ADM, Mexico’s Gruma to Team Up

MEXICO CITY — U.S. agribusiness conglomerate Archer-Daniels-Midland Co. and Mexico-based corn flour giant Gruma announced plans Thursday to link up, forging a continent-wide, grains-to-food powerhouse.

Gruma, the world’s largest producer of corn flour and maker of corn tortillas, and Decatur, Ill.-based ADM hope to seal their North American venture by Sept 30.

Key elements of the partnership include ADM obtaining a 22% stake in Gruma for $258 million. The planned venture also has the companies combining U.S. corn flour operations and Mexican wheat flour operations into joint ventures.

The partnership is subject to Gruma shareholder approval and a green light from Mexico’s Antitrust Commission and other North American regulatory bodies.

Gruma and ADM reckon the joint venture would represent 25% of the $660-million U.S. corn flour market and a significant portion of the $1.5-billion Mexican wheat flour market.

In an interview, Gruma Chief Executive Eduardo Livas said the companies hoped to beef up Mexican wheat milling, taking capacity from current levels of 250,000 metric tons a year to 1 million tons in five to seven years.

“We are going to focus first on utilizing the capacity and then expanding operations,” Livas said, adding that the companies sought to reach a market share of about 25% to 30%.

Livas said combining the companies’ U.S. corn flour milling operations would take the total capacity up to 515,000 tons a year. Gruma already has capacity of 350,000 tons in the U.S. Livas said they plan to divest one Texas corn flour mill and introduce Gruma technology and beef up capacity in two others in California and Kentucky.

He said Gruma planned to use almost all the $258-million payment from ADM to pay down short debt. The company currently holds bank debts totaling $580 million.

Felix Boni, director of research at HSBC James Capel in Mexico City, said the wheat side of the venture looked like a probable long-term move for Gruma and ADM to enter the Mexican bread market.