2nd UPDATE: Corn Products To Buy National Starch For $1.3 Billion

Leaders of Corn Products International Inc. (CPO) said Monday that their purchase of New Jersey-based National Starch will expand the company's geographic reach and give it a greater foothold in the the processed-food industry.

The Westchester, Ill.-based company announced the $1.3 billion purchase early Monday, saying it expected to generate cost synergies of at least $50 million, primarily from efficiencies in the areas of manufacturing, procurement, logistics and general and administrative functions.

National Starch, a subsidiary of Akzo Nobel NV (AKZOY, AKZA.AE), a Netherlands-based global coatings and specialty chemicals company, had 2009 revenue of $1.2 billion. Among other benefits, the deal will allow Corn Products, a key producer of corn sweeteners, to offer a broader array of ingredients to food companies, officials said.

The company's stock is down sharply, however. It was recently trading at $31.38 a share, down 10%.

National Starch is a leader in specialty starches, said Ilene Gordon, Corn Products' chairman, president and chief executive. An example of its products are substances that help with thickening and texture for soups, sauces, yogurt and mayonnaise.

"They're really the go-to company with food companies in terms of designing new products," Gordon said during a conference call.

The company is also strong in the corrugated and paper market, she said.

The deal, expected to be finalized by the end of the third quarter, will give her company an expanded footprint in Asia, including China, as well as Europe and Australia, she said.

The boards of directors of Corn Products and AkzoNobel have approved the deal, which is expected to close in the third quarter of 2010. Corn Products said it expects to finance the transaction through cash, debt and new equity.

Cheryl Beebe, chief financial officer, said Corn Products would look for opportunities "to consolidate manufacturing platforms," but officials wouldn't specify any potential staff cuts. National Starch has 2,200 employees while Corn Products has about 8,000.

Morgan Stanley analyst Vincent Andrews noted during the conference call that, based on Corn Products' investor day presentation in March, many were expecting the company to pursue smaller acquisitions, rather than the "pretty sizable" buy of National Starch.

Gordon acknowledged that Corn Products, with this purchase, "did a couple years' worth [of mergers and acquisitions] all at once," saying National Starch was a particularly good fit that will help Corn Products increase shareholder value.

The deal should pose no antitrust issues, Gordon said, as the companies aren't competitors in most areas.

The drop in Corn Products' stock is typical for the buyer in such an acquisition, as the company will have additional debt along with other potential issues, said Ian Horowitz, analyst with Rafferty Capital Markets. But he noted that there appeared to be no resistance among analysts during the conference call.

"I don't think it has anything to do with whether the deal works or not," Horowitz said of the stock's decline. "It's more mechanical."

-By Ian Berry, Dow Jones Newswires; 312-750-4072; ian.berry@dowjones.com

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