OLAM’S wholly owned subsidiaries have entered into a conditional sales and purchase agreement with Saudi Agricultural and Livestock Investment Company (Salic) to dispose about 44.58 per cent of the issued and paid-up share capital of Olam Agri.
This entails 1.5 billion ordinary shares of Olam Agri, with the consideration for the disposal set at about US$1.8 billion.
As at Monday (Feb 24), Salic’s wholly owned subsidiary holds about 35.43 per cent of the issued and paid-up share capital of Olam Agri.
After the divestment, which is expected to be completed in the fourth quarter of 2025, Olam will hold about 19.99 per cent.
Subsequently, Olam can exercise a put option to sell the remaining stake to Salic. This option can be exercised at the end of three years from the completion of the first tranche.
The implied total equity valuation for Olam Agri is US$4 billion, which is 23 per cent higher than the US$3.3 billion market capitalisation of the group.
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It also reflects a 14 per cent premium to the US$3.5 billion valuation at which Salic first acquired a 35.43 per cent stake in Olam Agri in 2022.
The valuation also represents a 3.47 times price-to-book value to Olam Agri’s book value of US$1.2 billion as at end-December 2023.
Upon the completion of the first tranche of sale, Olam would realise a gain on disposal of US$1.8 billion, accretive to the group’s equity reserves.
Olam will raise estimated gross cash proceeds of US$2.6 billion from the sale of both tranches.
Including the initial sale of 35.43 per cent stake in Olam Agri in 2022, Olam would have raised total gross proceeds of US$3.9 billion and accrete a gain of US$2.7 billion to its equity reserves.
Olam said that the board will consider various factors, including the level of future earnings, cash flows and other financial conditions, before deciding on the use of proceeds.
The proceeds may be used for debt repayment, right-sizing the capital structure of Olam and ofi, as well as the issuance of a possible one-time special dividend distribution, added the group.
Olam continues to hold a 100 per cent interest in ofi and the remaining of its group.
“It will now focus on seeking strategic options to unlock value for the remaining Olam group businesses and ofi, including the pursuit of an ofi initial public offering (IPO),” it said.
Reasons for sale
On Mar 6, 2023, Olam proposed to demerge Olam Agri business from the group and had been working towards an IPO of Olam Agri. However, two months later, the proposed IPO and demerger were delayed as necessary regulatory approvals were not yet obtained.
Having considered factors that affect the proposed IPO, such as prevailing market conditions, Olam’s board is uncertain whether the IPO can be launched successfully.
Hence, it believes that the proposed sale of its remaining stake and the put option are the “more appropriate strategic option at the present time to unlock value for shareholders”.
The proposed sale will also allow Olam to substantially divest Olam at an “attractive pricing” and to “focus on growing its remaining core businesses”.
Olam’s co-founder and group chief executive Sunny Verghese said the sale of Olam Agri is “another key milestone” in its reorganisation.
“With this transaction, we can now focus our attention on seeking strategic options to unlock value for the remaining Olam businesses and ofi (Olam Food Ingredients), including the pursuit of an ofi IPO,” he added.
Assuming that both tranches were completed on Dec 31, 2023, Olam’s net tangible asset per share would rise to S$1.9738 from S$1.2465. Net gearing would have fallen to 0.51 times from 1.73 times.
The group’s earnings per share (EPS) would have fallen to S$0.0203 from S$0.065, assuming both tranches were completed on Jan 1, 2023. Operational EPS would have fallen to S$0.0677 from S$0.1123.
Operational EPS excludes exceptional items, which mainly comprise Australia almond lower crop yield and group reorganisation costs.
Both Olam and Salic agreed to allow a dividend payout from Olam Agri in respect of profits generated in the second half of 2024, of up to a maximum of US$110 million.
Olam Agri is one of Olam’s three operating groups formed in early 2020, following the group’s announcement of its reorganisation, which was aimed at unlocking and maximising long-term value.
In 2023, Olam Agri generated volumes in excess of 39 million tonnes, revenues of S$31.3 billion, as well as earnings before interest and tax of S$967.7 million.
Shares of Olam ended Friday 0.9 per cent or S$0.01 higher at S$1.13.
