Bunge Hires Morgan Stanley to Advise on Sugar Unit Review
Bunge Ltd. (BG) hired Morgan Stanley as an adviser while the agricultural commodity processor reviews the future of its underperforming sugar and ethanol unit in Brazil, Chief Executive Officer Soren Schroder said.
A “good outcome” for the unit is among his top goals for 2014 as the company seeks to boost returns on invested capital, Schroder said today in a telephone interview.
“The biggest goal for 2014 is to deliver our targeted ROIC, which is well above the cost of capital, and to find a good outcome for our sugar milling business in Brazil,” Schroder said.
Bunge said in October it was exploring options for the sugar-milling business that’s been a drag on earnings. The book value of the unit ranges from $2 billion to $2.5 billion, Chief Financial Officer Drew Burke said on a conference call with analysts today.
The CEO declined to say how long the review will take, though “if possible” the goal is to reach a conclusion for the unit’s future this year. Schroder also declined to comment on whether White Plains, New York-based Bunge has gotten any interest from potential buyers.
The company, which gets most of its sales from trading and processing soybeans and grains, is looking at alternatives for the cane milling business amid low sucrose yields, capped ethanol prices in Brazil and “depressed” global sugar prices.
Bunge’s mills have the capacity to crush more than 20 million metric tons of cane a year, making it the largest processor of the crop in Brazil after Cosan SA Industria & Comercio, Abengoa Bioenergia and Louis Dreyfus Commodities BV’s sister company Biosev SA, according to Piper Jaffrey Cos.
Bunge entered the sugar market as a trader in 2006 and bought its first sugar mill in 2007. The sugar and bioenergy unit lost $35 million in adjusted earnings before interest and taxes in the fourth quarter, the company said in a statement today.
Bunge’s business that trades and moves crops has been faring better than a year ago in Brazil, Schroder said. The transportation of harvests from interior areas such as Mato Grosso through the ports is less congested and the first boats are leaving without many delays, he said.
Bunge has worked to improve its processes and logistics in Brazil to overcome last year’s delays by taking steps such as pre-contracting trucks, he said.
Next month, Bunge will open its new port terminal in the northern Brazilian city of Belem, which will take pressure off other ports, Schroder said. The terminal will operate at 1.5 million metric tons of capacity as it ramps up and in 2015 will be able to handle as much as 4 million tons, he said.
“It will open up a new corridor of exports out of Mato Grosso to the north,” he said.
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