CHICAGO, ILLINOIS, U.S. — Archer Daniels Midland Co. (ADM) and Singapore-based Olam International announced on Dec. 15 that Olam will buy ADM’s global cocoa business for $1.3 billion, subject to customary adjustments.
“We are continuing to actively manage our portfolio to create shareholder value by improving returns and dampening the volatility of our earnings,” said ADM Chairman and Chief Executive Officer Patricia Woertz. “This transaction will allow us to redeploy capital to investments that offer improved returns potential and less volatility than the cocoa business, or distribute excess capital to shareholders, or a combination of both.”
The sale encompasses ADM’s entire global cocoa business, including eight processing facilities in Mississauga, Canada; Koog aan de Zaan and Wormer, the Netherlands; Mannheim, Germany; Ilhéus, Brazil; Abidjan, Côte d'Ivoire; Kumasi, Ghana; and Singapore. The facilities have a total capacity of 600,000 tonnes, 10 warehouses and four innovation centers.
Also included are ADM’s buying stations in Brazil, Cameroon, Côte d'Ivoire and Indonesia, as well as the company’s deZaan and UNICAO brands.
With the sale, Olam Cocoa will be one of the world’s top three cocoa processors focused on the supply of cocoa liquor, powder, and butter, with strong manufacturing, R&D and product development skills.
“With Cocoa being a prioritized platform for investment, this proposed acquisition represents a transformational opportunity for Olam Cocoa to become an integrated global leader in a market with attractive growth prospects,” said Sunny Verghese, Olam’s co-founder, group managing director and CEO.
The majority of the approximately 1,550 colleagues in ADM’s cocoa business will transfer to Olam with the sale.
The proposed sale, which is contingent on customary regulatory approvals, is expected to close during the second quarter of 2015.
This transaction does not impact the sale of ADM’s chocolate business to Cargill, which is progressing as planned.
Olam said the sale will create benefits from economies of scale across the entire value chain with expected synergies of $35 to $40 million. The transaction is expected to be earnings, returns and free cash flow accretive in the first full year post closing (FY2016). It is also expected to have substantial financial impact going forward with segmental EBITDA growth of between 86%-95%, overall company EBITDA growth of between 20%-22% and net income and EPS growth of between 25%-30% by 2018 compared to 2014, Olam said.
The proposed acquisition has the support of Olam’s major shareholders: Breedens Investments Pte Ltd and Aranda Investments Pte Ltd (both indirect wholly-owned subsidiaries of Temasek Holdings Private Limited)