Saudi Agriculture & Livestock Investment Company (SALIC) has announced plans to acquire a 44.58% stake in Olam Agri Holdings (Olam Agri) for approximately $1.78 billion.
This acquisition, upon completion of Tranche 1, will increase SALIC’s total stake in Olam Agri to a controlling 80.01%.
Following the sale of Tranche 1, Olam Group Limited (OGL) will retain a 19.99% stake in Olam Agri. However, OGL has secured a put option that allows it to sell its remaining shares to SALIC on the third anniversary of Tranche 1’s completion.
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The sale will be executed at the Closing Valuation plus a 6% internal rate of return (IRR).
The deal values Olam Agri at an implied 100% equity valuation of $4 billion, representing a 23% premium over Olam Group Limited’s current market capitalisation of $3.25 billion.
Furthermore, the valuation is 14% higher than the $3.50 billion benchmark at which SALIC initially acquired a 35.43% stake in Olam Agri in December 2022 for $1.29 billion (inclusive of post-closing adjustments in H1 2023).
The latest valuation also represents a 3.47x price-to-book value multiple compared to Olam Agri’s book value of $1.15 billion as of December 31, 2023.
Financial Implications and Shareholder Value
Upon completion of the Tranche 1 sale, OGL is expected to realise an estimated disposal gain of $1.84 billion, which will be added to the equity reserves of OGL.
Additionally, the company is projected to generate estimated gross cash proceeds of $2.58 billion from the sale of Tranche 1 and 2 combined.
The OGL Board has indicated that it will assess various factors—including future earnings, cash flow needs, capital expenditure for growth, and overall financial conditions—before determining how to allocate the proceeds. Potential uses include debt repayment, restructuring the capital framework of OGL and ofi, and possibly distributing a one-time special dividend to shareholders.
Transformative Impact and Future Plans
Olam has described the deal as a significant value-creating transaction for its shareholders.
- The company’s full divestment of Olam Agri by the end of Tranche 2 including the previous 35.43% stake sale in 2022 will generate total gross proceeds of $3.87 billion and add $2.72 billion to the company’s equity reserves.
- Despite selling off Olam Agri, OGL will continue to own 100% of ofi (Olam Food Ingredients) and the Remaining Olam Group.
- The company is now focusing on exploring strategic options to unlock value from these businesses, including a potential IPO for ofi.
Strategic Alignment with Food Security Goals
- The acquisition aligns with SALIC’s broader investment strategy, which focuses on high-potential agricultural and food production businesses.
- The company aims to invest in organisations that contribute to food security through innovation and integrated supply chains at both national and global levels.
- SALIC remains confident that its strengthened partnership with Olam Agri will help achieve these objectives.
- This transaction demonstrates the growing emphasis on global food security and strategic investment in critical supply chains, positioning both SALIC and Olam Agri for long-term success in the agricultural sector.
