Olam to acquire US chile pepper business for US$108.5m in expansion of spices portfolio

AGRI-FOOD giant Olam International's food ingredients unit, Olam Food Ingredients (OFI), is set to acquire US-based chile pepper business (CPB) of Mizkan America - a maker of condiments and sauces - for a price tag of US$108.5 million.

The acquisition, which is in line with the group's efforts to expand its Spices portfolio, was agreed upon by Olam's subsidiary Olam Americas Inc.

The consideration was arrived at via a closed-bidding process, and will be funded by a combination of Olam's internal accruals and existing debt facilities. The acquisition price includes an estimated net working capital of US$55 million, which is subject to net working capital adjustment at closing.

The transaction is subject to US antitrust regulatory approval and customary closing conditions which are expected to be completed in January next year.

Olam said this is the first major acquisition for OFI after the group announced a reorganisation of its business back in January this year to "unlock long-term value". Olam had divided its diverse businesses into two distinct operating groups - food ingredients and global agri-business.

A Shekhar, chief executive officer (CEO) of OFI, said CPB provides grocery and retail channels that offer increasing co-manufacturing opportunities in Asia and the US for the group's other products. Apart from spices, OFI also consists of business segments such as cocoa, coffee, nuts and dairy.

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Said Mr Shekhar: "This is a fitting first acquisition for OFI, as CPB fulfils OFI's vision to help its customers meet consumer preferences for health, nutrition, natural and authentic ethnic flavours, as well as their increasing demands for understanding the provenance and environmental impact of their food choices."

Based in Deming, New Mexico, Olam said the CPB is known for its high-quality New Mexico green chiles, as well as other speciality chile peppers. These are also highly sought after by CPB's manufacturing, retail, private label and food service customers.

Mr Shekhar noted that CPB's operations in Deming are located in "close proximity" to Olam Spices' existing red chile manufacturing facility in Las Cruces, New Mexico, which will enable an "effective combination of established green and red chile market capabilities" and allow for stronger manufacturing and product development.

Greg Estep, CEO of Olam Spices, said that CPB has been leading the chile pepper business in the US for nearly 50 years.

Commenting on the benefits of the acquisition, Mr Estep said: "Combining CPB's speciality and green chile range with our red chile portfolio (which includes paprika, chile powder and chile pepper) means we can deliver a wider range of ingredient solutions for customers looking to satisfy the rising demand for authentic Mexican flavours - already the third most popular cuisine in the country."

He added that the acquisition allows Olam to strengthen and expand its chile sourcing network, notably in Hatch Valley, New Mexico.

Olam said the acquisition is not expected to have a material impact on its earnings per share or net tangible assets per share for both FY2020 and FY2021 ending December.

Shares in Olam closed at S$1.55 on Friday, down 2.5 per cent or S$0.04.