Sanyo Foods injects US$187.5m into Olam’s packaged food division

It has taken a 25% stake in the division.

Mainboard-listed Olam International today revealed that Sanyo Foods, Japan’s third-largest instant-noodle maker, is taking a 25% stake in its packaged food division

for USD187.5m ($233.4m).

According to a report by Maybank Kim Eng, the transaction is expected to be completed by year-end but will not have a significant effect this year as packaged foods are not a big part of Olam’s business.

“Longer term, its partnership with Sanyo Foods could be an important strategic move. By leveraging Sanyo’s expertise in technology and leadership in emerging markets, Olam’s consumer business might be able to expand faster. It might be able to explore new opportunities in sub-Saharan Africa.”

Here’s more from Maybank Kim Eng:

Olam expects net cash inflow of USD167.5m (less USD20m that Sanyo paid for 25.5% of its noodle business in 2013) and a net gain of USD80.8m. The price could increase to USD212.5m if the division meets specific performance milestones in FY6/15E.

Generally positive. Packaged foods are not a big part of Olam’s business, at only 2% of its FY6/13 revenue. The USD167.5m net cash inflow will improve its FCF meaningfully, though the impact on its balance sheet should be limited. Net gearing will only improve by 5bps from 184% to 179% in FY6/15E, in our estimation.

Sanyo Foods is Japan’s third-largest instant-noodle maker, with a 25% market share. Outside Japan, it also has a significant presence in China, Vietnam, Nigeria, Russia and the US. It has a long history of partnering affiliated companies to build leadership positions in emerging markets. For example, it is a significant investor in Tingyi of China and Acecook of Vietnam.