Growing with the grain: Olam yields Australian subsidiary to Mitsubish

But doubts over Temasek takeover remain.

Olam International announced on Monday that Mitsubishi Corporation will pay USD64m to acquire 80% equity interest in Olam Grains Australia, a wholly owned subsidiary of Olam.

Olam International will retain the balance 20% stake in the subsidiary, which commenced operations in FY09 and is involved mainly in wheatr exports..

According to OSK DMG, the deal will allow Olam Grains Australia to cash in on Australia’s booming grains business.

“We view the deal positively as it will enable Olam Grain Australia to leverage on growth opportunities in the Australian grains business. We view the deal to be a greater strategic fit for Mitsubishi, as it plans to export
wheat from Australia to Japan. Japan imports about 5.5m tonnes of wheat every year, of which crops from Australia account for ~20% of the total,” states OSK DMG.

Here’s more from the report:

The subsidiary has a 32.5% stake in Newcastle Agri Terminal, a bulk grain export facility in Newcastle, which commenced operations in February 2014. The deal is expected to be completed before the end-CY14.

In addition, Australian wheat is best suited for making udon noodles. We would like to highlight that the deal is not among the 12 key cash flow releasing initiatives announced by Olam in early FY13. Lack of clarity on the strategic direction that the company could take after Temasek became the single largest shareholder of Olam International, remains the biggest concern among investors.