Any Sweet Offers?

For Corn Products International (CPO ), it was like an earthquake. And the aftershocks may drive the company to look for a merger partner, argue some pros. With little warning, Mexico on Jan. 11 imposed a 20% tax on soft drinks made with high-fructose corn syrup--to protect domestic sugar growers. Corn Products, a major global corn refiner, derives roughly 10% of its revenues and 15% to 20% of its operating income from the Mexican corn-syrup operations. For 2002 and 2003, that translates to an earnings drop of 40 cents a share, figures Morgan Stanley's Kirstin Bucci.

Investors were quick to bail out. The stock skidded from 31.20 to 28.20 on the day Mexico imposed its tax. But not everybody scooted: Indeed, value investor James Awad of Awad Asset Management bought. He thinks Corn Products is "attractively valued." The stock trades at its book value of 28 and sells at a price-earnings ratio of 13 times Awad's estimated earnings of $2.10 a share in 2002, and 11 times estimated $2.40 in 2003--adjusted for the Mexican tax.

Jeff Hershey, an analyst at Awad, says that if the tax sticks and if the stock stays where it is-- or goes lower--"it's very possible management will take steps to protect the true worth of its business and enhance shareholder value." It could seek a merger or sell assets, says Hershey.

The stock was a poor performer even before Mexico made its move. He puts the company's replacement at two times book value, or more than 50 a share. He thinks any of the big players--including Archer Daniels Midland or Cargill--may be interested. Corn Products says it expects to resolve the tax issue but won't comment on what steps it would take otherwise.

By Gene G. Marcial

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