Mainboard-listed commodity giant Olam International said on Tuesday it will acquire the global cocoa business of US-based Archer Daniels Midland (ADM) for US$1.3 billion (S$1.71 billion), propelling it to the ranks of the world's top three cocoa processors.
ADM is one of the world's largest processors and suppliers of cocoa liquor, powder and butter with over 2,150 customers in more than 90 countries, including Nestle, Mars, Hersheys, Godiva, Lindt, Ferrero Rocher and Starbucks.
The acquisition will establish Olam as a top cocoa processor, competing with Barry Callebaut and Cargill.
Said Mr Sunny Verghese, Olam's co-founder, group managing director and CEO: "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 said the proposed acquisition has the support of its major shareholders, Breedens Investments and Aranda Investments - both indirect wholly-owned subsidiaries of Temasek Holdings. Olam has also obtained from SGX a waiver of the shareholder's approval requirement for the acquisition.
With this deal, Olam will secure eight factories stretching from the Ivory Coast to Singapore, with total capacity of 600,000 tonnes per year, 10 warehouses, the premier "deZaan" brand, a global customer franchise and an experienced management team.
Cargill had been the front runner to buy the combined cocoa and chocolate business of ADM, but experts said a deal of that size would have raised regulatory concerns, particularly in Europe, Reuters reported.
Olam said it will be fund the purchase through cash and existing debt facilities.
The proposed acquisition, which is contingent on regulatory approvals, is expected to close between April and June 2015.
Olam said the pro-forma gearing (net debt to equity) for the group is expected to increase from 1.85 times as at Sept 30, 2014, to 2.30 times at closing, and about 2.15 times at the end of June 30, 2015, even after assuming that there is no growth in earnings beyond the group's operational earnings for the financial year ended June 30, 2014.
The group expects the gearing to be within the financial year 2016 strategic plan objective of at or below 2.0 times, subject to commodity prices, which the group had announced in April 2013.