January 11, 2011
DuPont to buy Danisco and expand into farm markets
DuPont agreed to buy Danisco for US$5.8 billion in a further push into the food and farm-related markets and to help "solve challenges" presented by world population growth.
However, investors flagged doubt that DuPont''s agreed offer, to be paid in cash, was the end of the bidding process, after Danisco revealed that it had received interest from other suitors.
The Copenhagen-listed biofuels and enzymes group said that it met with more than one bidder after receiving an unsolicited approach from an undisclosed suitor.
"There has been a process where several contenders have been involved, and in the final round here there was still competition for the company, and last night we had the winner," Jorgen Tandrup, the Danisco chairman, said.
Shares in Danisco hit DKK670 (US$116.41) in early deals, above the DKK664 (US$115.44) offered by DuPont, in a sign that many investors believe that the agreed bid may yet be trumped.
Ellen Kullman, the DuPont chair and chief executive, said that the Danisco acquisition was a "perfect strategic fit" which would help the US seed-to-pigments group "solve global challenges presented by dramatic population growth in the decades to come".
Besides coming with an enzyme business, whose customers include animal feed groups attempting to counter higher grain prices with better feed performance, Danisco''s biofuels business is a leading force in the drive to convert lower-grade farm production, such as corn cobs, to ethanol.
Indeed, Danisco and DuPont already run a 50:50 biofuels joint venture which is targeting production of 25 million to 50 million gallons of this so-called cellulosic ethanol, or second-generation bioethanol, by 2013.
"Biotechnology has the potential to change the landscape of industries, such as substituting renewable materials for fossil fuel processes," Ms Kullman said.
A successful takeover would be DuPont''s biggest in more than a decade, since its last mega-acquisition, also in the food sector, of seed group Pioneer for US$7.7 billion in 1999.
The Pioneer deal was seen as launching a shift in DuPont from its heritage in chemicals and industrial equipment, sectors in which its portfolio includes Kevlar bulletproof vests, and Tyvek construction membranes, towards food, and the demands presented by fast-growing demand for farm production.
However, DuPont acknowledged that the Danisco deal would, in the short term, dent earnings prospects with the company, which had forecast earnings per share of US$3.30-3.60 a share this year, forecasting a dent of US$0.30-0.45 a share from the takeover.
Analysts at Jyske Bank said they deemed it unlikely that alternative bidder would be able to justify a higher bid for Danisco, with the ethanol joint venture "a€|too important in the valuation" for DuPont to be easily trumped.
The greatest likelihood is that Danisco shareholders might press DuPont for a higher bid with DuPont paying a premium which, according to some measures, is marginally below the sector average.
"It cannot be excluded that DuPont may be squeezed to submit a higher bid, but we do not consider this very likely," Jyske said.