Novo A/S, which paid $714 million to buy PAI Partners’ stake in food-enzyme maker Chr. Hansen A/S (CHR), is hunting for more corporate holdings to diversify its investments, its chief executive officer said.
The Danish investment arm of Novo Nordisk Foundation has excess cash of as much as 3.5 billion kroner ($600 million) annually and is looking for stakes in Scandinavian and European companies, CEO Henrik Guertler said in an interview today.
Novo, based in Copenhagen, is already the largest shareholder in global insulin maker Novo Nordisk A/S (NOVOB) (NOVOB) and the investment in Chr. Hansen comes alongside a long-held stake in enzyme maker Novozymes A/S. It’s seeking targets sporting similar financial results to its existing holdings to move away from equity and fixed-income markets.
“We want to place this excess liquidity in well managed, profitable companies and not just in shares and bonds,” Guertler said by phone. “Chr. Hansen is the first example of putting that money to work. There will be more coming of similar investments.”
Novo invests 1.5 billion kroner in venture companies and transfers 1 billion to the foundation for distribution, leaving a 3 billion krone to 3.5 billion krone surplus, he said.
It agreed to pay PAI 117 kroner a share, or about 560 million euros, for a 26 percent stake. The acquisition closes out the private equity firm’s position in the Danish company, which it bought for about 1.1 billion euros in 2005 and relisted in 2010. PAI quadrupled its original investment.
Novozymes (NZYMB) and Chr. Hansen will be left to operate their businesses independently, without interference, Guertler said. Novo will seek representation on the board of its latest investment, he said.
PAI currently has two of its team on Chr. Hansen’s board and shareholders will assemble in November or December to vote on any changes to that setup. The company competes in some areas with Novozymes (NZYMB), in which Novo holds shares worth about 13 billion kroner, the executive said.
“They will be left to themselves,” he said. “There will be no attempts to mix it up. It’s seen as a financial investment in Chr. Hansen.”
The ingredients maker climbed as much as 17 percent in Copenhagen trading to its highest since its initial public offering in June 2010. The share gained 14.6 kroner, or 12 percent, to 137.6 kroner as of 2:59 p.m., giving the company a market value of 19 billion kroner.
Chr. Hansen, based in a northern Copenhagen suburb, sells dietary supplements, natural food colorings extracted from beetles and bushes, and enzymes and cultures to make yogurt, cheese and other milk-based products. Rising sales may enable the company to buy back shares or pay out more in dividends, Chief Executive Officer Lars Frederiksen said.
“It’s clear that we will be in a situation by the end of the year that we’ll be able to pay back further cash to the shareholders,” Frederiksen said in a phone interview. “The board will have to take a position later this year on what to do with the excess cash.”
Chr. Hansen reported a 13 percent increase in first-quarter net income to 26 million euros, in line with estimates, as sales climbed 12 percent. Its ratio of debt to earnings before interest, tax, depreciation and amortization fell by nearly a third, to 1.8 times, before dividend payments.
The company targets a debt to EBITDA ratio of between 2 and 2.5, Frederiksen said.
Novo’s annual revenue totals about 6 billion kroner, from investments and dividend payments from Novo Nordisk and Novozymes, Guertler said. .
“Novo’s goal is simply to provide the best profits for the Novo Nordisk Foundation,” he said. To that end, the investment company is looking for businesses with financial results that match Novo Nordisk’s and Novozymes’, he said. The size of the deal “doesn’t really matter,” he said.
“We will see what pops up,” Guertler said. “We are looking actively at similar cases.”
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