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PatriciaWoertzandtheNew(Old)Thing
TheADMchiefexecutivebethercompanyonbiofuels.Thentheethanolbubbleburst.Whatnow?
ByRyanBlitstein
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June4,2009
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heman’snamewasDr.Russell.AmongthehundredsofshareholdersatArcherDanielsMidland’sannualmeeting
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lastfall,hewasanobody.Yethestoodbeforethemicrophone,lookingrightupatPatriciaWoertz,ADM’schiefexecutive,awomaninchargeofacompanywithtentaclesinsomanyproducts–fromthefoodinyourpantrytothechemicalsinfire‐fightingfoam–thatthetitleofherpresentationthatday,“VitaltotheWorld,”
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wasn’tstretchingthetruth.WoertzhadjustdeliveredahealthydoseofrosycorporatespeaktotheaudienceattheJamesR.RandallResearchCenterinDecatur,Ill.ADM,surroundedbyuncertaintyamidstthebeginningsofahistoriceconomiccrisis,wasthriving,shesaid,withastellarbusinessmodelandthestrongestbalancesheetinitshistory.AndherewasDr.RussellfromChicagoandDecatur,asmallshareholderfor25years,askingagarbledlaundrylistofquestionsthatboileddowntoasimplequery:WhydidmyADMstocklosealmosthalfitsvaluethisyear,andwhatareyougonnadoaboutit?WoertzempathizedwithDr.Russell.She,too,heldstockinADM,andonpaper,she’dlostmillionsin2008
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.WoertzbelievedthatpeoplelikeDr.Russelldeserveeverybitasmuchrespectashigh‐profileWallStreetmoneymen:Thebestfinancialresultsthatexecutiveslikehercanproduce,thebestcommunicationtheycanoffer.
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Thisstorywasassignedby
CondeNastPortfolio
infall2008.ThebulkofreportingtookplaceinNovemberandDecember2008.ItwasintheeditingprocesswhenCondeNastfoldedthemagazine.
TheBigMoney 
(http://www.thebigmoney.com
 
)publishedanabbreviatedversionwithupdatedreportingonJune1,2009.Iwasprettyhappywithit.(Foravarietyofreasons,Iwasunabletofindamagazinethatwouldpublishthelongerversionbeforetheinformationinitbecameverystale.)Thisdocumentismybestapproximationofwhat
Portfolio
mighthavepublished,althoughit’sprobablymorerawandmuchlongerthanitwould’vebeenaftermoreediting.
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IwasnotatADM’sannualmeeting.IlistenedtoitonlineandreviewedatranscriptprovidedbyADM.WoertzandADM’sPRdepartmentspoketomeaboutherstateofmind.
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ADMprovidedaPDFdocumentofherslidepresentation
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Accordingtoherstockoptionawardsinthecompany’s2008proxystatement.
 
