Olam reorganization: Investing US$500M in food ingredients business, paying off debt and unlocking value

The Olam Group has announced the details of the next steps in its reorganization plans. The Singapore-based food and agri-business conglomerate will invest US$500 million in its food ingredients business and divest all remaining businesses and assets over time.

Olam’s updated re-organization plan provides greater clarity on the steps to be taken to unlock shareholder value and strike an “optimal balance between the need to strengthen the Group’s balance sheet and the resilience of its operating groups in the face of unprecedented macroeconomic uncertainties,” according to the company. 

The Olam Group Ltd (OGL), together with its subsidiaries Olam Group, initially announced the reorganization of its business portfolio into three distinct operating groups — ofi (Olam Food Ingredients), Olam Agri, and the Remaining Olam Group — in January 2020.

The strategy is to maximize and unlock Olam Group’s underlying shareholder value via potential carve-outs, capital raising options, and asset divestments. The separation and carve-outs of the three operating entities was completed in January 2022.

Today’s update closely follows the company announcing the proposed sale of the remaining 64.57% stake in Olam Agri to Saudi Agricultural & Livestock Investment Company in February. At the time, Olam described this as a “transformative deal,” that represents a significant value realization for Group shareholders.

Money from the Saudi sale will also be used to lower debt. 

Prioritizing value creation

The plan is to invest US$500 million of equity into ofi and continue to support various strategic initiatives, including exploring a concurrent listing in Europe and in Singapore.

Olam says that since forming in 2020, ofi has been faced with various external challenges, including navigating the COVID-19 pandemic, the Russia-Ukraine conflict, and volatile commodity prices. During this time, it has delivered on its medium-term earnings guidance of high single-digit Adjusted EBIT growth, underscoring the resilience of its business model.

It has also been investing behind its planned strategy via a combination of organic and in-organic investments focused on its Ingredients & Solutions segment. This is part of a strategy to become a more value-added F&B ingredients company.

“This equity investment provides greater flexibility to pursue various strategic initiatives to unlock the full potential value of ofi for OGL’s shareholders via both private and/or public routes, for example, exploring a concurrent listing in Europe and in Singapore at an appropriate time. The equity investment will also bolster ofi’s balance sheet during periods of high and volatile commodity prices,” says a company statement.

Facing unprecedented macroeconomic uncertainties

Another point is to “right-size” the remaining Olam Group’s capital structure by allocating around US$2 billion to de-lever its balance sheet and make it debt-free and self-sustaining as well as divest and monetize all of the remaining Olam Group’s assets and businesses over time.

Olam, one of the largest cocoa and coffee merchants, stresses that the plans for ofi and the remaining Olam Group could change depending on market conditions and opportunities, and are subject to the usual regulatory and shareholder approvals.

The plan will be financed partly from the gross cash proceeds estimated at US$2.58 billion from the sale of 64.57% stake in Olam Agri. 

Olam’s reorganization continues against a backdrop of spiking commodity prices, with cocoa and coffee facing significant increases amid uncertainties in international trade.