Singapore’s OLAM to buy ADM’s cocoa business for $1.3 bn

Singapore's Olam International Ltd, Asia's largest agri-business firm, is acquiring the global cocoa business of US agricultural processor Archer Daniels Midland Co (ADM) for approximately $1.3 billion.

The acquisition will make Olam one of the world's top three cocoa producers with a combined annual capacity of around 700,000 tonnes with strong manufacturing, R&D and product development skills.

Olam's co-founder, group MD and CEO, Sunny Verghese said, ''With Cocoa being a prioritised 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.''

Olam is a leading agri-business operating across 65 countries, supplying various products to over 13,800 customers worldwide.

The group's cocoa arm, Olam Cocoa, is one of the world's largest suppliers of cocoa beans with trading presence in all major cocoa regions except Brazil and has processing facilities in Ivory Coast, Nigeria, Spain and the UK.

The acquired business will enable Olam to capitalise on the current and future demand for cocoa products in the developed markets of Europe and the USA, coupled with a rapidly increasing demand in Asia and other emerging markets.

''Today we have created a clear path to achieving our goal to fully integrate our supply chain strengths with the global manufacturing and R&D capability of ADM Cocoa to provide a seamless offering to our customers, Olam's MD and global head of Cocoa, Gerard Manley said.

Chicago, Illinois-based ADM is one of the world's largest agricultural processors and food ingredient providers, serving customers in over 140 countries.

ADM offers a full line of cocoa products in a variety of forms such as cocoa liquor, cocoa powder and butter, to meet a wide range of customer applications.

With the acquisition, Olam will secure ADM's eight processing units in the Netherlands, Germany, Brazil, Singapore, Ghana, Ivory Coast and Canada with a total capacity of 600,000 tonnes and 10 warehouses, 2 usines, 4 innovation centres and also ADM's strong brands deZaan, Joanes and UNICAO which has over 2,150 global customers.

Over 1,500 ADM Cocoa employees including 30 R&D professionals will join Olam Cocoa as part of the deal. ADM's global chocolate business is not included in the deal.

The transaction is expected to close between April and June 2015, subject to regulatory approvals and customary closing conditions.

Olam's major shareholders Breedens Investments Pte Ltd and Aranda Invdstments Pte Ltd, both indirectly-owned subsidiaries of Singapore's sovereign wealth fund Temasek (Holdings) Pvt Ltd, are in support of the proposed transaction.

Olam intends to fund the acquisition through a combination of cash and existing debt facilities.

The company expects to incur one-off cost amounting $29 million related to transaction and integration costs in the first two years of closing of the deal.

Olam expects to benefit from economies of scale and achieve cost and revenue synergies to the tune of $35-40 million in two years from closing. The transaction is expected to be accretive to earnings in the first year post closing.

''The acquisition of ADM's cocoa business has the potential to nearly double the EBITDA for the confectionery and beverage ingredients segment and add substantially to the midstream value chain and the overall Company by FY2018.'' Olam's executive director of finance and business development, A. Shekhar said.

At steady-state in FY2018, Olam expects to achieve $180-200 million in earnings before interest, tax, depreciation and ammortisation (EBITDA) from this transaction and 25-30 per cent growth in net income for the company, compared to 2014.

JP Morgan served as the financial advisor to Olam.