Olam-Mitsubishi deal: 'No immediate impact' on earnings

Olam's earnings and revenue are unlikely to be affected in the short term by its partnership with Japanese trading giant Mitsubishi Corporation, an OCBC report said.

OCBC Investment Research noted that while it is in favour of the deal announced last Friday, "we do not expect to see any immediate impact on the business, at least not in 2015". It left the target price of Olam stock unchanged at $1.88, maintaining a "hold" rating.

News of Olam's partnership with Mitsubishi sent the shares up about 8.4 per cent to close at $2.07 last Friday. They also closed at $2.07 yesterday.

Mitsubishi is buying a 20 per cent stake in the company in two deals worth a total of $1.53 billion.

Olam will issue 332.7 million new shares worth $915 million to Mitsubishi at $2.75 a piece - a 44 per cent premium to its closing price last Thursday.

The firms will set up a joint venture in Japan to market specific Olam products, leveraging on Mitsubishi's strong distribution and retail presence there. Olam also plans to benefit from Mitsubishi's expertise in rice farming.

OCBC said Mitsubishi's purchase price of $2.75 per share was "quite pricey", given the still-muted outlook for the commodity market.

"At this point, we do not expect Mitsubishi to increase its stake further," the report said.

A Barclays report issued on Friday noted that the planned joint venture "opens up substantial opportunities in the Japanese market" for Olam.

"Backed by Temasek and Mitsubishi, Olam has substantial flexibility to pursue the growth opportunities it had moderated a couple of years ago, in our view."

A version of this article appeared in the print edition of The Straits Times on September 01, 2015, with the headline 'Olam-Mitsubishi deal: 'No immediate impact' on earnings'. Print Edition | Subscribe