Olam International, the commodity trader controlled by Singapore’s state investment firm, agreed to buy Archer-Daniels-Midland’s cocoa business for $1.3 billion to become a top-three processor of the bean.
The deal, Olam’s biggest acquisition, draws a line under the company’s program last year of spending cuts and reducing debt in response to short-seller Muddy Waters’s questioning of its finances. It follows Olam’s smaller purchase of US peanut sheller McCleskey Mills for $176 million, including debt, announced earlier this month.
"This proposed acquisition represents a transformational opportunity for Olam," chief executive officer Sunny Verghese said at a briefing in Singapore. "It’s bang in the centre of where we are differentiating" by building a top-three global position in a niche commodity, he said.
Demand for cocoa, the main ingredient in chocolate, has risen three times faster than population growth in the last 15 years, according to Olam. While the trader already has the world's largest bean sourcing network, the addition of ADM's unit will give Olam processing capacity, allowing it to sell directly to buyers including Nestlé and Hershey.
Cocoa powder demand in emerging markets this year is set to match that of the traditional chocolate consumers of Europe and the US, Olam’s global head of cocoa, Gerard Manley, said at a briefing in Singapore.
Olam, one of the world's top three coffee and rice traders, said the deal would raise earnings by as much as 30 per cent by 2018. The trader expects as much as $40 million in annual savings within two years of the deal from joint procurement, storage and other efficiencies.
The cocoa processing market is worth $16 billion, while sourcing and trading amount to $13 billion, according to Olam. Cocoa prices have fallen 15 per cent since their September peak in New York trading.
Bloomberg News, edited by ESM
