OLAM’S wholly owned subsidiaries have entered into a conditional sales and purchase agreement with Saudi Agricultural and Livestock Investment Company (Salic) for the proposed disposal of about 44.58 per cent of the issued and paid-up share capital of Olam Agri.
This entails 1.5 million 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, while Olam will hold about 19.99 per cent.
After the sale is completed, Olam can exercise a put option to sell its remaining 19.99 per cent 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.
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.
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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$1.5 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”, including ofi.
Shares of Olam ended Friday 0.9 per cent or S$0.01 higher at S$1.13.
