Olam hunts for bolder deals after $2.7b spree

(Left) Olam International commands a top-ranking position in commodities such as edible nuts, cocoa, grains, coffee and cotton. Its chief executive officer, Mr Verghese (above), says Asian companies are getting more aggressive in acquisitions.
(Above) Olam International commands a top-ranking position in commodities such as edible nuts, cocoa, grains, coffee and cotton. PHOTOS: OLAM INTERNATIONAL
(Left) Olam International commands a top-ranking position in commodities such as edible nuts, cocoa, grains, coffee and cotton. Its chief executive officer, Mr Verghese (above), says Asian companies are getting more aggressive in acquisitions.
Olam International commands a top-ranking position in commodities such as edible nuts, cocoa, grains, coffee and cotton. Its chief executive officer, Mr Verghese (above), says Asian companies are getting more aggressive in acquisitions.PHOTOS: OLAM INTERNATIONAL

Food commodity trader wants to do fewer but bigger transactions

Olam International, one of the world's largest food commodity traders, is targeting more acquisitions next year after a US$2 billion (S$2.73 billion) spree since late 2014 involving deals in cocoa, peanuts and wheat.

"We have enough dry powder to execute both our organic and inorganic growth strategy," chief executive officer Sunny Verghese said in an interview.

The global agribusiness is in the midst of a mergers and acquisition (M&A) boom that is reshaping the industry, coinciding with a slump in food commodity prices such as wheat, which is trading near a 10-year low. PotashCorp of Saskatchewan and Agrium announced a merger that would create the world's largest crop-nutrient supplier, while Glencore is selling stakes in its agriculture unit to Canadian pension funds for US$3.25 billion.

"Asian companies are getting more aggressive," Mr Verghese said, noting several large acquisitions by Cofco, China's largest food trading group. "Going forward, our strategy is to do fewer transactions, but bigger and bolder transactions that can really move the needle."

Mr Verghese, who has run Olam since its founding more than 25 years ago, declined to say how much he plans to spend in deals next year.

The company's leverage after issuing perpetual bonds in July is at 1.62 times net debt-to-equity on a pro-forma basis. That is below its soft target of about two times.

With net debt of US$7.2 billion as of June 30, that would leave the company with a theoretical debt headroom that could be used for everything from dividend payments to capital expenditure, as well as acquisitions.

Olam raised US$670 million in August last year selling a 12 per cent stake to Mitsubishi. The Japanese trading house bought 8 per cent more from existing shareholders. The cash from the transaction, together with the US$500 million Olam raised in July, will help it to finance its 2017 M&A activity.

Mr Verghese has embarked on a deal-making spree over the last two years to transform Olam from a middleman into a trader-cum-farmer.

In December 2014, it bought leading US peanut sheller McCleskey Mills for US$176 million, including debt. Days later, it announced an agreement to buy the cocoa business of Archer Daniels Midland for US$1.3 billion. This year, it announced the acquisition of wheat-milling operations in Nigeria for US$275 million, and in April it took over Brooks Peanut for US$85 million, including debt.

Mr Verghese has focused the company's acquisitions in Africa and in commodities, where it already commands a top-ranking position, such as edible nuts, cocoa, grains, coffee and cotton.

The company came under attack from Muddy Waters in 2012 over doubts about its finances. Singapore's investment company Temasek Holdings took a controlling stake in March 2014 to fend off the short-seller. The US-based firm queried Olam's ability to generate cash and the quality of African operations, causing its stock to plummet. The shares are up 12.6 per cent this year at US$1.50.

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A version of this article appeared in the print edition of The Straits Times on September 15, 2016, with the headline 'Olam hunts for bolder deals after $2.7b spree'. Print Edition | Subscribe