The industrial use of enzymes appears to be the central reason for DuPont’s planned US$5.8bn takeover of Danisco – but the acquisition, analysts say, could be the catalyst for further deals in the food-ingredients sector.
Agriculture and nutrition is big business for US chemicals-to-electronics group DuPont. In 2009, agriculture and nutrition generated US$8.29bn of the company’s $26.11bn of turnover – and over a third of its $3.34bn in pre-tax operating income.
However, DuPont’s move for Danisco seems to have been driven by the Danish firm’s enzymes division Genencor, a business that does have food applications but has more significant interests – particularly in the development of second-generation bioethanol.
Following a venture in 2008, DuPont and Danisco are already partners in second-generation bioethanol, which sees companies develop biofuel made from non-food crops. The two sides have been working on developing commercially-viable second-generation bioethanol, a product seen as having huge potential, given the concerns over using food for biofuels. Parts of the food industry have been vocal in their anxiety that using food crops for fuel will drive up prices, while governments in countries like China have been reluctant to use biofuel when faced with the need to feed a vast population.
However, notably for those in the food-ingredients sector, DuPont could, analysts have said, in time look to offload some of Danisco’s speciality food ingredients divisions. RBS analyst Iain Simpson was one who put forward the possibility of these Danisco assets, which include businesses looking at sweeteners, emulsifiers and cultures, being put on the block.
“We believe that some food ingredients assets could subsequently be disposed of by DuPont in the event of the transaction completing, although precedent suggests that DuPont may have to wait two years before making material disposals for tax reasons,” Simpson wrote in a note to clients. “We believe many of Danisco’s food ingredients businesses could prove attractive to other industry players, such as Kerry or Tate & Lyle.”
Morten Imsgard, an analyst covering Danisco for Sydbank in Denmark, says that the group’s enzymes business was “the primary reason” for DuPont’s decision to move for its venture partner and, like Simpson, believes that the US group could look to offload some of the speciality food ingredients operations.
Like Simpson, Imsgard cites Tate & Lyle and Kerry Group has companies that could be interested in snapping up Danisco assets should DuPont decide to sell. The two companies, he says, have “a broad platform of ingredients” and “service the big food producers globally”.
However, Imsgard suggests DuPont could wait before selling off some of Danisco’s more food-specific assets and look to “leverage” the operations.
“There is still a great possibility for efficiency gains within Danisco’s food assets. They have a more complex production structure that some of the competitors, so DuPont might not by in a hurry to sell the assets,” Imsgard tells just-food. “They might want to continue the process of streamlining the operations and then sell at a later stage for a higher price.”
Nevertheless, for all the conjecture, DuPont chair and CEO Ellen Kullman said yesterday that Danisco’s speciality food ingredients arm was one of “two very attractive businesses” the US group was snapping up.
“With this acquisition, we would add two very attractive businesses to our portfolio that are in the sweet spot of our growth strategy. There is an industrial enzyme business that would enhance our applied biosciences business and a specialty food ingredients business that is complimentary to our nutrition and health business,” Kullman told analysts as she discussed the transaction. “Their speciality food ingredients business also has strong performance and, when combined with our nutrition and health business, DuPont would be positioned as a premier specialty food ingredients provider.”
DuPont, then, is publicly insisting that Danisco’s food-ingredients assets are a central part of its move for DuPont. However, the US giant could decide that businesses like sweeteners are not part of its long-term recipe for growth – and some of the world’s largest food-ingredients players will be waiting.