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News 240 views last update:6 Aug 2012

Merger creates world's largest palm oil firm

Three Malaysian government-linked palm oil companies officially announced their intention to merge, creating the world's biggest palm oil entity worth around 31.4 billion ringgit (US$8.66 million; €6.62 billion).

The merger, which the government hopes will cut costs and streamline the industry, would also potentially create the world's largest biofuels producer. The palm oil sector in Malaysia is seeing a crude palm oil (CPO) price surge to above RM1,900 per tonne (€397/t) – the highest level in more than 2½ years.

New company: Synergy Ddrive
In a complex deal pushed forward by the administration of Prime Minister Abdullah Ahmad Badawi, Golden Hope Plantations., Sime Darby and Kumpulan Guthrie will combine to form a new company called Synergy Drive. Synergy Drive will acquire the assets of the three companies - currently owned by government fund manager Permodalan Nasional, or PNB - as well as assets of five of their six units, said CIMB Investment Bank, acting on behalf of the new entity.

Boost in crude palm oil production
The three companies have a total 525,872 hectares of land in Malaysia and Indonesia planted with oil palm, producing more than 1.91 million metric tons of crude palm oil annually - equivalent to 13% of Malaysia's total output. CIMB said Synergy Drive could eventually account for as much as 6% of global production with a potential annual revenue of 26 billion ringgit (US$7.17 billion; €5.48 billion) and employ 107,000 people.

Malaysia is the world's top producer of palm oil, currently being developed as a top-tier replacement for fossil fuels. In addition to reducing overlap between the businesses, the government hopes the deal will push Malaysia's palm oil producers to develop its biofuels industry, which has attracted attention as countries try to reduce their dependence on fossil fuels.

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