FDBusiness.com

Olam International, a leading agri-business operating across the value chain in 65 countries, has agreed to acquire the global cocoa business of Archer Daniels Midland Company at an enterprise value on a cash and debt free basis of US$1.3 billion. The deal will create a leading integrated, global cocoa business.

One of the world’s largest processors and suppliers of cocoa liquor, powder and butter, ADM’s worldwide cocoa business (ADM Cocoa) comprises cocoa processing assets made up of eight factories with total capacity of 600,000 MT, 10 warehouses, two usines, four innovation centres, the iconic deZaan® brand and its 2,150 plus customer franchise, and a marketing network across 16 countries. The acquired business does not include assets under ADM’s global chocolate business. Over 1,500 ADM Cocoa employees including 30 R&D professionals will join the combined cocoa entity as part of the transaction.

Sunny Verghese, Olam’s co-founder, group managing director and chief executive, says: “With Cocoa being a prioritised 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.”

According to ADM chairman and chief executive Patricia Woertz, the disposal will allow ADM to continue “to actively manage our portfolio to create shareholder value by improving returns and dampening the volatility of our earnings.” He adds: “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.”

One of the world’s largest suppliers of cocoa beans, Olam’s Cocoa business (Olam Cocoa) is one of six prioritised platforms identified ‘to invest and grow’ in its strategic plan. With farm-gate origination, sustainability programmes, trading and export presence in all major cocoa origins, except Brazil, in recent years, Olam Cocoa has integrated its supply chain by investing in origin processing in Côte d’Ivoire and Nigeria, and in value-added processing facilities in Spain and the UK.

The proposed acquisition will transforms Olam Cocoa into a market leading global integrated player with an origination footprint in all key producing origins, including Brazil, making it one of the world’s top three cocoa processors. The combined capacity will be approximately 700,000 MT as eight midstream processing facilities from ADM Cocoa in the Netherlands, Germany, Brazil, Singapore, Ghana, Côte d’Ivoire and Canada are added to Olam Cocoa’s existing midstream processing portfolio.

Underpinned by strong manufacturing, R&D and innovation capabilities in customer applications (such as confectionery, beverage and bakery), the portfolio of assets will enable Olam Cocoa to capitalise on the current and future demand for cocoa products driven by steady consumption in the large developed markets of Europe and the USA, coupled with a rapidly increasing demand for sustainable high quality cocoa products in Asia and other emerging markets. It will also benefit from operating leverage and scale as the combined business optimises its procurement, manufacturing, logistics, warehousing, trading and risk management systems, and working capital utilisation by integrating its entire operation.

The purchase consideration of $1.3 billion will be financed through a combination of cash and existing debt facilities. The run-rate synergy potential is expected to range between $35.0 million and $40.0 million across cost and revenue synergies which are expected to be achieved within two years from closing. Olam is likely to incur one-off integration costs of approximately $17.0 million in the first two years after the close of the transaction. In addition, the Company expects to incur one-off transaction costs of approximately $12.0 million in FY2015.