Olam International recently announced that it will pay US$85m to acquire Brooks Peanut Company in the US – Brooks is currently the sixth peanut sheller in the US and the largest Alabama-based sheller, processing ~110k Farmer Stock Tons (FST) with an annual capacity of 175k FST.

Olam believes the move, which follows its acquisition of US peanut sheller McCleskey Mills Inc in Dec 2014, further integrates its value chain into direct farm procurement and shelling; it will also strengthen the company’s market position as the third largest peanut sheller in the US and help expand its sourcing network into new areas in Alabama and Florida.

Olam said that it will fund the acquisition via a combination of internal accruals and existing debt facilities. It adds that the transaction – expected to be completed by 3Q16 – will be earnings accretive this year and meet the targeted EBITDA on invested capital range of 13-16% from the first full-year of operations in 2017.

However, the company did not reveal the size of its operations and we will need to get further updates from the company and its impact on its overall business.

For now, we maintain our HOLD rating; but our S$1.615 fair value is under review.

Source: OCBC Research - 14 Jun 2016