A Chance To Sell Olam At S$2.23?

Commodities trader Olam International (SGX: O32) has today announced that a consortium of investors and existing shareholders, led by Breedens Investments Pte. Ltd., would be offering to buy over shares of the company that other shareholders own at price of S$2.23 each. Concurrently, Breeden also has the intention to make an offer for Olam’s outstanding convertible bonds and warrants.

Olam, which does sourcing, processing, warehousing, transporting, shipping, distributing, and marketing for various kinds of agricultural products like cotton, wood, coffee, cocoa, palm, rice, and sugar among others, last closed at S$1.995 yesterday. The offering price thus represents an 11.3% premium over its last transacted price.

Breedens is an indirect wholly-owned subsidiary of Temasek Holdings, which is one of the investment arms of the Singapore government. The rest of the consortium includes Aranda Investments Pte Ltd. and Olam’s founding family and executive committee. Together, they collectively own 52.5% of Olam’s shares with Breedens and Aranada controlling a collective 24.6% stake in the company while the other two make up the remaining 27.9%.

The consortium has made the offer in order to “provide Olam with a stronger long term shareholder base to support Olam’s strategy and growth plans over the medium to long term.”

Shareholders of Olam who are outside the consortium can tender “all, part or none” of their Olam shares at the offer price. At this juncture, the intention of the consortium is for Olam to remain a publicly-listed company. Though, the plan might change depending on the amount of free-float in Olam’s shares left after the tender offer’s completed, which should take place within the next two months. According to Olam’s investor relations, 46.3% of the company’s shares can be considered to be of the free-float variety as of 17 Sep 2013.

There’s also Olam’s position within Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), to consider. The index is made up of 30 shares that are selected based on their market value, free float, and liquidity.

The market value of Olam shouldn’t cause an issue given that it has a market capitalisation of S$4.77 billion at a share price of S$1.995. It’s the free float and liquidity requirement that might yet force Olam to exit the index even if it remains a publicly-listed company. For instance, the index requires a share to have a free-float of at least 15%; Olam’s free float might just drop below that threshold depending on the number of shares that the consortium eventually acquires.

In any case, the real crux here for shareholders is to determine, for themselves, if Olam really is worth more than S$2.23 per share as a business based on its future prospects. If it isn’t, then the price of S$2.23 would be a nice way for shareholders to wash their hands off the commodities trader. On the other hand, the wish for the consortium to consolidate Olam’s shareholder base to provide support to help grow the company’s business might even see the commodities trader become even more valuable in the years down the road, making the tender offer look like a bargain price.

Olam would be sending the offer documents to its shareholders within the next 21 days. After receiving the documents, shareholders would be given at least 28 day to mull things over and either accept or decline the consortium’s offer.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.