Olam International Limited (Olam) announced that Breedens Investments Pte. Ltd. (BI), an indirect wholly-owned subsidiary of Temasek Holdings, intends to make a voluntary conditional cash offer of S$2.23 per share for the group. This values Olam at S$5.57b. BI currently owns 15% of Olam (Temasek owns 24.6% of Olam in total). The offer price represents a 11.8% and 26.7% premium to Olam’s last traded price prior to its trading halt and our previous S$1.76 fair value estimate.

BI leads a consortium which includes Aranda Investments, Olam founding family shareholders and ten members of Olam’s executive committee, which collectively own a combined majority stake of 52.5% in Olam. BI views itself as a long-term shareholder of Olam and continues to believe in the prospects of the Olam. Its present intention is to maintain the listing status of Olam.

Kewalram Singapore Limited, a controlling shareholder of Olam, and certain members of Olam’s executive committee, have given irrevocable undertakings to accept the offer for part of their existing shareholdings in Olam, representing a 5.6% stake. Minority shareholders can choose to tender all, part, or none of their shares for this offer. Note that the Olam’s share price has appreciated sharply from this year’s low of S$1.42 (on 27 Jan 2014) to a recent high of S$2.00, or up a staggering 41% over a period of slightly more than two months.

The share price is likely to open today to hit close to the offer price of S$2.23, and ahead of our fair value estimate of S$1.76. For shareholders who have already enjoyed strong gains or are medium-term shareholders, they can consider taking up the offer.

Source: OCBC Research - 14 Mar 2014