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DuPont Acquires Enzyme Maker Danisco for $5.8 Billion

Ellen Kullman, chairman and CEO of DuPont Co.
Ellen Kullman, chairman and chief executive officer of DuPont Co. Photographer: Chris Ratcliffe/Bloomberg

DuPont Co. agreed to acquire Danisco A/S for $5.8 billion, beating approaches from rival suitors for the Danish maker of enzymes used in food and biofuels.

DuPont will pay 665 kroner ($115) a share, the Wilmington, Delaware-based company said yesterday in a statement. That’s 25 percent more than Danisco’s 530-krone Jan. 7 closing share price. DuPont will also assume $500 million of debt. The company dropped the most in a month in New York trading today.

Chief Executive Officer Ellen Kullman pounced on Danisco five months after it lifted a cap on shareholder voting rights, seeing a chance to expand in biofuels amid a paucity of takeover targets. Danisco Chairman Jorgen Tandrup said in an interview today that there were a few bidders that “right to the final moment” were competing to make the best offer.

“It’s a good deal for DuPont, and with a 25 percent premium to the share price it’s also a good deal for Danisco shareholders,” said Jens Houe Thomsen, an analyst at Jyske Bank in Silkeborg, Denmark. “Danisco has the world’s second-best biofuels business and a strong cooperation with DuPont already.”

Under Chief Executive Officer Tom Knutzen, 48, Danisco has given investors a total return of 53 percent over the past 12 months, prior to today, the second-biggest gain on the Bloomberg Europe Food Index. The stock jumped as much as 27 percent to 670.50 kronor, the highest price since the stock began trading in Copenhagen in December 1989. The shares were at 660 kroner as of 4:10 p.m. local time.

Good Fit

DuPont fell as much as 5.1 percent in New York Stock Exchange composite trading and was $2.23 lower at $47.53 as of 10:06 a.m.

The enzyme market is “very attractive” as makers of detergents, animal feed and food are also turning to bacteria and catalysts to improve yields and counter input costs, Houe Thomsen said.

Danisco selected DuPont from potential suitors as it provided the best fit and price, Tandrup said.

“We’ve had a few bidders interested,” he said, declining to give details. “The fit between DuPont and Danisco is very good.”

Kullman, 54, is diversifying DuPont away from stalwarts such as Kevlar bullet-resistant fabric and titanium dioxide pigment used in paint. Danisco is the world’s largest food-ingredients maker, producing sweeteners and cultures used in ice cream and cheese. Both companies already share an ethanol-producing venture.

Biofuel Partnership

“We already know how to work together productively,” Kullman said today on a conference call with analysts. “They have been our trusted partners in biofuels and biomaterials.”

DuPont will realize $130 million in annual cost savings from the combination by 2013, Chief Financial Officer Nicholas Fanandakis said on the call. DuPont’s debt may be downgraded one notch at most, he said.

Danisco, which once produced the liquor schnapps, will be the largest takeover by DuPont since it bought genetically modified seed-maker Pioneer Hi-Bred International Inc. for $7.7 billion in 1999. There were $84.8 billion of chemical-company takeovers announced in the past year, with an average premium of 26 percent, according to data compiled by Bloomberg.

The U.S. company will use $3 billion of cash and use debt to finance the rest of the deal. The acquisition should close early in the second quarter and add to earnings starting in 2012, DuPont said. The deal will reduce 2011 earnings by 30 to 45 cents a share. The company had forecast full-year earnings of $3.30 to $3.60 a share.

Hurdle Removed

DuPont is paying about 23 times Danisco’s earnings per share in the year through April, according the average profit estimates of analysts surveyed by Bloomberg. Competitor Kerry Group Plc, based in Tralee, Ireland, trades at about 14 times estimated earnings; Associated British Foods Plc, in London, trades at 15 times; and Christian Hansen Holding A/S, based in Hoersholm, Denmark, is valued at 21 times.

Danisco’s shareholders in August approved the board’s proposal to remove a restriction that limited the number of votes a single shareholder could have to no more than the equivalent of 7.5 percent of the share capital, regardless of the holder’s stake.

“Without the removal of the voting rights cap DuPont wouldn’t have made this offer,” Houe Thomsen said.

‘Financial Muscle’

Danisco’s board opted to remove the restriction at the start of 2009, “long before we had any contact to any other companies regarding this deal,” Tandrup said.

Danisco CEO Knutzen said in a May interview that he would pursue similar alliances to the DuPont one to gain “financial muscle” and defend against possible takeover approaches as the market for enzymes attracts larger rivals. Deutsche Bank AG is Danisco’s adviser.

Novozymes A/S, the world’s biggest enzyme maker, added 4 percent in Copenhagen trading. The Danish company is controlled by the Novo Foundation that can block any approaches. Smaller Danish rival Christian Hansen Holding A/S climbed 6.9 percent.

Other rivals include CSM NV, Kerry Group Plc, McCormick & Co., Sensient Technologies Corp. and Tate & Lyle Plc.

Net income at Danisco rose 59 percent to 369 million kroner in the three months through October, beating analysts’ estimates, after earnings jumped at its Genencor unit. Genencor makes enzymes for biofuels and household detergents and accounted for 34 percent of the company’s sales in the quarter. Danisco had $2.6 billion of sales in fiscal 2010.

Danisco and DuPont’s 50-50 ethanol venture in December 2009 opened a $50 million demonstration plant in Vonore, Tennessee, which can make 250,000 gallons a year from corn cobs and switchgrass. The companies said last year they plan to open a U.S. plant in 2013 to make 25 million to 50 million gallons of cellulosic ethanol a year from corn cobs. A subsequent plant will produce commercial quantities of ethanol from switchgrass.

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