Olam Intl acquiring ADM’s cocoa business for $1.3 billion

Olam International Ltd is going to acquire Archer Daniels Midland Co’s cocoa business for $1.3 billion, according to an announcement on Monday.

Through acquiring one of the largest processors and suppliers of cocoa products, Olam is on its way to enter the top tier of the niche bean processing industry. It will own and operate eight factories from the Ivory Coast to Singapore with total capacity of 600,000 tonnes per year.

Olam already has five bean grinding facilities and the deal is set to create one of the most dominant companies in the industry, competing with the likes of Barry Callebaut and Cargill.

The purchase consideration of US$1.3 billion will be financed through a combination of cash and existing debt facilities.

According to Olam:

“The acquired business does not include assets under ADM’s global chocolate business. Over 1,500 ADM Cocoa employees including 30 R&D professionals will join the combined cocoa entity as part of the transaction.”

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’s Executive Director of Finance and Business Development, A. Shekhar said:

“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. It is also expected to improve EBITDA/IC returns starting from the first full year post closing and exceed the return target for the midstream value chain by FY2018 on a standalone basis.”

Mr. Shekhar added:

“Our strategic plan targets to generate positive free cash flow and operate within our *gearing objective at or below 2.0 times for FY2016 remain intact, subject to commodity prices. We are also unlikely to make any further substantial acquisitions for the rest of the current financial year (FY2015). Organic capex will continue as envisaged in our strategic plan”.

* In this context, ‘gearing’ means ‘leveraging.’