While the rest of the market has struggled, Olam International Ltd (SGX:O32) has struggled to keep its stock price above S$1.50 for much of the last year, plagued by doubts about its ability to turn around under-performing assets and allegations of mismanagement from Muddy Waters founder Carson Block. So it’s no surprise that the offer by Temasek Holdings subsidiary Breedens Investments to buy shares at an 11% premium has caused people to jump ship.

olam International Ltd

Consortium could own more than 90% before long

Olam International Ltd’s (SGX:O32) stock price quickly gained 11% yesterday to exactly match the offer price of S$2.23 per share, and the trading volume jumped from a 30 day average of 6 million shares traded per day to 64.5 million shares traded yesterday, roughly 2.7% of all outstanding shares. The consortium led by Breedens Investments, which also includes Olam founding shareholders and Olam Executive Committee members, already owned a combined 52.5% stake in Olam, and while it has said that it doesn’t intend to delist the company that could change if its stake passes the 90% mark. Based on the market’s initial reaction to the deal, that doesn’t seem like an unrealistic outcome.

Analysts recommend selling at S$2.23

For investors who were holding Olam International Ltd (SGX:O32) when the news broke, it’s hard to make an argument to hold on to the stock. S$2.23 is an 11% premium over the close a few days back, but it’s also a 39.5% premium over the last six month’s volume weighted average. Goldman Sachs analyst Nikhil Bhandari, which previously rated Olam as a Hold, has recommended that investors take the consortium up on its offer.

MS downgrades Olam International

Morgan Stanley analysts Charles Spencer and Mean Phil Chong downgraded Olam International Ltd (SGX:O32) to Underweight just one day before the announcement, setting an S$1.80 price target.

“We downgrade Olam to UW as investors appear to have mostly priced in success of its rebalancing program,” they write. “We believe investors will now shift their attention toward success in turning around nearly ~S$1bn of key underperforming and partially contributing assets before driving the share price towards our bull case.”

The two analysts were unimpressed by Olam International Ltd (SGX:O32) management’s recent guidance, which didn’t give enough detail on the near-term recovery to give them confidence in the company’s future. We haven’t seen an update from Spencer and Chong post-announcement, but it’s hard to imagine them recommending that anyone sit on their shares of Olam.