Commodity Trader Olam Hunts Bolder Deals After $2 Billion Spree

  • CEO Verghese says co. targeting fewer but bigger deals ahead
  • Trader has invested in peanut shelling, cocoa and wheat mills

Olam International Ltd., one of the world’s largest food commodities traders, is targeting more acquisitions next year after a $2 billion spree since late 2014 involving deals in cocoa, peanuts and wheat.

“We have enough dry powder to execute both our organic and inorganic growth strategy,” Chief Executive Officer Sunny Verghese said in an interview in Singapore.

The global agribusiness is in the midst of an M&A boom that’s reshaping the industry, coinciding with a slump in food-commodity prices such as wheat that’s trading near a 10-year low. Potash Corp. of Saskatchewan Inc. and Agrium Inc. announced a merger that would create the world’s largest crop-nutrient supplier while Glencore Plc is selling stakes in its agriculture unit to Canadian pension funds for $3.25 billion.

“Asian companies are getting more aggressive,” he said, noting several large acquisitions by Cofco Corp., China’s largest food trading group. “Going forward, our strategy is to do fewer transactions, but bigger and bolder transactions that can really move the needle.”

Verghese, who has run Olam since its founding more than a quarter of a century ago, declined to say how much he plans to spend in deals in 2017.

The company’s leverage after issuing perpetual bonds in July is at 1.62 times net debt-to-equity on a pro-forma basis. That’s below its soft target of about 2 times. With net debt of S$9.8 billion ($7.2 billion) as of June 30, that would leave the company with a theoretical debt headroom that could be used for everything from dividend payments to capital expenditure, as well as acquisitions.

Mitsubishi Sale

Olam raised S$915 million in August 2015 selling a 12 percent stake to Mitsubishi Corp. The Japanese trading house bought 8 percent more from existing shareholders. The cash from the transaction, together with the $500 million Olam raised in July, will help Olam to finance its 2017 M&A activity.

Verghese has embarked on a deal-making spree over the last two years to transform Olam from a middleman into a trader-cum-farmer. In December 2014, it bought leading U.S. peanut sheller McCleskey Mills for $176 million, including debt. Days later, it announced an agreement to buy the cocoa business of Archer-Daniels-Midland Co. for $1.3 billion. This year, it announced the acquisition of wheat milling operations in Nigeria for $275 million and in April it took over Brooks Peanut Company of the U.S. for $85 million, including debt.

Verghese has focused its acquisitions in Africa -- particularly in Nigeria, where Olam started in 1989 with two employees -- and in commodities where the company already commands a top-ranking position, such as edible nuts, cocoa, grains, coffee and cotton.

The company came under attack from Muddy Waters LLC in 2012 over doubts about its finances. Temasek Holdings Pte., the state-owned Singaporean investment fund, took a controlling stake in March 2014 to fend off the short-seller. The U.S.-based firm, led by Carson Block, queried Olam’s ability to generate cash and the quality of African operations, causing its stock to plummet.

The shares are up 12.6 percent this year at S$2.05.