Olam Shares Surge on Potential Merger With Rival Louis Dreyfus Commodities
Olam International Ltd., the Singapore-based commodity trader, rose to the highest level in almost three years after saying it’s in merger talks with Louis Dreyfus Commodities, the world’s largest rice and cotton trader.
Olam jumped 6.8 percent to S$3.15 as of the 5:10 p.m. close of trading in Singapore, its highest since Nov. 12, 2007, after revealing the talks about “a possible business collaboration, which may take the form of, among others, a merger,” the Singapore-based company said today in a statement. A transaction “may or may not proceed,” it said.
Joining the two companies would give Olam shareholders a stake in a group with net sales of $34 billion in fiscal 2009. Agricultural companies worldwide are seeking acquisitions to benefit from surging demand for food led by China and India.
“Their global footprint will be beneficial for both,” said Ben Santoso, an analyst at DBS Group Holdings Ltd. in Singapore. “They can share their logistics and shipping services and offer their customers better variety of products.”
Louis Dreyfus Commodities, a closely held group about 20 percent owned by its employees, has offices in more than 55 countries, according to its website. It may be worth $10 billion to $11 billion, the Financial Times said yesterday, based on estimates of the ratio of its sales to profit and valuation.
Olam, which said in June it has $1 billion to spend on acquisitions and investments, had sales of S$10.4 billion ($7.8 billion) last fiscal year. The agricultural commodities trader, partly owned by Temasek Holdings Pte, completed six acquisitions worth more than $700 million in the past year to expand into production and farming to augment its trading activities.
The United Nations Food & Agriculture Organization’s global Food Price Index surged in August to the highest level since September 2008 as wheat and rice prices advanced after Russia, the world’s third-largest wheat grower last year, banned exports and flooding in Pakistan damaged rice crops, curbing supplies of Asia’s two main staple grains.
Demand from emerging economies and constraints in agricultural production are driving food prices higher, according to a report by Nomura Holdings Inc. analysts led by Rob Subbaraman.
Louis Dreyfus Commodities is part of Louis Dreyfus & Cie, which began operations in 1851 in France. The commodities group was created in 2006, according to the company’s website.
A merger will create a company with the biggest share of the global rice export market, according to Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association. Thailand is the world’s largest rice shipper.
“It’s actually not a good situation if you have one company dominating the market,” Chookiat said today in a phone interview from Bangkok. “It will give them the pricing power.”
Louis Dreyfus is Thailand’s biggest rice buyer, taking about 700,000 metric tons a year, Chookiat said. “It dominates the African market,” the biggest importing region, he said.
Olam boosted sales of food staples and packaged foods including rice 31 percent to 3.2 million tons in the year ended June 30, the company said last month.
Olam is among the top three suppliers of rice, cotton, cocoa, and coffee, and aims to gain the same ranking in palm oil and rubber by 2015, the company said in a presentation in August.
“The combined company could easily rival Cargill Inc., Archer-Daniels-Midland Co. and Bunge Ltd.,” DBS Group’s Santoso said.
Olam’s purchases in the past year include ConAgra Foods Inc.’s dehydrated and vegetable products operations in the U.S., a Nigerian wheat miller and almond and fruit orchards in Australia. The company last year received a S$437.5 million equity investment from Temasek, the Singapore state-owned investment company.
The two companies have cooperated before, with Louis Dreyfus agreeing in 2007 to sell its 20 percent in Queensland Cotton to Olam. Olam said at the time it would explore possible partnerships with Dreyfus in non-cotton products.
Agrium Inc., based in Calgary, offered A$1.2 billion ($1.1 billion) cash for AWB Ltd., in July, trumping an all-stock offer for Australia’s largest wheat exporter from GrainCorp Ltd., as the pace of M&A in the sector increases. Canada’s Viterra Inc. last year bought ABB Grain Ltd., Australia’s largest barley exporter, for A$1.6 billion.
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