Temasek Unit Offers to Buy Olam in $4.2 Billion Cash Deal

A unit of Singapore’s state-owned investment company offered to take over Olam International Ltd. in a deal that values one of the world’s top three coffee and rice traders at S$5.3 billion ($4.2 billion).

The bid by Temasek Holdings Pte’s unit reflects growing interest in agricultural assets as rising global populations and emerging middle classes boost food demand. Breedens Investments Pte is offering S$2.23 cash per share, a 12 percent premium to Olam’s closing price of S$1.995 before the bid.

The deal comes after China’s Cofco Corp. agreed last month to take control of Dutch grain trader Nidera BV, and as Noble Group Ltd. is in talks to form a joint venture around its agriculture unit with Cofco. Temasek became Olam’s biggest shareholder after concerns raised by short-seller Carson Block in November 2012 caused the stock to plummet.

“Temasek is already a large holder of Olam so they probably know the business better than everybody else,” said Robert Aspin, the Singapore-based head of equity investment strategy at Standard Chartered Plc. “The fact that they are willing to pay a premium is indicative of the value that they see in the underlying business.”

Olam gained 12 percent to S$2.23 in Singapore today, as it resumed trading after the stock was halted yesterday. Trading volume on March 12 was 16.2 million shares, or 3.6 times the average daily volume in the previous three months, according to data compiled by Bloomberg.

Chocolate Bars, Socks

Little known to retail consumers, one of every eight chocolate bars eaten globally is made from beans handled by Olam, while the trader produces enough cotton to provide all the world with three pairs of socks each year. The quantity of rice it handles annually could feed all of Africa for a week.

Olam was established in 1989 in Nigeria by the Kewalram Chanrai Group, according to its website. It now supplies products from 16 platforms to 13,600 customers in 65 countries.

As part of the transaction, Breedens is also making an offer for Olam’s outstanding convertible bonds due 2016 and warrants, it said in a statement today.

The Temasek unit also has an agreement with a group including Kewalram Singapore Ltd., Olam’s founding family shareholder, and 10 Olam executives including Chief Executive Officer Sunny Verghese, to not tender their shares until six months after the offer closes, Breedens said in a statement. In total, they hold 52.5 percent of Olam stock.

Kewalram and three members of key management have agreed to sell a 5.6 percent stake in Olam in acceptance of the offer.

Credit Suisse Group AG, DBS Group Holdings Ltd., and United Overseas Bank Ltd. advised Breedens.

Share Rally

Olam, which also trades commodities from cotton to almonds, has rallied 30 percent this year in Singapore through to March 12, compared with a 2.2 percent decline in the benchmark Straits Times Index. The stock has gained for seven straight weeks amid a rise in farm commodity prices. The S&P GSCI Agricultural Index has advanced 13 percent this year, with price surges in coffee and cocoa.

Breedens doesn’t plan to make any major changes to Olam’s businesses or terminate employees. It also intends to keep Olam as a listed company, unless the minimum float requirements of 10 percent aren’t met.

“We believe a successful offer will provide Olam with a stronger and more stable shareholder base to support Olam’s strategy and business model for the long term,” Breedens Director David Heng said in the statement.

Block’s Bet

Block said in November 2012 he was betting against Olam because he questioned the trader’s accounting methods and asset purchases, pushing the stock to a more than three-year low in December 2012. Olam rejected the assertions by Block and his research firm Muddy Waters LLC.

Block today declined to comment.

“Olam has been oversold following the issues raised by Muddy Waters and has bounced back strongly as the company addressed those concerns,” Alan Richardson, a Hong Kong-based money manager at Samsung Asset Management, said by phone before the announcement.

As well as adding Olam shares after the Block allegations, Temasek also backed a $750 million bond sale by the commodity trader. Olam said in December 2012 it planned to sell bonds and warrants to address any “lingering doubts” about its finances. The investment firm agreed at the time to buy any rights not taken up by other investors.

Temasek holds 24.6 percent of Olam through its units Breedens and Aranda Investments Pte, and the founding family has a 20.2 percent stake, making it the second-largest investor, according to today’s statement.

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