December 5, 2019

By Lynda Kiernan

Canada’s Public Sector Pension Investment Board (PSP Investments) has entered into an agreement to acquire 89,095 megaliters of permanent water rights from Olam Orchards Australia (OOA), a wholly owned subsidiary of Olam International, for A$490 million (US$332.5 million).

In a separate deal, PSP Investments also agreed to acquire 12,000 hectares of almond orchards that have been leased by OOA in a deal with Laguna Bay and Adveq.

Under the terms of the deal, OOA will continue to operate the orchards, and both parties have entered into a 25-year, tiered revenue sharing agreement for the orchards, permanent water rights, and related assets through which OOA will pay PSP Investments a share of revenue. Once the 25-year agreement period is expired, there will be an option to renew for another 25 years.

“Consistent with our asset-light approach to tree crop production, this arrangement will enable Olam Orchards Australia to focus on operations and continue to deliver best-in-class products and services to customers,” said Ashok Krishen, managing director and CEO of Edible Nuts, Olam.

“I am confident this partnership with PSP Investments will help lead the industry in sustainable farming and agricultural practices, and protect critical natural resources, such as water in Australia.”

PSP Doubling Down

PSP Investments has been doubling down on capital commitments in Australia’s ag sector – and particularly in almonds and water, recently.

In October, the pension fund agreed to have its wholly owned subsidiary PSP BidCo acquire all shares not already owned in Australian agribusiness Webster through a deal valuing the company at $854 million (US$578.2 million). 

With a history spanning 180 years, Webster has grown to become the largest producer of walnuts and one of the largest irrigated farming operations in the southern hemisphere. Since its founding, the company has grown to have three main pillars:

Walnuts and Almonds – Webster controls walnut and almond operations across New South Wales and Tasmania, and is the largest producer of premium in-shell and kernel walnuts in the southern hemisphere, supplying approximately 90 percent of Australia’s walnuts.

Agriculture – The company is also the largest irrigated farmer in Australia with 40,000 fertile, irrigated hectares of cotton, corn, and cereals, as well as livestock and dorper sheep operations, and an apiary business in New South Wales.

Water – After its takeover of the Tandou farming and water trading business in New South Wales in 2015, Webster owns a portfolio of more than 200,000 megaliters of water entitlements that support the diversity of its operations and provide the company with a competitive market advantage.

“Our agreement with Olam Orchards Australia is consistent with our strategy to partner with best-in-class operators who take the long-term view, and to invest in high-quality agricultural assets globally,” said Marc Drouin, managing director and head of natural resources, PSP Investments. “It is also quite complementary to our existing permanent crop investments around the world and represents a unique avenue to add scale, particularly in Australia.”

Both of these deals come on the heels of a positive year for the fund. For the fiscal year ending March 2019, PSP ended with AUM of $168 billion – an increase of 9.7 percent year-on-year. The manager also posted a one-year total portfolio net return of 7.1 percent, and a 10-year annualized return of 10.7 percent on its investments, generating $90.1 billion in cumulative 10-year net performance income and $48.8 billion of cumulative net investment gains above its return objective. 

Olam on the Move

Just as PSP acquired Webster in October, Olam also made a notable deal in October, when it agreed to acquire California almond processor and ingredient manufacturer Hughson Nut (HNI) from APB Capital at a total value of $54 million.

“Our ambition is to grow Olam’s almond business into a vertically integrated player with a strong upstream presence in Australia and the U.S. and direct participation in the primary and ingredient processing space that can add value to our customers,” said Krishen, at the time.

Once the deal with PSP Investments closes in December of this year, Olam will receive cash proceeds of A$490 million, and will book a one-time pre-tax capital gain of A$311 million (US$211 million).

Aside from this deal, Olam is also reportedly engaged in discussions that will lead to the divesting or restructuring of various of its  businesses and assets in line with its Strategic Plan. At this time, the company said that the one-off financial impacts (costs of exits, gains or losses on sales, or potential impairment) of such moves will be affected by multiple factors and cannot be quantified at time time.  But there is talk some deals will be completed by the end of this financial year, and all impacts will be included in its full-year financials.

– Lynda Kiernan is Editor with GAI Media and daily contributor to the GAI News and Agtech Intel platforms. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.com.