• 26.7% above our FV
• No competing offer likely
• Accept the offer

Temasek offering S$2.23 cash/share

Olam International Limited (Olam) recently announced that a consortium led by Breedens Investment – a Temasek-owned unit - has made a voluntary conditional cash offer of S$2.23 for shares in the company. The consortium, which collectively owns 52.5% of Olam, is also offering to buy back the outstanding US$500m 6% convertible bonds due 2016 at S$1077.58 cash for every US$1000 principal amount, as well as the outstanding warrants at S$0.646 in cash.

Intends to maintain listing status

Breedens states that it is a long-term shareholder of the company and continues to believe in the prospects of Olam. Through the offer, it hopes provide Olam with a stronger long-term shareholder base to support the company’s strategy and growth plans over the medium to long term. Recall that Olam has committed to restructure its business and turn FCFF cashflow positive in FY14 (ending Jun 2014); this following the Muddy Waters allegation on 20 Nov 2012, which raised issues over the company’s accounting practices and non-core acquisitions made over the past few years. Breedens intends to maintain Olam’s listing status, subject to the offer not breaching SGX’s free-float requirement of at least 10%.

Offer looks attractive to us

The offer price represents an 11.8% premium over Olam’s last traded price before the announcement; it is also 26.7% above our previous fair value of S$1.76 (based on 10x blended FY14/FY15F EPS). Note that we are now raising our fair value to S$2.23. While things are moving in the correct direction, the medium-term outlook for commodities, especially hard commodities, continues to remain quite challenging in our view. We also do not expect to see a competing offer for Olam. As such, we deem the offer as fairly attractive, and would advise investors to either ACCEPT THE OFFER or sell in the market if the share price rises above the offer price.

Source: OCBC Research - 18 Mar 2014