Singapore-based commodities merchant Olam International Ltd has agreed to acquire US-based grain processing major Archer Daniels Midland Company's (ADM) cocoa division for an enterprise value of $1.3 billion, in a deal that will catapult Olam into the third place in the global cocoa space after Barry Callebaut AG and Cargill Inc.
ADM's cocoa division was put up for sale during the summer in 2013.
"With Cocoa being a prioritised platform for investment, this proposed acquisition represents a transnational opportunity for Olam Cocoa to become an integrated global leader in a market with attractive growth prospects,” said Olam's CEO, Sunny Verghese.
The acquisition is the biggest ever by Kewalram Chanrai Group-promoted Olam and involves ADM's eight cocoa processing factories with a total capacity of 600,000 tonnes per year, along with 10 warehouses, four innovation centres, the iconic deZaan brand and its 2,150 plus customer franchise, and a marketing network across 16 countries.
The deal does not include ADM's small and under-performing chocolate business, which it recently agreed to sell to rival Cargill for $440 million.
Also, more than 1,500 ADM Cocoa employees will be joining the combined cocoa entity, as part of the transaction. Once the acquisition is completed, the combined entity will have a cocoa processing capacity of 7,00,000 metric tonnes.
Olam, a supplier of agri and food commodities, expects its earnings to be increased by as much as 30 per cent by 2018. The acquisition, once completed, will also boost returns and free cash flow in the first full year.
“This transaction will allow us to redeploy capital to investments that offer improved returns potential and less volatility than the cocoa business, or distribute excess capital to shareholders, or a combination of both," said ADM chairman and CEO Patricia Woertz.
Earlier this month, Olam also announced its plan to acquire US peanut sheller McCleskey Mills Inc for $176 million, including debt.
The deal is subject to regulatory approvals and is expected to be completed in the second quarter of 2015. Olam will finance the acquisition through a combination of cash and existing debt facilities.
JPMorgan & Co was the advisor to Olam on the deal, while its legal advice came from McDermott Will & Emery LLP.
Olam was established in 1989 by the Kewalram Chanrai Group and operates in 65 countries, including India.
Temasek (Holdings) Pte Ltd—an Asia investment company headquartered in Singapore—is the biggest shareholder in Olam and holds 58.4 per cent equity stake in the Singapore-based company through two subsidiaries—Breedens Investments and Aranda Investments.
(Edited by Joby Puthuparampil Johnson)