Olam International

[Musicwhiz]

Business Times - 10 Feb 2012

Olam acquires Nigerian biscuits, candy maker

Commodities trader paying US$167m for Titanium Holding Co group

By FELDA CHAY

OLAM International has bought a Nigerian biscuits and candy maker for US$167 million, a deal it says will help it achieve its aim of growing the profit contribution of its packaged food business.

The commodities trader said yesterday that it has acquired Titanium Holding Company SA and its subsidiaries. Titanium owns Nigeria's second largest biscuits and candy franchise with a turnover of some US$162 million last year. The price consideration is subject to working capital adjustments at completion.

Biscuits and candy are 'large and fast growing categories' in Nigeria, which in turn is the second largest market in Africa when it comes to packaged foods consumption.

'As these segments are fairly consolidated within Nigeria, an acquisition of a leading player would (give Olam) a market leadership position without creating excess capacity or competition,' said Olam in a statement. 'The transaction is also immediately management, earnings and cash flow accretive,' said Olam's senior vice-president and head of packaged foods, M Ramanarayanan.

The group had outlined in its corporate strategy last year that its packaged food business is expected to grow and contribute at least US$100 million to the group's profits by FY2016.

Olam will fund the acquisition through internal accruals and borrowings. It expects the investment to deliver 17-18 per cent in Ebitda (earnings before interest, taxes, depreciation and amortisation) margin, and generate in excess of 29 per cent equity internal rate of return.

Titanium has an 18 per cent market share of Nigeria's biscuit sector, and a 28 per cent market share of the sugar candy industry. The two businesses are enjoying market growth rates of 10-12 per cent and 12-15 per respectively, which has allowed the business to deliver a CAGR (compound annual growth rate) of 26 per cent in revenue over the last five years.

Olam's acquisition of Titanium comes hot on the heels of a dairy investment. It said late last month that it has teamed up with Russian dairy farm player Rusmolco for the large-scale development of dairy and grains farming in the Penza region of Russia. It will invest up to US$75 million for a 75 per cent stake in Rusmolco through a combination of capital injection and purchase of Rusmolco shares.

Yesterday, Olam's shares closed 1.4 per cent lower at $2.72.