SINGAPORE — Olam International Limited and Japan’s third largest instant noodles maker Sanyo Foods Co. Ltd announced on Aug. 18 that they have agreed to expand their existing strategic partnership with Sanyo Foods taking a 25% stake in Olam’s packaged foods business for $187.5 million.

Olam expects to record a net cash inflow of $167.5 million and an addition to reserves of $80.8 million after the transaction is completed. The transaction is subject to the conclusion of a definitive agreement and customary closing conditions and is expected to be completed by the second quarter of 2015. The existing joint venture for Olam’s instant noodles, in which Sanyo took a direct 25.5% stake for $20 million in 2013, will be folded into a Singapore incorporated holding company set up to house all of Olam’s packaged foods businesses.

The consideration for the 25% stake, which was arrived at between both parties on a willing-buyer, willing-seller basis, translates to an initial 100% enterprise value (EV) for the packaged foods business of $750 million. Olam will hold the majority ownership of 75% and will have management control of the Singapore incorporated holding company.

The EV can rise up to $850 million and correspondingly the price consideration can increase to $212.5 million should the packaged foods business achieve specific performance milestones in 2015. Olam would then book a net cash inflow of $192.5 million and an addition to reserves of $105.8 million.

Olam’s President and Global Head of Packaged Foods M Ramanarayanan said, “This strategic partnership is a win-win for both parties and an exciting step forward for our Packaged Foods business. Given our common vision for this sector and our strong working relationship over the past year, Sanyo Foods is a natural choice as a strategic partner. Our combined experience and expertise will help us build on our current market leadership (top two) in five out of nine categories, expand the extensive distribution network in all of our key markets in Sub-Saharan Africa and further develop the deep consumer insights that we have gained over the past few years.”

Sanyo Foods’ President Junichiro Ida said, “As we enter our seventh decade of growth, we are excited by the strong prospects in Sub-Saharan Africa with its growing middle class and rising aspirations. We share the ambition of Olam’s Packaged Foods business to achieve leadership positions in all of its categories and markets.

“As we strengthen our strategic alliance with Olam by investing beyond the noodles business into their entire range of packaged food categories, I believe that the synergy created by the two companies will lead to a larger share of Sub-Saharan Africa’s consumer market than would otherwise be possible.”

The food and beverage sector in Sub-Saharan Africa benefits from a growing population, rising income levels, rapid urbanization and aspirational consumers. The industry is at a relatively early stage of development with significant upside as income rises in key markets in this region.

Olam’s packaged foods business currently participates in nine categories — tomato paste, seasonings, biscuits, candies, juices, dairy beverages, milk powder, coffee mixes and instant noodles. It focuses on serving consumers in Nigeria, Ghana, Mali, Burkina Faso, Benin, Togo and South Africa and the business achieved sales turnover of $350 million in 2013.

Sanyo Foods is a global leader in the instant noodles business. It has significant experience and expertise in the food and beverage business in emerging markets, having jointly built leadership positions in markets including China and Vietnam through long term joint ventures in Hong Kong listed Tingyi Holding Corp (since 1999) and Acecook (since 1981). Sanyo Foods through its joint ventures is a leader in instant noodles, ready-to-drink teas, bottled water and juices in the respective markets.