Chr. Hansen Fishes for Food-Ingredient Makers, Mirroring DuPont

Chr. Hansen Holding A/S, the Danish enzyme maker relisted by owner PAI Partners, said it will seek takeovers, overcoming an already consolidated industry by targeting food-ingredient makers that are part of larger companies or owned by families.

Takeovers may be used to enhance Chr. Hansen’s expansion of businesses supplying products destined for wine, cheese and yoghurts, Chief Executive Officer Lars Frederiksen, 52, said today in a phone interview.

“We are ready to play ball,” said Frederiksen, who took the top job in 2005 after 25 years at the company.

DuPont’s agreement to buy Danisco A/S for $5.8 billion this month accentuated a paucity of takeover targets in enzymes, also used to make biofuels. Analysts estimate DuPont may sell some food-ingredient assets. Hoersholm, Denmark-based Chr. Hansen would have been interested in Danisco’s dairy-enzyme operations were it not for antitrust concerns, Frederiksen said.

The DuPont deal, which followed Royal DSM NV’s December purchase of a U.S. baby-food product maker for $1.09 billion, is spurring investor speculation that the enzyme and food- ingredient market will see further mergers and acquisitions.

The company’s “strong” cash flow will allow it to finance purchases, Frederiksen said. The price of targets will likely vary according to their financial health, though generally companies have “shaped up” in the economic crisis, he said.

Getting Recognition

“The value of leading ingredients franchises is being increasingly recognized,” Erik Sjogren, analyst at Morgan Stanley & Co., said in an investor note today. “Chr. Hansen’s portfolio positions it to leverage some of the most interesting areas in the food space: the fast-growing dairy category as well as natural ingredients like colors and probiotics.”

Chr. Hansen has climbed 26 percent since reintroducing stock to Copenhagen’s exchange in June. PAI, which acquired it five years ago, sold 61.3 million new and existing shares at 90 kroner each, equal to 5.52 billion kroner ($978 million). It sold another 25 million shares at 118 kroner today, leaving it with 37.4 percent of the company.

The buyout firm, which paid 8.2 billion kroner for Chr. Hansen, will probably reduce its holding further, Cheuvreux analyst Richard Koch said in a note. Frederiksen declined to discuss PAI’s plans.

Chr. Hansen’s first-quarter profit beat estimates and the company raised its sales forecast, led by 56 percent growth at its natural colors unit. Consumers are increasingly rejecting chemical-based additives in their soda and ice cream, Frederiksen said.

“We see very strong demand because customers are demanding natural colors,” he said. “I don’t believe that percent is sustainable, probably more in the 20ish range. But it’s difficult to say clearly right now. This is a step-change in the market, a change in the market dynamics.”

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