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DSM Said to Seek Final Bids for Entire Caprolactam Unit

Sept. 26 (Bloomberg) -- Royal DSM NV is in advanced talks to sell its business making caprolactam, used in plastics and car parts, and may announce a deal before year-end, according to two people with knowledge of the matter.

The bidding process is in the second round, with buyout firms and corporate rivals preparing detailed offers, said the people, who asked not to be identified because the talks are private. The asset may fetch more than 200 million euros ($270 million), the people said.

Chief Executive Officer Feike Sijbesma is trying to refocus away from bulk chemicals such as caprolactam, which it has produced for more than 60 years, toward more profitable food ingredients and high-performance materials. While caprolactam is an important feedstock for DSM’s polyamide resins and materials, competition from low-cost Chinese manufacturers has increased supplies and damped prices.

DSM is reviewing options for just the merchant side of the caprolactam business, which accounts for two-thirds of its output, Chief Financial Officer Rolf-Dieter Schwalb told investors and analysts at a meeting today. “You can only say something, when something is done,” he said.

Valence Group is advising on the potential sale, according to the people.

Profit Outlook

DSM, which has spent $3.2 billion on nutrition-ingredient acquisitions, said today that profit this year may fall short of an initial target, weighed down by stagnant markets in Europe, lower pricing for chemicals, exchange-rate moves and Dutch tax legislation.

Earnings before interest, taxes, depreciation and amortization may be “slightly below” 1.35 billion euros, the Heerlen, Netherlands-based company said. After originally setting a target of 1.4 billion euros, DSM reiterated it would be “moving towards” that level of profit.

DSM shares closed 5.4 percent lower at 55.13 euros in Amsterdam. The company has gained 20 percent this year for a market value of 10 billion euros.

Caprolactam accounted for the bulk of DSM’s 1.6 billion euros in sales last year at its polymer intermediates business, which employs about 1,500 workers. Revenue declined 16 percent last year on lower volumes and prices, with profit at the division slumping about 68 percent as it struggled to pass on higher benzene prices to customers. In the U.S., carpet maker Shaw Industries “virtually” owns part of one plant, Schwalb said.

Caprolactam, also produced by Germany’s BASF SE, is used in a broad range of products from plastics and films to tire cords. DSM is currently putting the final touches on a $300 million plant in a partnership with China Petroleum & Chemical Corp., known as Sinopec. The factory will be the world’s largest.

To contact the reporters on this story: Andrew Noel in London at anoel@bloomberg.net; Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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