Temasek's Offer to Buy Olam International
(5 pages of text)
Olam International, a publicly listed firm, was a leading agri-business with an integrated supply chain. To sustain growth, the company took on large amounts of debt to fund acquisitions and other capital expenditures. A hedge fund issued a Sell recommendation, highlighting the problems facing the company, including several years of negative free cash flows. The heated exchange between Olam and the hedge fund led to a government investment fund, Temasek Holdings, first backing Olam, and then eventually offering to buy out the minority shareholders. This scenario presents an excellent opportunity to apply the discounted cash flow analysis and relative valuation techniques to evaluate Temasek’s offer.
This comprehensive valuation case is recommended for use in an advanced undergraduate or MBA course in corporate finance or financial management. It presents an opportunity for students to (1) understand the role of short sellers in the financial markets; (2) review the discounted cash flow valuation of an entire company, including estimation of the free cash flows, revenue growth rates, terminal growth rates and appropriate weighted average cost of capital; (3) perform sensitivity/scenario analyses on some of the assumptions and (4) conduct a relative valuation analysis using various peer multiple methods.
Finance and Insurance
Singapore, Large, 2014
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