Olam to deploy $1.94bn for acquisitions

Singapore-based commodity trader Olam International plans to use S$2.72bn ($1.94) on acquisitions as it intends to benefit from the global slump of agricultural commodity prices.

It also signals a shift in Olam’s acquisition strategy, which earlier focused on smaller transactions, some of which were just above $10m.

According to the United Nations Food and Agriculture Organisation, commodity prices in the global market have seen a drop to their lowest level since 2009, reported Bloomberg.

This plan comes after the 20% stake acquisition by Mitsubishi in Olam for $1bn. This move from Mitsubishi has signaled that the Asian commodity traders are forseeinging a spur in demand for high quality food in the coming years with the growth in population.

The Mitsubishi acquisition has also helped Olam to ward off an attack from Muddy Waters, a US-based seller, as well as settle doubts in the global market about its finances.

In August, the company raised $915m by selling a 12% stake to Mitsubishi, which acquired another 8% from current shareholders.

The cash injection is helping Olam to take advantage of the drop in global commodity prices and and go ahead with acquisitions.

Verghese told the daily: "The $100-$200 million range will be our sweet spot. But we will do fewer of them. We will be very disciplined and selective."

The firm acquired Archer-Daniels-Midland Co.’s cocoa unit for $1.3bn, which is expected to close by October.

The Singaporean firm’s strategy reflects the Asian companies’ bid to break the domination in the agricultural trading by US and European firms, especially the big four known as ‘ABCD’ for ADM, Bunge, and Cargill and Louis Dreyfus Commodities.