Temasek offers to buy out Olam

SINGAPORE — A little more than a year after United States short-seller Muddy Waters said the company was likely to fail, Olam International is set to be bought out by investment firm Temasek Holdings in a deal that values the commodities giant at S$5.3 billion.

Temasek and concert parties, which include Olam’s management and its founding family, already control 52.5 per cent of the company. Temasek, through its wholly-owned subsidiary Breedens Investments, yesterday offered to buy the outstanding Olam shares at S$2.23 each in cash, or about S$2.5 billion in total, deepening its interest in the agricultural sector as a growing middle class drives food demand worldwide.

The offer price marks a premium of almost 12 per cent to its last closing price on Thursday of S$1.995. Even at the premium, which comes after Olam shares have risen sharply in recent weeks, the move by Temasek is sound, as it will protect Olam from speculative attacks, while paving the way for the investment giant to increase its exposure to the market for soft commodities, analysts told TODAY.

Investors responded to the announcement favourably, sending Olam’s shares up by 11.8 per cent to close at S$2.23, in line with the offer price. More than 64 million shares worth about S$143 million changed hands, making it the most actively traded counter by value.

Olam came under attack by Muddy Waters in November 2012 over its debt levels and allegations of questionable accounting practices.

The heavy selling saw the shares fall by as much as 22 per cent, but Olam survived the attack after Temasek emerged to buy more shares in the firm as well as back a S$750 million bond sale.

Announcing the offer yesterday, Breedens Director David Heng said: “We have invested in Olam over the years and share a common investment philosophy to invest and build for the long term.

“We believe a successful offer will provide Olam with a stronger and more stable shareholder base to support Olam’s strategy and business model for the long term.”

Temasek clearly sees Olam as a valuable asset and the bid is further evidence of that stance, CMC Markets analyst Desmond Chua said.

“Olam remains a valid growth story given its global footprint and strong networks and Temasek recognises that. Removing a sizeable float in the markets allows it to focus on deleveraging while avoiding speculation in a sector where earnings tend to be volatile,” he said.

By acquiring Olam — one of the world’s biggest rice, coffee and cocoa traders — Temasek may also be looking to give Singapore a bigger presence in the commodities market, Voyage Research’s Chief Executive Roger Tan said.

“Singapore has been trying to be a large and credible commodities player for some time. In line with that, this is one way for Temasek to be directly involved in the commodities market,” he said.

“Olam has already created a system for them to not only be a trader, but also a supply chain manager.”

And the deal is cheaper than it looks, Mr Tan added, saying: “Even with an offer price of S$2.23, the price-earnings ratio of Olam will be about 16 times compared with its peers at about 18 times.

“So from a financial viewpoint, in relative terms, the deal is actually quite attractive.”

Breedens’ bid also came with an offer to buy Olam’s outstanding convertible bonds and warrants, but it intends to keep the company listed on the Singapore Exchange.

Mr Heng said: “We prefer to keep Olam as a listed company, which will continue to be guided by its board and management team. However, we will reassess our position if the minimum public float requirements are not met at the close of the offer.”

Both Mr Chua and Mr Tan believe the days when Olam teetered on questions over its debt and accounting practices are over.

“After the Muddy Waters’ saga, the management has put in the effort to address the highlighted issues. They have since become more transparent, in terms of presenting their numbers, and improved their investor relations to reduce the complications in the structure of its businesses,” Mr Tan said.