Cargill and CHS to Form Flour-Milling Venture With ConAgra

Cargill Inc., the largest closely- held U.S. company, and CHS Inc. agreed to combine their Horizon Milling joint venture with ConAgra Foods Inc. (CAG)’s flour unit to expand their geographic reach and product portfolio.

The companies plan to form a new venture, Ardent Mills, in late 2013, according to a statement today. The three owners will receive about $800 million to $1 billion in cash distributions from Ardent Mills when the transaction closes.

Ardent Mills will help food manufacturers manage volatile and rising grain costs and satisfy changing consumer tastes, including increasing demand for gluten-free and whole grain products, according to Scott Portnoy, Cargill’s corporate vice president.

“We want to be sure, as customers develop regional strategies in North America, that we are in the best position to fill in any geographic gaps,” Portnoy said in a telephone interview today.

Ardent Mills will receive grain from St. Paul, Minnesota- based CHS, the largest U.S. farmer-owned cooperative, according to the statement. Ardent will have 44 flour mills, three bakery mix plants and a specialty bakery in the U.S., Canada and Puerto Rico. CHS will own 12 percent of the company.

ConAgra, based in Omaha, Nebraska, and Minneapolis-based Cargill will each own a 44 percent stake in Ardent Mills.

By partnering with Cargill and CHS, ConAgra is trying to smooth out some of the commodity volatility and focus more on its consumer food brands, as well as integrating Ralcorp Holdings Inc., a cereal and snack maker it bought in January for $6.7 billion, according to Jack Russo, a St. Louis-based analyst for Edward Jones & Co.

Low Margins

“This is a lower margin business,” Russo said in a telephone interview today. The move “will allow them to focus on their core business.” He has a buy rating on ConAgra.

The three companies will contribute milling operations to the new venture on a cash-free, debt-free basis in exchange for the ownership interests. Ardent Mills is expected to be self- financed through cash flow from operations and its own bank debt and credit facility.

Most-active wheat futures gained 21 percent from June 1 through December 31 as the worst U.S. drought since the 1930s burned fields. Prices have fallen almost 10 percent this year.

To contact the reporter on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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