ADM to sell global cocoa business to Olam for $1.3B

Image provided by Olam Cocoa.

Archer Daniels Midland Co. is getting completely out of the cocoa business, while Olam Cocoa is moving into the category’s big leagues.

ADM has announced plans to sell its global cocoa business to Olam Int’l Ltd. for $1.3 billion, subject to customary adjustments. The news comes just months after ADM announced plans to sell its chocolate business to Cargill for $440 million in September.

ADM says the deal will help it manage its portfolio and create shareholder value.

“This transaction will allow us to redeploy capital to investments that offer improved returns potential and less volatility than the cocoa business, or distribute excess capital to shareholders, or a combination of both,” says ADM Chairman and CEO Patricia Woertz.

Meanwhile, Olam says the deal establishes Olam Cocoa as one of the world’s top three cocoa processors focused on the supply of cocoa liquor, powder and butter, with strong manufacturing, R&D and product development skills

“With cocoa being a prioritized platform for investment, this proposed acquisition represents a transformational opportunity for Olam Cocoa to become an integrated global leader in a market with attractive growth prospects,” says Olam’s Co-Founder, Group MD and CEO, Sunny Verghese.

The sale encompasses ADM’s entire global cocoa business, including processing facilities in Mississauga, Canada; Koog aan de Zaan and Wormer, Netherlands; Mannheim, Germany; Ilhéus, Brazil; Abidjan, Côte d'Ivoire; Kumasi, Ghana; and Singapore. Also included are ADM’s buying stations in Brazil, Cameroon, Côte d'Ivoire, and Indonesia, as well as the company’s deZaan and UNICAO brands.

“Today we have created a clear path to achieving our goal to fully integrate our supply chain strengths with the global manufacturing and R&D capability of ADM Cocoa to provide a seamless offering to our customers,” says Olam’s Managing Director and Global Head of Cocoa, Gerard Manley. “Having worked in cocoa for 30 years, I recognize the value of the deZaan cocoa brand and the high regard in which it is held, thanks to its tradition of excellence and 100-year heritage. The experience and expertise of both companies combined will enable us to attain our expected synergies as we move quickly to integrate our businesses.”

The majority of the approximately 1,550 colleagues in ADM’s cocoa business will transfer to Olam with the sale.

Olam says the proposed acquisition is expected to enhance value for all of Olam’s stakeholders as it transforms Olam Cocoa into:

A market leading global integrated player with an origination footprint in all key producing origins, including Brazil.
One of the world’s top three cocoa processors. The combined capacity will be approximately 700,000 metric tons as eight midstream processing facilities from ADM Cocoa are added to Olam Cocoa’s existing midstream processing portfolio

Olam Cocoa is looking to capitalize on the current and future demand for cocoa products driven by steady consumption in the large developed markets of Europe and the USA, coupled with a rapidly increasing demand for sustainable high quality cocoa products in Asia and other emerging markets.

Olam also expects to benefit from operating leverage and scale as the combined business optimizes its procurement, manufacturing, logistics, warehousing, trading and risk management systems, and working capital utilization by integrating its entire operation.

“The acquisition of ADM’s cocoa business has the potential to nearly double the EBITDA for the confectionery and beverage ingredients segment and add substantially to the midstream value chain and the overall company by FY2018,” says Olam’s Executive Director of Finance and Business Development, A. Shekhar. “It is also expected to improve EBITDA/IC returns starting from the first full year post closing and exceed the return target for the midstream value chain by FY2018 on a standalone basis.”

The proposed sale, which is contingent on customary regulatory approvals, is expected to close during the second quarter of 2015. And, Olam says it does not expect to make any major acquisitions in 2015.

ADM says its transaction with OLAM will not impact its sale of its chocolate business to Cargill, which is progressing as planned.