Olam set to acquire ADM’s cocoa business for $1.3bn

Olam is to acquire the cocoa business of Archer Daniels Midland for $1.3bn, which would include fixed assets of $550m and working capital of $750m.

As a part of the deal, Olam will be acquiring ADM’s eight factories which have a total capacity of 600,000 MT, ten warehouses, two usines, four innovation centres, the iconic deZaan brand and its 2,150 customer franchise, and a marketing network across 16 countries.

However, the acquisition will not include assets under ADM’s global chocolate business.

With the completion of the proposed transaction, Olam Cocoa will become one of the world’s top three cocoa processors and a global integrated player with an origination footprint in all key producing origins.

The combined capacity of the new entity will be approximately 700,000mt as eight midstream processing facilities from ADM Cocoa in the Netherlands, Germany, Brazil, Singapore, Ghana, Côte d’Ivoire and Canada are added to Olam Cocoa’s existing midstream processing portfolio.

Olam said that its strategic plan is to generate positive free cash-flow and operate within its gearing objective at or below 2.0 times for FY2016.

Singapore-headquartered Olam said in a statement: "The combined capacity will be approximately 700,000mt as eight midstream processing facilities from ADM Cocoa in the Netherlands, Germany, Brazil, Singapore, Ghana, Côte d’Ivoire and Canada are added to Olam Cocoa’s existing midstream processing portfolio."

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."

Reuters reported that for ADM, the deal comes just months after selling its smaller underperforming chocolate business to rival Cargill for $440m, and changing its plans to sell its cocoa operations.

Olam’s finance and business development executive director 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 (the financial year) 2018.

"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."

The company hopes to complete the acquisition between April and June 2015. JP Morgan acted as Olam’s financial advisor in this transaction.

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Image: Archer Daniels Midland’s cocoa business will be purchased by Olam for $1.3bn. Photo: courtesy of bplanet/freedigitalphotos.net.