Moody's Affirms Ratings of Archer Daniels Midland (ADM) Following WILD Flavors Deal

Moody's Investors Service affirmed the A2 and Prime-1 ratings of Archer Daniels Midland Company (NYSE: ADM) following the announcement that it is acquiring a Germany-based producer of natural flavors, WILD Flavors GmbH for EUR2.3 billion, including the assumption of approximately EUR0.1 billion of net debt. ADM is expected to fund the transaction with debt and cash on hand. The transaction is expected to close by year-end subject to regulatory approvals. The outlook is stable.

"ADM's A2 ratings incorporates the moderate increase in balance sheet debt for the WILD acquisition followed by a disciplined reduction in leverage," stated Lori Harris, Analyst at Moody's.

Affirmations:

..Issuer: Archer-Daniels-Midland Company

....Senior Unsecured Commercial Paper, Affirmed P-1

....Senior Unsecured Regular Bond/Debentures, Affirmed A2

....Senior Unsecured Shelf, Affirmed (P)A2

....Senior Unsecured Revenue Bonds, Affirmed A2

....Senior Unsecured Revenue Bonds, Affirmed P-1

....Outlook, Remains Stable

RATINGS RATIONALE

ADM's A2 and Prime-1 ratings reflect its relatively conservative financial policies (as measured by balance sheet debt-to-net working capital), its established global market position in agricultural commodities, substantial product and geographic diversity, as well as the projected growth in demand for agricultural commodities, especially in developing countries.

The announced acquisition of WILD Flavors is consistent with Moody's expectations that the company will continue to pursue international growth opportunities either through acquisitions, investments, or capital projects. The rating affirmation contemplates a modest increase in balance sheet debt to support the WILD acquisition and a disciplined reduction in debt following the completed merger. The use of cash and increase in leverage reduces ADMs flexibility to pursue other sizable transactions or shareholder returns.

The transaction will expand ADM's existing portfolio of specialty ingredients mainly with natural fruit-based ingredients used for beverages and other applications. The combination will allow ADM to expand its product offering into higher-margin processed ingredients, add customers and end-markets, and widen its geographic reach. ADM will create a new business unit with estimated 2014 combined revenue of $2.5 billion, including WILD projected sales of EUR1 billion in 2014.

The stable outlook assumes that the moderate increase in debt to finance the WILD acquisition will be temporary. Additionally, the outlook anticipates that ADM will continue to generate EBITDA in excess of $3 billion.

ADM's ratings are supported by its operational diversity with over 272 processing plants (ADM processes commodities into a wide variety of value-added products, which are utilized in industries ranging from food and nutrition to industrial and energy) and the inherent stability of demand relative to most other commodities, due in large part to global population growth and the rising standard of living in developing countries. Moreover, the company's growth strategy does not rely on expanding its merchandising activities into other unrelated commodities. ADM's financial profile is characterized by low margins (a characteristic of commodity grain merchandising/processing industry) relative to most other "A" rated industrial companies, and weaker returns on invested capital over the cycle. The ratings are tempered by ADM's exposure to volatile commodity prices, relatively thin industry margins and excessive volatility in free cash flow, largely due to changes in working capital.

The rating could be upgraded if Net Debt/EBITDA declines to 1.3x on a sustained basis, FFO/Debt rises to 60%, and RCF/Debt rises to 50%. Conversely, a ratings downgrade could be triggered by a sustained weakening in financial credit metrics resulting in Net Debt/EBITDA of over 2.5x or Retained Cash Flow/Net Debt remaining below 30%. The ratings could also be downgraded due to a large debt-financed acquisition or shareholder return. (The metrics include Moody's Standard Adjustment as well as several adjustments unique to commodity merchandising companies.)

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