Nevertheless,sherespondedthewayanysmartchiefexecutivewithfinancialanalystslisteninginwould:Shedodged.Woertzaffirmedthecompanylineofprice‐relatedrevenuechangesandhighlightedahugeone‐timegainduring2007,andthenmadenon‐committalcommitmentsaboutexpandingthecompany’sflaggingethanolbusiness.ShepromisedDr.Russellafollow‐upquestion–butonlyiftherewastime.It’snotthesortofexchangeCEOsenjoy,butWoertzknewitwascoming.
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Twoyearsbefore,almosttotheday,WoertzspokeatADM’sanalystdayinChicago,stillinherhoneymoonasthenewchiefexecutiveofacompanypoisedforfinancialandsocialrevitalization.TheformerChevronexecutivetalkedofspearheadingitstransformationfromgorillaofgrainintoeco‐friendlyenergygiant.ADMhadrevampeditsstrategicvisionstatement,declaringitself“thegloballeaderinbioenergy.”
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Thesemovestargetedanaudienceofinvestorshungrytostashcashinanythingremotelyrelatedtocleantechnology–especiallyacompanyatgroundzerooftheethanolexplosion.Woertzpledgednine‐figureinvestmentsintoapairofnewcornethanolplants.Shewouldsoonluretwohigh‐levelgovernmentbiofuelsscientiststojoinherexecutiveteam.Andthecompanysteppedupitsapplicationsforgovernmentgrantsinnext‐generationbiofuels.ButforaguylikeDr.Russell,whochallengedWoertzwiththebenefitofhindsightatADM’s85thannualmeeting,theCEO’sbigideaof2006couldn’thaveseemedtooprescient.Inthe24monthssince,theethanolbubblehadburst:Unprecedentedvolatilityproducedrecord‐highprices,followedbyrapidplunges,incommoditieslikecorn,turningtheethanolbusinessmodelupsidedown.ManyofADM’ssmallercompetitorsfiledforbankruptcy,buteventhediversifiedconglomeratetookahugehit:Itsethanol‐heavybioproductsunitexperienceda$432millionyearlydropin2008operatingprofits,andthecompanywouldwritedown$60millioninethanolinventory
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inearly2009.Itsstocklosthalfitsvaluein9months‐‐
before
therestof
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FromADM’scommunicationsoffice:“Lessthanamonthbeforetheannualmeeting,weheldourall‐colleagueglobaltownhallatthenadirofourvaluation.Pataddressedthedropinvaluation,expectedtohearquestionsaboutthestockprice.And–notsurprisingly–duringthatevent,Patgotthesamequestion….So,attheannualshareholders’meeting,weagainabsolutelyexpectedquestionsaboutthestockpriceandouractionstoaddressit.Patdirectlyaddressedthetopicduringherpreparedremarksandwaspreparedtodiscussthetopicingreaterdetailwhenasked.”
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ADMprovidedmewithtranscriptsandslidedecksfromthepresentation.
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SeeADMQ209earnings:http://www.adm.com/en‐US/news/_layouts/PressReleaseDetail.aspx?ID=44
 
thestockmarkettookanosedive.WhileADMwasabouttoannounceaquarterofrecordearnings,muchofitsrecentprofitsstemmedfromtradingandmerchandisingoperations,financialblackboxes
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thatanalystsfearedwereunsustainable.Woertz’sresponsetothesecircumstanceshasbeenalloverthemap.Latelastyear,shewatchedchieftechnologyofficerMichaelPacheco,oneofthemuch‐toutedgovernmentscientisthires,leavewithoutreplacement,andinstitutedADM’ssecondrebrandinginasmanyyears.Yetthetwogiganticethanolplants,remnantsofastrategygoneawry,remainsettoopenthisyearandnext,andWoertzclaimsherplansforthecompanyhaven’tchanged.It’sleftADM‐watchersandanalystsscratchingtheircollectiveheads.Intypicallyperplexedlanguage,JPMorgananalystTerryBivens,referringtoADM’sethanol‐focusedvision,wroteinarecentreport:“Webelievethismissionmayhaveputundueemphasisonbioenergyandwesuspectthecompanyconcurs.”
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Woertzsaysitwasalljustagreatbigmisunderstanding.
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SheneversetouttoremakeADMintoanenergycompany‐‐sheonlywantedtoexpandsomebusinesslinesandparedownothers,makingafewnewinvestmentsinpromisingmarkets.Itwastheanalystsandreporters,shesays,wholatchedontothebiofuelsideawithoutlisteningtotherestofthecompany’soverallmessageofabroad,integratedagribusinessvaluechain.DespiteADM’sattempttorewriterecenthistory,though,it’sclearWoertz’sbioenergybethasn’tquitepaidoff,andlessapparentwhatsheplanstodoaboutit.
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Agoodexampleofthisthinking,fromBarclay’sanalysisofADM’sQ209earnings:“WeoftenhearinvestorsrefertoADMasablackbox.Followingafiscal1H09performanceinwhichthecompanybestedStreetestimates$2.52to$1.33,wecan'thelpbutshareinthissentiment‐‐asapresumablymeaningful,butunquantifiedportionoftheupsidewasderivedfromriskmgmtactivities.”
9
ThisisfromaJPMorgancoveragereportfromlate2008…unfortunatelyIonlyhavethisinhardcopy.
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ImetwithPatriciaWoertzinpersoninJanuary,butherpublicstatementshavechangedlittle,andnothingfrommyconversationswithADM’scommunicationsteamsincethenindicatesaconversationthathappenedthisweekwouldbeverydifferent.
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