Saudi Arabia takes foothold in Nigeria’s non-oil sector as SALIC finalises Olam Agri deal

Onome Amuge

Nigeria and Saudi Arabia have long shared a bond based on their petroleum industries. With oil at the core of their economic ties for decades, Nigeria and Saudi Arabia have historically enjoyed a relationship defined by their mutual dependency on oil exports.

However, recent developments suggest that the economic relationship between the two nations may be set to undergo a significant  transformation as Saudi Arabia seeks to invest heavily in Nigeria’s thriving non-oil sector.

This potential development is highlighted by Saudi Arabia’s proposed acquisition of a majority stake in Olam Agri, a global leader in the agribusiness sector with expansive operations in Nigeria.

This development stems from the move by Saudi Agriculture & Livestock Investment Company (SALIC) to acquire a 44.58 percent stake in Olam Agri Holdings (Olam Agri), a subsidiary of the Singaporean Olam Group, for an estimated $1.78 billion (Tranche 1).

Following the completion of Tranche 1, SALIC will emerge as a majority shareholder in the Olam Agri with an imposing ownership stake of 80.01 percent, solidifying Saudi Arabia’s position in the global agribusiness sector.

OLAM AGRI is an established global agribusiness powerhouse with over three decades of experience procuring and exporting agricultural commodities in Nigeria.

The company’s extensive presence in Nigeria includes its successful grains business, Crown Flour Mills, which is counted among the largest wheat millers in the country.

In addition, OLAM AGRI’s range of flours, which include products tailored to bread, confectionery, semolina, noodles, and pasta, cater to a diverse customer base that includes bakers, wholesalers, distributors, and retailers.

The company has also expanded its offerings to include packaged food brands that cater to multiple markets. Its flagship product, Tasty Tom, a tomato mix launched in 2008, has become a household name, securing its position as the second-largest branded tomato mix in Nigeria, after Gino.

OLAM, in a statement confirming the transaction, stated: “Olam Group Limited (“OGL”) will, upon the completion of the sale of Tranche 1, have a put option1 to sell its remaining 19.99% stake in Olam Agri to SALIC (“Tranche 2”) which is exercisable on the third anniversary of completion of the sale of Tranche 1 at the Closing Valuation2 plus 6% IRR.

“SALIC will, upon the completion of the sale of Tranche 1, have a call option to buy the 19.99% stake in Olam Agri on or before the third anniversary of the completion of the sale of Tranche 1.1”.

The implications of OLAM’s proposed transaction with SALIC are substantial for both parties, with the proposed 100 percent equity valuation of Olam Agri at $4.00 billion representing a substantial 23 percent increase over the market capitalization of OLAM’s holding company (OGL) as of December 31, 2023, which stood at $3.25 billion.

This valuation also represents a 14 percent increase over the $3.50 billion valuation for SALIC’s initial 35.43 percent stake in Olam Agri, acquired in December 2022 at a final consideration of $1.29 billion.

The proposed $4.00 billion 100 percent equity valuation of Olam Agri also translates into a price-to-book value multiple of 3.47x, which is a substantial valuation premium over Olam Agri’s book value of $1.15 billion as of December 31, 2023

OLAM Group expects to realise a substantial gain on disposal of $1.84 billion from the sale of the 44.58 percent stake in Olam Agri to SALIC.

The successful completion of the transaction’s first phase (Tranche 1) would yield estimated total gross cash proceeds of $2.58 billion, which includes proceeds from the sale of Tranche 2.

The company stated further “The OGL Board will take into consideration various factors including the level of the Group’s future earnings, cash flows, capital requirements for maintenance and growth, other financial and general business conditions before making any decision on the use of the proceeds which may include debt repayment, right-sizing the capital structure of OGL and ofi, as well as the provision of a possible one-time special dividend distribution.”

The acquisition by SALIC is more than a portfolio expansion – it reflects a strategic move designed to bolster food security by investing in high-potential agricultural businesses.

SALIC has long employed a strategy centered on ensuring stable food supplies, a crucial component of Saudi Arabia’s food security agenda. This approach leverages partnerships, acquisitions, and vertical integration to optimise supply chains.

The diversified portfolio of Olam Agri’s operations, encompassing key agricultural commodities such as grains, edible oils, and animal feed, is considered instrumental in achieving Saudi Arabia’s aspirations to decrease its reliance on food imports and ensure a steady and dependable supply of essential food staples.

The economic ripple effect of SALIC’s Olam Agri takeover in Nigeria

The investment by Saudi Arabia in OLAM Agri follows recent diplomatic moves by President Tinubu, withYemi Edun  the Minister of Finance and coordinating minister of the economy as well as, Atiku Bagudu,the minister of budget and economic planning, spearheading negotiations with Saudi officials to clinch the deal.

The deepening economic ties between Nigeria and Saudi Arabia are expected to bring substantial gains for both nations, especially as it is anticipated that the impending Foreign Direct Investment (FDI) deals between the Federal Government of Nigeria and the Kingdom of Saudi Arabia would yield an influx of over $5 billion in investments in 2025.

This projection is a result of the initial $5 billion agreement between Nigeria and Saudi Arabia, as well as SALIC’s estimated $3.5 billion investment in plan, which together promise to infuse a large volume of capital into the Nigerian economy and boost its development trajectory.

According to analysts, the proposed acquisition of Olam Agri by SALIC holds significant implications for the global food supply chain, as SALIC would gain complete control of OLAM Agri’s diverse commodity portfolio, which includes cocoa, coffee, cashew, sesame, rice, wheat, and grains.

Industry analysts predict the total cost of the acquisition could surpass the $4 billion mark, representing SALIC’s strategic move to strengthen its grip on the global food supply chain and capitalise on OLAM’s extensive operations across 65 countries, including Nigeria.

While the public sector of Nigeria (federal government) has been quick to welcome the news of the agreements with open arms, Business a.m. observed that Nigeria’s private sector appears to have adopted a more cautious stance.

Analysts, in a “wait and see” approach, believe that the true nature of the global dynamics underlying the deals, and the resultant opportunities for Nigeria, remains a work in motion.

In this regard, analysts underscore the need for more transparent and definitive communications between all parties involved in these agreements. This clarity, they noted, is essential to managing public expectations, providing stability in the market, and fostering an environment conducive to capitalising on the potential opportunities presented by the deal.