DSM forges a nutrition and fragrance giant with Firmenich

By Ludwig Burger and Bart H. Meijer

AMSTERDAM (Reuters) – Dutch specialty chemicals maker DSM has reached deals to buy Swiss flavor and fragrance maker Firmenich and sell its engineering plastics division to become a major player in fast-growing ingredient markets food and health products.

Shares of DSM jumped 12.6% after the company announced on Tuesday that its shareholders would take 65.5% of the shares of a new group called DSM-Firmenich, while owners of unlisted Firmenich will receive a stake of 34.5% in the combined entity. plus 3.5 billion euros in cash from DSM.

Analysts at Stifel brokerage said the transaction would “create a new giant in nutrition, and the only one to combine flavors and fragrances with nutritional benefits.”

Firmenich’s business includes manufacturing food ingredients and detergent fragrances and creating fragrances for brands such as Calvin Klein and Mugler.

With approximately €11.4 billion ($12.3 billion) in combined revenue in 2021, the new player will challenge IFF Inc’s leadership in the market for fragrances, flavors and ingredients for food and cosmetics. IFF, which last year combined with DuPont’s Nutrition and Biosciences business, had revenue of $11.7 billion in 2021.

In a follow-on deal that concludes DSM’s exit from industrial materials, DSM has also agreed to sell its engineering plastics division to German counterpart Lanxess and private equity firm Advent for 3.85 billion euros, debt taken charge included.

Stifel analysts said the deal with Firmenich values ​​the Swiss company at 19.2 billion euros, including debt, based on DSM’s closing price on Monday. Also based on this price, DSM said its contribution to the merged entity had an implied value of 21.6 billion. It would not provide an overall assessment.

But the nominal price of the combined group, which stands at nearly 41 billion euros, was marked up sharply on Tuesday, with DSM stock lately rising 8.2%, giving up some initial gains. Lanxess shares jumped more than 11% to a two-month high. Both stocks were the best performing stocks in Europe on Tuesday.

“We are bringing together two iconic companies, where DSM is strong in health and nutrition, and Firmenich is very strong in fragrance and taste,” said Dimitri de Vreeze, Co-CEO of DSM.

“It creates solutions where health, sustainability, tastes and flavors are key to the future,” he added.

The owners of Firmenich would become long-term shareholders of DSM-Firmenich, the two companies said, describing the transaction as a “merger of equals”.

DSM Chairman of the Board, Thomas Leysen, and DSM Co-CEOs, Geraldine Matchett and Dimitri de Vreeze, will assume the same roles within the merged group.

Firmenich chairman Patrick Firmenich, a fourth generation member of the founding family, will become vice-chairman, and the family is expected to become the new entity’s largest shareholder group.

Givaudan and Symrise are second in the market share ranking for fragrances, flavors and ingredients for food and cosmetics. The industry, which has expanded into functional foods and health ingredients, offers strong growth, driven by consumers in emerging markets, with little cyclical fluctuation.

DSM and Firmenich said the merged group, which is expected to be created in the first half of next year, could see organic sales growth of 5% to 7% per year, while achieving annual synergies through cost savings. costs and new revenue opportunities of 350 million euros.

DSM said last September that it would only focus on ingredients for food and health products, after selling a manufacturing unit for resins and coatings to Germany’s Covestro https://www.covestro.com/ press/covestro-successfully-completes-acquisition-of- the resins-functional-materials-business-of-dsm for around 1.6 billion euros earlier this year.

Last month, DSM agreed to sell its protective materials business, part of the materials division, to Avient Corp for $1.48 billion.

Sales of its nutrition division, which produces products ranging from vitamins and other supplements to infant formula and animal feed, rose 10% to 7 billion euros last year. DSM’s total sales were 9.2 billion euros in 2021.

Firmenich posted sales of 4.5 billion Swiss francs ($4.7 billion) last year. Both companies achieved an adjusted core profit margin (EBITDA) of around 20%.

DUAL HQ

The new company will have dual headquarters in Kaiseraugst near Basel, Switzerland, and in the Dutch city of Maastricht. Its legal domicile will be in Switzerland but the shares will be listed on the Euronext Amsterdam stock exchange.

The merger will be carried out through a public offering of DSM shares, in which the current shareholders of DSM will be able to exchange their share for one share of the new company.

Lanxess and Advent said in a separate statement that they had formed a joint venture to acquire the Engineering Materials business of DSM, a maker of plastics primarily for automotive parts, for 3.7 billion euros, including assumed debt.

Lanxess will transfer its own engineering plastics business into the new venture, receiving a stake of up to 40% and a cash payment of at least €1.1 billion in return.

In an effort to become less reliant on the cyclical automotive industry, Lanxess was granted an option to sell its stake to Advent after three years.

($1 = 0.9325 euros)

(Reporting by Ludwig Burger in Frankfurt, Bart Meijer and Toby Sterling in Amsterdam, Emma-Victoria Farr in London, Patricia Weiss in Frankfurt, Mike Shields in Zurich; Editing by Kim Coghill and Susan Fenton)

Donovan B. Sanford