Shares of Olam International Ltd (SGX:O32) soared nearly 12% today after Temasek announced it was making a cash offer for the struggling Singaporean company. Shares now sit at SGD 2.23 a share, which is exactly the price Temasek is offering for Olam.
Temasek already owns most of Olam
At this point, Temasek, a private company, already owns more than 52% of Olam International Ltd (SGX:O32). The company has stated that it tends to keep Olam listed on the Singapore Stock Exchange, but it also said it will reassess the situation of the exchange’s free float requirement isn’t met when the offer closes. That requires that at least 10% must be owned by at least 500 non-public shareholders.
As expected, shares of Olam International Ltd (SGX:O32) have reacted very positively to news of the offer, and analysts are generally recommending that shareholders vote to accept it because it is quite generous in light of Olam’s situation.
Temasek could privatize Olam
MayBank analyst Wei Bin sees a high probability that Temasek will privatize Olam International Ltd (SGX:O32). Of course if the free float requirement is no longer met, the company will have no choice, but privatization could be a good option or Olam. The analyst notes that if Olam becomes a private company, it will see some advantages.
Both Bin and analysts at Goldman Sachs note that Olam International Ltd (SGX:O32) has been making progress in turning things around. The company has improved its cash flow and balance sheet, cutting capital expenditures for the first half of the 2014 fiscal year by 44% year over year. Ol am has also cut its capital expenditures plan for the next three years significantly, and Bin believes the company is “less hungry for capital now.”
Goldman Sachs analysts Nikhil Bhandari, Hong Li Tan and Yao Yao have a Neutral rating on Olam International Ltd (SGX:O32), while Bin has a Hold rating on the stock.