Singapore agribusiness Olam International Ltd. has agreed to buy the cocoa business of grain processing company Archer Daniels Midland Co. (ADM) for an enterprise value of $1.3 billion.
The deal, which the companies announced late Monday, Dec. 15, follows Decatur, Ill.-based ADM's September sale of its chocolate business to Cargill Inc. in a transaction valued $440 million. It reflects ADM's "active management" of its portfolio, said ADM Chairman and CEO Patricia Woertz.
"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," she added in a statement.
The deal includes processing facilities in in Mississauga, Canada; Koog aan de Zaan and Wormer, Netherlands; Mannheim, Germany; Ilhéus, Brazil; Abidjan, Côte d'Ivoire; Kumasi, Ghana; and Singapore, as well as ADM's buying stations in Brazil, Cameroon, Côte d'Ivoire, and Indonesia, and the deZaan and UNICAO brands.
For Olam, the purchase will generate run-rate synergies of $35 million to $40 million a year within two years from closing, the Singaporean company said. It will boost earnings, returns and free cash flow in the first full year, Olam added, predicting that it will incur one-off acquisition-related costs of $17 million in the first two years. Olam Finance Director A. Shekhar said the purchase has "the potential to nearly double the Ebitda for the confectionery and beverage ingredients segment."
"With cocoa being a prioritized platform for investment, this proposed acquisition represents a transformational opportunity for Olam Cocoa to become an integrated global leader in a market with attractive growth prospects," added Olam co-founder and CEO Sunny Verghese in the statement.
The agreement comes ten days after Olam arranged to pay $176 million for closely held peanut sheller McCleskey Mills Inc., of Smithville, Ga. , noting that edible nuts is one of its expansion priorities.
Olam's biggest shareholder is Temasek (Holdings) Pte Ltd., which holds its 58.4% stake through two subsidiaries. Olam said those two companies back the purchase of the ADM cocoa business. The Singapore stock market regulator has waived the need for Olam to obtain shareholder approval for the transaction, accepting Olam's argument that the purchase reflects the course of its ordinary business. The deal remains subject to various regulatory clearances.
Olam shares closed down 2.5% at S$1.97, translating into a market value of S$4.81 billion ($3.69 billion).
The proposed sale is expected to close between April and June. Most of the 1,550 workforce at the ADM cocoa business will transfer to the new owner.
Olam took advice from JPMorgan & Co. Its legal advice came from McDermott Will & Emery LLP.