DuPont to Create Industrial Biotech Powerhouse by Buying Danisco

| About: E. I. (DD)

By Marie Daghlian

DuPont (NYSE:DD) has agreed to acquire Danisco, a global enzyme and specialty food ingredients company, for $5.8 billion in cash and assumption of $500 million of Danisco net debt. DuPont beat several rival suitors to seal a deal that will expand its presence in industrial biotechnology and biofuels, boosting the chemical company’s move toward developing biotech-based approaches to address global challenges in food production and reduced fossil fuel consumption.

“This transaction is a perfect strategic fit with our growth opportunities and will help us solve global challenges presented by dramatic population growth in the decades to come, specifically related to food and energy,” says Ellen Kullman, DuPont chairman and CEO. “In addition, biotechnology and specialty food ingredients have the potential to change the landscape of industries, such as substituting renewable materials for fossil fuel processes and addressing food needs in developing economies, which will generate more sustainable solutions and create growth for the company.”

Danisco is best known as a maker of specialty food enzymes and cultures, and the maker of Dannon yogurts. But the jewel that has attracted DuPont is its Genencor division. Genencor, originally part of Genentech, makes enzymes used to produce advanced biofuels and a number of renewable products, including bio-isoprene, a bio-based alternative to a crucial ingredient used in making tires. Genencor generates 35 percent of Danisco’s total sales.

DuPont and Danisco already have an established 50/50 joint venture, DDCE, to produce cellulosic ethanol so the acquisition is not a surprise. DuPont also has an ethanol joint venture with BP and British Sugar, and Butamax, a biobutanol joint venture with BP.

The Danisco acquisition is expected to be financed with about $3 billion in existing cash and the remainder in debt. The transaction is expected to close early in the second quarter and be cash and earnings accretive in 2012, the first full year of the combined entity.

DuPont’s tender offer of $115 per share (665 kroner) is a 25 percent premium to Danisco’s January 7 share closing, already a price that gave investors a 53 percent total return over the past year. Shares of Danisco jumped as much as 27 percent on the news, the highest price since the stock began trading in Copenhagen in December 1989, while DuPont shares fell as much as 5.1 percent.

DuPont has set its 2011 earnings per share outlook at a range of $3.30 to $3.60 per share. The anticipated impact of this transaction would reduce that outlook by 30 cents to 45 cents per share on a reported basis.

Analysts and industry observers greeted the deal as a vote of confidence in the biofuels industry. In the near-term, though, the greatest impact will be in renewable chemicals that would offer DuPont feedstock alternatives to petroleum for a diversified range of products.

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