Investec analyst Martin Deboo said it leaves Tate & Lyle in a negative position “as it has let a prize asset in the global starch industry fall into the hands of a key competitor."
He suggested that Tate & Lyle could become a target of Bunge, which had attempted to acquire Corn Products in 2008 but the deal fell through. It is unlikely to return to that particular negotiating table again, now that Corn Products is worth over $1bn more.
As to the price Corn Products will pay for National Starch, Deboo called it “hefty”.
"Yes, it's a prime strategic asset at the up-market end of the starch business, but they did pay 13 times EBITDA [earnings before interest, tax, depreciation and amortisation] when the usual for this sector is six to nine times."
Other major players in the European starch sector are Roquette and Cargill.
Cargill entered the market in 2003 when it acquired Cerestar and the business is now known as Cargill Texturizing Solutions. It followed this with the acquisition of Degussa’s ingredients business unit in 2005.
