Temasek Holdings Makes Cash Offer For Olam International

Temasek Holdings Makes Cash Offer For Olam International
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Olam International Ltd (SGX:O32), which made international headlines after Muddy Waters took a short position and called the company worthless, is in the news again.  Breedens Investments, an indirect wholly-owned subsidiary of Temasek Holdings, announced today that it is leading a consortium (Breedens) of Temasek subsidiaries, Olam founding shareholders and Olam Executive Committee members to make a voluntary conditional cash offer for all the shares of Olam International (OLAM) at a price of S$2.23/share.

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Below is some commentary on the Olam International news from Nikhil Bhandari of Goldman Sachs Group.

S$2.23/share represents an 11.8% premium to the last traded closing price on 12 March 2014, and a 39.5% premium over the six-month volume weighted average price.

According to the announcement, the offer is subject to having received valid acceptances of the offer, as well as regulatory approval.

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The consortium currently owns a 52.5% majority stake of Olam and intends to keep the company listed, but will reassess the situation should the SGX Free Float Requirement (minimum free float of 10% owned by at least 500 shareholders who are public) not be met at the close of the offer.

We note with this offer, the consortium has stated that it wants to support Olam’s long term strategy/growth and wishes to provide it with a strong long term shareholder base.

The S$2.23 offer price represents a CY14E P/E of 13.3X for Olam International Ltd (SGX:O32), compared to the current peer-average P/E of 11.2X and Olam’s historical mid-cycle P/E of 20.3X (on our estimates).

We note Olam has been making continued progress on improving its cash flows and Balance Sheet – 1HFY14 capex was down 44% yoy and net gearing improved to 2.02X vs 2.18X in 1HFY13.

Olam International Ltd (SGX:O32) Implications

We expect the stock price to react positively to the announcement. No change to our estimates or Neutral rating.

What’s Our View

The offer price values Olam at 15.7x FY14 P/E and 1.4x FY14 P/BV, which we think is very attractive when compared with its peers Noble and Wilmar, which are only trading at around 1x FY14 BVPS.

 Maybank Kim Eng Research noted further

As Olam has scaled back its capex plan significantly for the next three years, we believe the company is less hungry for capital now. Although management said the current intention is to maintain Olam’s listing status, we believe there is a high chance that Temasek may delist Olam if the 10% free float requirement is not met. Being a private company will give Olam some additional advantages.

We would recommend that shareholders accept the offer in view of the high premium Temasek will pay. Our last call on Olam International Ltd (SGX:O32) is HOLD.

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