Bunge Rescues Corn Products: Will the Rosiness Last?

By Brad Zigler

Our June 16 podcast led with a report on the misery wrought upon Corn Products International (NYSE: CPO) by the torrential rains in the Midwest. This month, Illinois-based CPO proved as adept at producing red ink as it has been turning out sweeteners and starches.

CPO's feedstock costs have soared 17% this month alone, while its stock price sagged 8%. That was enough to send the company into the arms of New York's agribusiness giant Bunge Ltd. (NYSE: BG), which today announced that it will buy CPO in an all-stock deal worth about $4.4 billion.

That's telling. The all-stock part, I mean. No cash, just stock. Shows you how badly CPO wanted to be rescued. Make no mistake about it, either. It is a rescue. Still, the buyout gives CPO holders a 31% premium over Friday's $42.90 share price.

Then there's the debt forgiveness. Even more telling. BG will assume $414 million of CPO's copious red ink.

June: Good for BG, Bad for CPO

Assuming the deal closes in the fourth quarter as forecast, CPO stockholders will have swapped a 100% interest in a faltering company for a 21% interest in a ... in a, um ... well, what kind of company will BG be by then?

BG owes its recent buoyancy to a diverse portfolio of agribusiness, fertilizer, edible oil and milling products. Today, BG raised its 2008 EPS forecast more than two bucks, to $9.35-9.65.

Obviously, BG thinks the rosiness will last.

Traders Monday morning had a different view. BG shares, after spiking $4 (or 3%) higher on the open, heeled over and plunged $7 below Friday's closing price within an hour and a half.

You gotta figure there'll be arb activity in a deal this big, so we should wait until the dust, er, corn starch, settles later to get a clearer view.