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Olam International Limited - How strategically important are these divestments?

17/1/2014 – Olam International's restructuring effort did not take a break over Christmas, with the commodities trader announcing it was selling stakes in two companies.

It announced on January 2 that it was selling its half of Lansing Olam Canada through a share repurchase arrangement for US$5.4 mln in cash.

Lansing Olam Canada's other 50% stake is held by Lansing Trade Group, LLC, the JV partner of Olam International.

In the announcement, KC Suresh, President and Global Head of Olam's Grains business said: "Our exit from Canada will allow us to concentrate our resources on the rest of our Grains businesses in line with the Company's refreshed strategy."

He was referring to the rationalization strategy implemented in the wake of criticism from short-seller Muddy Waters.

And a day before Christmas, it sold 14.99% of its stake in Open Country Dairy Limited, New Zealand to Talley's Group Limited for NZ$46.5 mln.

Olam is the second largest shareholder in Open Country Dairy after Talley's with a 24.99% shareholding.

Talley's currently holds 55.54%.

This transaction is expected to complete through a combination of direct sale of shares and acceptance of a partial takeover offer from Talley's, in compliance with the New Zealand Takeovers Code.

Olam will continue to own a minimum 10% stake in Open Country Dairy.

The sale of Olam shares is expected to be at or above the current carrying value.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question
Question

1. What was the problem with the grains venture in Canada?

We always knew Olam would be selling down stakes in various companies – that's what they said they would do.

But why pick this one?

The business must have fallen short in specific criteria, or not met certain hurdle rates.

What were they?

Was it not making enough money?

Question
Question

2. Why sell 15% of Open Country Dairy but keep another 10%?

It's curious that the business was clearly not good enough to keep, but too good to sell off entirely.

Was the buyer not ready to take over Olam's entire stake?

(Total number of questions in the full story: 6)

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

So far, we have not had a reply (which is why you are seeing this message).


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