Olam International, the ag trading giant once renowned as an enthusiastic acquisitor, revealed it was to split its “diverse” portfolio into two “coherent” divisions, which could end up with separate listings.
The Singapore-listed cashews-to-flour group, which since it was founded in 1989 by Bangalore-born Sunny Verghese has grown into one of the world’s top agricultural traders, said that it was to split into two operating divisions, “each with a clear vision for profitable growth”.
One division, Olam Food Ingredients, will contain businesses such as cocoa, coffee, nuts and spices feeding an ingredients market which the group said was “on trend”, with perceived growth prospects attracting higher valuations from investors.
The second, Olam Global Agri, will cover operations in more generalist segments such as grains and feed, and for which Olam highlighted a “long-standing presence and unique expertise in emerging markets”.
‘Carve outs and IPOs’
The group said that its “bold” plan would allow it to “re-organise its diverse business portfolio to create two new coherent operating groups”, both of which “are well-positioned for further growth in line with key consumer trends and market opportunities”.
“By simplifying our businesses across two distinct and coherent groups… it sharpens our focus and provides opportunities to capitalise on key market trends,” Mr Verghese, Olam chief executive said.
Furthermore, the plan would “maximise Olam’s long-term value” in setting up the potential for separate stockmarket listing, and tailoring its structure better to investor trends.
The shake-up “will enable us to explore potential carve outs and IPOs in a sequential manner and attract additional investors who are aligned with the vision of these two new groups,” Mr Verghese said.
‘Achieve value creation’
Lim Ah Doo - the former Morgan Grenfell banker and ex-chairman of the Singapore Investment Banking Association, who was appointed Olam International chairman four years ago - said that “the re-organisation will enable each operating group to pursue its own vision, take advantage of new market opportunities, optimise resources and attract new talent.
“The board has every confidence that this significant step forward will allow the company to strengthen and capitalise on its strong foundation to achieve higher growth and value creation.”
Olam International, which manages 3.0m hectares of farmland, and reported sales volumes of 32.8m tonnes in 2018, is 53.5% owned by Singapore sovereign wealth fund Temasek, with Japan’s Mitsubishi Corporation holding a 17.4% stake.
Olam shares on Monday closed unchanged at Sing$1.94.
The plan represents a reversal of the strategy which Olam has followed for most of its history, with the group’s expansion fuelled by a series of takeovers.
The group made 35 acquisitions just from 2009 to 2012, when it was the subject of an attack from activist investors Muddy Waters over the quality and accounting of its takeovers, attracting criticism too over debt levels run up during the buying spree.
The resulting share fallout prompted a rights issue, backed by Temasek which further raised its stake through a cash offer in 2014, at Sing$2.23 per share.
Olam shares have since faced headwinds from the strong competition and dearth of volatility in traditional ag trading which has also caught out giants such as Bunge and Louis Dreyfus – many of which have turned to value-added market such as ingredients to bolster their fortunes.
Agrimoney’s insight into Olam’s plan can be seen by clicking here.