The deal would be Olam's biggest ever and mark a dramatic turnaround after an attack two years ago on its acquisition and accounting practices by short-seller Muddy Waters, which forced it to change strategy while securing help from Singapore's sovereign wealth fund Temasek.
Earlier this month Olam also said it would pay $176 million for a U.S. peanut sheller, although the company said both deals were driven by one-off opportunities and it was unlikely to make another major acquisition before the end of the financial year to June 2015.
Olam is grabbing up one of the world's largest processors and suppliers of cocoa liquor, powder and butter, with eight factories from the Ivory Coast to Singapore.
The combined entity will make up 16 percent of the world's total cocoa processing capacity and source over 20 percent of total bean output, Olam executives told a briefing, and will compete with industry leaders Barry Callebaut AG and Cargill Inc.
Olam, hoping to take advantage of a worldwide craving for chocolate, particularly in emerging markets, expects global processing capacity to increase by more than 15 percent by the end of the decade to keep up with demand growth.
Competition has nevertheless intensified over the past several years in cocoa grinding, which produces butter and powder to make chocolate bars and drinks, as major players expand capacity in Asia. Margins have also been squeezed by soaring, volatile bean prices.
For ADM, the deal comes just months after offloading its smaller, underperforming chocolate business to rival Cargill for $440 million.
ADM will redeploy capital to investments with better potential returns and less volatility than the cocoa business, or distribute excess capital to shareholders, or a combination of both, said ADM Chairman and CEO Patricia Woertz.
Olam said the transaction is expected to add to earnings and be free cash flow positive in the first full year after closing, although it will see cash flow turn negative and gearing pick up in the short term.
Olam will finance the purchase, which it expects to close in the second quarter of next year, through a combination of cash and existing debt facilities, it said. JPMorgan is its financial adviser.
(Reporting by Josephine Mason and Rujun Shen; Editing by Edmund Klamann)
By Josephine Mason and Rujun Shen
