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December 22, 2010

In the spotlight – DSM’s Martek buy a “strategic fit”

DSM shares climbed yesterday (21 December), on news that the Dutch food ingredients group had struck a deal to buy US-based Martek Biosciences.

DSM shares climbed yesterday (21 December), on news that the Dutch food ingredients group had struck a deal to buy US-based Martek Biosciences.

The all-cash transaction, worth US$1.09bn, sent DSM shares up 3.9% to close at EUR42.60 (US$55.87) on the Amsterdam Stock Exchange.

The deal, DSM, said is set to add a “new growth platform” to its business and allow the company to leverage its own international infrastructure to build on what it said is Martek’s “strong position” in infant formula. And the pair already have a long-standing relationship. DSM supplies Martek with the key base material for its ARA product.

DSM CEO and chairman Feike Sijbesma said the acquisition of Martek was an “attractive and logical next step” for the business. Martek’s leading position in healthy, natural ingredients and algal technology will benefit DSM’s nutrition business, Sijbesma said, while DSM’s global network will take Martek’s products beyond US soil.

A producer of enzymes, cultures and yeast extracts for dairy, baking and savoury manufacturers, DSM is headquartered in the Netherlands with locations on five continents. The firm employs some 22,700 staff across 200 sites in 49 countries.

While DSM made two acquisitions in 2008, it was less active on M&A last year. Nonetheless, the firm insisted last year that it was on the look-out for possible purchases or partnerships, and a 28% increase in third-quarter operating profit last month may have been the catalyst for the move on Martek.

With the purchase, DSM claims it can help lift the US firm “to the next level”.A leader in the development of “high-value” products for the promotion of health and wellness through nutrition, Martek’s technology platform has resulted in the development of a number of products, including the company’s flagship product, life’sDHA.

With $450m of annual revenue and around 600 employees, Martek offers fatty acids and nutrition ingredients to companies including baby-formula maker Mead Johnson Nutrition, Kellogg, Nestle and General Mills.

Martek has also signed a number of global supply deals in the last 12 months with firms including Danone, Fonterra, Chinese dairy Mengniu, Chinese food group COFCO and American Dairy subsidiary Feihe Dairy.

Martek bought consumer health and wellness company Amerifit Brands from Charterhouse Group for US$200m at the beginning of the year. Amerifit develops, markets and distributes branded health and wellness products focused on women’s and digestive health, and CEO Steve Dubin said the deal would speed Martek’s route-to-market for nutritional products.

Analysts agree that DSM’s acquisition of Martek could benefit both firms.

“I think the rationale for the deal is quite appealing and in line with the strategic direction that [DSM] is going in, focusing on the nutrition side of its business,” Petercam analyst Jan van den Bossche told just-food. “It is a logical step given that they had an exclusive supply relationship with Martek. They know each other already pretty well and extensively, so in that sense, from management and cultural integration points, it seems to be a very clean fit.”

He added: “I believe that the deal worked out in the sense that both companies see this as beneficial in that Martek wanted to have a partner outside of the US that could leverage its products and technology beyond US soil and DSM was looking for a move into the nutrition field which delivered interesting profitability and growth potential, and they both found each other.”

This sentiment was echoed by UniCredit analyst Andreas Heine who believes the market shared the “positive view” of both firms with DSM’s shares climbing almost 4% yesterday.

“Looking at clients, [DSM and Martek] have some which go in the same direction…but DSM had basically no customer brands, which Martek acquired in 2010,” Heine said. “So in that sense it is a strategic fit.”

In a conference call yesterday, DSM CEO Sijbesma said the acquisition would allow the company to expand Martek’s “strong position” in infant formula worldwide. And he didn’t rule out the possibility of any further acquisitions.

Sijbesma said DSM would dip into its EUR2.5bn-3bn war-chest for further purchases, admitting that its quest for growth would not stop with the Martek deal. As for when, the firm remained sketchy.

Van den Bossche says it is difficult to say whether another deal will materialise in the short-term or mid-term.

“Once the deal goes through, [DSM] will at least have a balance sheet to consider other acquisitions,” he told just-food. “The benefit is that Martek is still a relatively small business and it’s not a multi-billion organisation so that integration should go swiftly and smoothly. Maybe [DSM will buy] something in the same division, in the same area, but we’ll have to wait and see.”

For DSM, while the cash may be there, Sijbesma insists it is all about “the right time and the right target” and that, he says “is not limited to 2011”.

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