Mitsubishi Acquires 20% Stake in Olam International for $1.1 Billion
28 Aug 2015 --- Mitsubishi Corp. (MC) will take a strategic stake in Singapore-listed commodities trader Olam International Ltd. for 1.53 billion Singapore dollars (US$1.1 billion), the latest move by growth-hungry Japanese firms looking for opportunities beyond their home market.
Mitsubishi Corporation (MC) has reached an agreement with Olam International (Olam or the Company) of Singapore for subscribing to 332.73 million new shares in the Company giving it a 12% stake of the enlarged issued and paid up capital of the Company. It has also acquired 222.0 million secondary shares from the Kewalram Chanrai Group, who are the original promoters of Olam, which will give it a combined 20% stake of the enlarged issued and paid up capital of the Company, following completion of both these transactions. As MC seeks to accelerate business development globally while contributing to providing a stable supply of resources to consumers around the world, one area of increased focus is agricultural production-related businesses, including farming, trading and processing. In particular, the company has been expanding its global procurement network for raw materials such as coffee, cocoa and edible nuts, which are projected to see a notable increase in global demand in the coming years.
Under the agreement, MC will acquire existing Olam shares from the original promoters representing 8% of the enlarged issued capital of Olam, and acquire another 12% of the enlarged issued capital through the allotment of new shares by Olam for a total of 20%, amounting to a value of approximately S$1.53 billion (approx. 130 billion yen). MC will also appoint up to two executives to serve on Olam's board. The partners will be working together to expand their global network for procurement of food products with the aim of responding adequately to growing customer concerns about sustainability, specifically as it relates to a wide range of confectioneries and raw materials. The venture will allow the partners to pool Olam's production and procurement expertise with MC's food manufacturing and sales strengths to develop, on a global basis, a new business platform that ranges from agricultural production, procurement, processing and manufacturing right through to sales. Olam already has a strong raw materials and food processing base in Africa and the partnership will allow MC to expand its presence in a region that carries much future potential as a consumer market.
In tandem with economic development, food consumption patterns in developing countries have become increasingly diversified and westernized. In addition to staples such as noodles, bread, rice, meat and fish, the demand for food and beverage products such as coffee, cocoa and edible nuts has also been showing signs of increase. At the same time, consumers in developed countries are increasingly demanding products that are not only of high-quality, but that are also produced sustainably, and address the needs of society and the global environment. In response, large global food brands are increasingly focused on ensuring that they are sourcing sustainable materials. This is also the case in Japan where, for instance, demand is increasing for agricultural products sourced from farms that have been certified by Rain Forest Alliance or similar organizations. This trend is expected to gather momentum in emerging markets as well.
Since its foundation in Nigeria in 1989 as a cashew trader, Olam has seen tremendous expansion, including mergers and acquisitions, to its current scale as a major global agri-business firm dealing in some 44 products in 65 countries worldwide. In terms of market share, Olam holds the top three position, in the global coffee, cocoa and edible nuts markets and has been building its brand as one that prioritizes ensuring a sustainable and traceable value chain in the production, procurement and processing of agricultural products. In Africa, Olam also has a strong foundation in flour milling and packaged foods businesses.
As part of its mission to achieve sustainable growth by contributing to fulfilling consumers' needs for daily living essentials such as food, clothing and shelter notwithstanding changes in economic environments or business structures, MC has committed to undertaking a diverse range of businesses around the world, including moves to expand its global procurement network, as one of its strategies. MC has developed a vertically integrated model that engages in the food business from raw materials procurement to retail and, while securing demand for processed raw materials, mainly for staple foods, has steadily been making progress in the expansion of its global procurement network.
In its business operations, Olam prioritizes sustainability and traceability as a major part of its strategy, contributing to the development of the local communities and economies in which it operates while minimizing negative impacts on the environment. MC also places emphasis on generating, not just economic value, but also environmental and social value in line with its strategy to achieve sustainable corporate value. The convergence of the philosophies of both companies lends itself to an even stronger partnership.
MC and Olam have engaged in business for over 20 years and, in 2014, MC's acquisition of an 80% share of Olam's grains company in Australia and collaboration to manage that joint venture helped to further solidify the partnership. The current investment move is the result of a long-standing strategic partnership in the pursuit of continued growth over the medium to long term.
By joining forces with Olam, therefore, MC will be able to provide a stable supply of sustainable products to customers in Japan and around the world. In Japan, MC and Olam will establish a joint venture to handle coffee, cocoa and edible nuts and will continue to supply customers with sustainably produced processed foods.
