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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


Steve Ballmer, Power Forward
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