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DSM Says ‘No Pause’ in Acquisitions as Profit Tops Estimates

Royal DSM NV, the world’s biggest maker of vitamins, said it is capable of pursuing other potential acquisitions even as it works to integrate its $1.09 billion purchase of Martek Biosciences Corp.

There will be “no pause” in the takeover strategy with other targets like Martek out there, Chief Financial Officer Rolf-Dieter Schwalb said on a call. First-quarter earnings beat estimates, sending DSM shares up the most in two years.

Chief Executive Officer Feike Sijbesma last year sold fertilizer, melamine and citric-acid businesses, aiming to expand in more profitable food ingredients and synthetic fibers. The disposals were part of a decade-long transformation of DSM into a so-called life sciences company using organisms to make materials applicable to industry.

“The company has a war chest of more than 2 billion euros and management has a strong track record of doing acquisitions,” said Mutlu Gundogan, an analyst at Royal Bank of Scotland, which has a “buy” recommendation on DSM shares.

Operating profit from continued operations rose 14 percent to 325 million euros ($478 million) in the first quarter, beating a 287.8 million-euro analyst estimate.

The Dutch maker of enzymes climbed as much as 7.1 percent in Amsterdam trading, its biggest intraday gain since March 2009. The stock was up 4.9 percent at 45.54 euros as of 10:43 a.m. local time. Prior to today, it had risen 1.9 percent this year, for a market value at 7.88 billion euros.

Protective of Rating

DSM sees the current “strong” business conditions continuing in the rest of the year and the company is optimistic that the extra burden of raw-material costs can be passed on to customers.

The shares are trading at a 25 percent discount to peers and are “too cheap to ignore,” said Gundogan. Takeovers would act as a trigger for further stock gains, the analyst said.

The company’s focus has switched to developing nutritional supplements as well as enzymes that can be used to convert leftover stalks and roots into biofuel, amid the wider debate surrounding the direct use of sugar cane and other food crops.

While DSM plans more acquisitions the company is “far away” from taking on any deal that would jeopardize its A3 and A credit ratings from Moody’s Investors Service and Standard & Poor’s, Schwalb said today.

DSM is in the midst of a tie-up with Sinochem Group involving its penicillin unit, though the timing of a final agreement is difficult to predict, the CFO said today. It agreed to sell a 50 percent stake to the Chinese chemicals group for 210 million euros last year, ending a six year search for a partner.

DSM is still overhauling the rest of its drug-making business as it seeks an Asian partner to win more contracts from pharmaceutical companies seeking to outsource production. The alliance with Sinochem could be expanded to other areas if the initial venture goes well, Schwalb said.

To contact the reporters on this story: Sheenagh Matthews at smatthews6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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