Published June 25, 2009

Olam bidding for assets of US tomato processor

By LYNETTE KHOO

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COMMODITY supplier Olam International, in which Temasek Holdings recently acquired a stake, is making a bid for selected assets of a major US-based tomato processing group, which has filed for Chapter 11 bankruptcy protection.

Olam said yesterday that it has entered into an asset purchase agreement with the Chapter 11 trustee, Bradley D Sharp of Development Specialists Inc, to buy selected assets of SK Foods LP and its wholly owned subsidiary RHM Industrial/Speciality Foods Inc.

The agreement gave Olam the right to be a 'stalking horse', or the first bidder. This means Olam is entitled to a break-up fee and reimbursement of its due diligence expenses, if the court approves the sale of the assets to another purchaser for a higher or better price.

The sale of the assets, being managed through the US Bankruptcy Court, was expected to go for a public auction yesterday. The bidding results are expected to be announced today.

Chris Sanda, senior investment analyst at Daiwa Institute of Research, said a range of US$50-100 million would be a 'sweet spot' for any acquisition by Olam.

The market responded positively to the news announced yesterday morning, sending Olam shares 6 per cent higher to $2.29 at closing.

Analysts noted that as a tomato processor, SK Foods will complement Olam's food processing business.

In a statement yesterday, Olam said a success in the auction will further consolidate its presence in the Californian agriculture sector, by expanding the range of dehydrate products and services to its customers in the US and other export markets.

SK Foods is a privately held company with operations in Kings, Colusa, Monterey, Solano and Yolo counties with more than 400 full time employees and 2,500 seasonally employed workers.

It has filed voluntary petitions in US Bankruptcy Court for the District of California in May for reorganisation under Chapter 11 of the US Bankruptcy Code.

This was triggered by a notice of termination from its lenders, which include Bank of Montreal, Wells Fargo Banking, and Bank of the West.

Earlier this month, Olam said it was raising $437.5 million by issuing 273.46 million new shares to Temasek Holdings at $1.60 a share for a 13.76 per cent stake in the enlarged share capital. Analysts said then that the net proceeds will be used to finance new capital expenditure and acquisitions.