Mitsubishi to buy 20% in grain trader Olam for S$1.53 billion

[SINGAPORE] Mitsubishi Corp, betting on growing demand for food in Asia, agreed to buy a 20 per cent stake in Olam International Ltd, the commodity trader controlled by Singapore's state investment company, in two deals worth S$1.53 billion.

Olam said Thursday in a statement that it will issue 332.7 million new shares for S$915 million to Mitsubishi, one of Japan's biggest trading houses. The Tokyo-based company is also acquiring an 8 per cent stake in the agriculture firm for S$615 million from Kewalram Chanrai Group, an Olam spokesperson said.

The investment by Mitsubishi is a sign of confidence in a company that last year was fending off an attack from US short-seller Muddy Waters LLC and questions about its finances and operations. The Japanese trader will become the second- largest shareholder in Olam after the deals close with Singapore's Temasek Holdings controlling 51 per cent.

"We see Mitsubishi as a strategic investor who is well aligned to our long-term growth strategy," Shekhar Anantharaman, Olam's executive director of finance and business development, said.

The price of S$2.75 a share paid by Mitsubishi for the new stock represents a 29 per cent premium to the 2014 trading average of Olam. The Singapore company said in a presentation that the price was set "through a competitive bidding process." Other bidders weren't disclosed. The Kewalram Chanrai Group was the founder of Olam in 1989.

The Olam-Mitsubishi deal is the latest sign of Asian trading houses spending billions of dollars in agriculture, betting that fast-growing populations in the region will need more food.

While Olam is not a household name, it's a US$3.3 billion firm and supplies materials to companies including PepsiCo Inc and one in eight chocolate bars eaten globally is made from beans handled by the company. The quantity of rice it handles annually could feed all of Africa for a week.

Stefan Vogel, head of agricultural commodity research at Rabobank International in London, said Asian companies have pursued a strategy of buying supply chains of food commodities.

"Overall demand will continue to grow and needs to be supplied," he said by phone.

Olam's shares have dropped 26 per cent in the past year, more than double the 12 per cent slide in Singapore's benchmark Straits Times Index. It surged 13 per cent before halting its shares on Thursday for the biggest gain since April 2009.

Other deals in the industry include Marubeni Corp, one of Japan's top-five trading houses, buying in 2013 US grain merchant Gavilon Holdings LLC for US$2.7 billion plus debt. Cofco Corp, China's largest food company, spent US$3.5 billion last year to build a global grain trader, acquiring controlling stakes in Noble's grains arm and Dutch trader Nidera BV.

Mitsubishi has also made investments in Olam in the past. In June last year, the company agreed to pay US$64 million for 80 per cent of Olam Grains Australia to give it control over a business that handles more than 1 million metric tons of grain a year. The same year, Sanyo Foods Co, a unit of Mitsubishi, agreed to purchase 25 per cent of Olam's packaged-food division.

BLOOMBERG