Temasek buyout throws sovereign weight behind Olam
By Peter Thal Larsen
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Temasek is extending a protective arm around Olam. The Singapore state investor is leading a group which has offered to buy the 48 percent of the commodity trader it doesnāt already own at a valuation of $4.3 billion. The buyout should help to shield Olam from sceptical short-sellers ā and remove any doubts over its creditworthiness.
Itās not the first time Temasek has come to Olamās aid. In December 2012, the group underwrote a $712 million convertible bond issue designed to see off short-sellers like Muddy Waters, which had challenged Olamās accounting. Yet despite Temasekās support, and a subsequent strategy overhaul designed to improve cash generation, Olamās valuation has lagged those of its listed peers.
For that reason, the consortiumās S$2.23-a-share cash bid should find plenty of takers. The offer is only an 11.8 percent premium to Olamās most recent closing price, and comes after near-40 percent rally in recent months. But itās a price shareholders have not seen since the summer of 2012, when analysts started raising doubts about the companyās soundness. Besides, thereās no prospect of a rival bid. The consortium says it wants to keep Olam as a listed company. But if it ends up with more than 90 percent of the shares, Singaporeās stock exchange could cancel Olamās listing.
The most immediate beneficiary of the buyout is Olamās creditworthiness. Despite Temasekās minority shareholding, the company has faced persistent queries about its debt load. Thatās particularly damaging for a trading house like Olam, which relies on the confidence of its counterparties. In future, creditors will view Olam as an extension of its sovereign parent.
Short-sellers may insist that Olam would have been in trouble without Temasekās support. But that is precisely the point. By questioning Olamās accounting, Muddy Waters also challenged the authority of one of the worldās largest investors. With assets of S$215 ($170) billion, Temasekās protective embrace is sufficient to fend off even the most determined attack. Thatās a lesson short-sellers will need to bear in mind when choosing future targets.