DSM Sells Polymers, Resin Business to CVC to Accelerate Overhaul

Royal DSM NV, the Dutch chemical maker that has activist Third Point LLC as an investor, agreed to sell a majority stake in a basic plastics and resins business to CVC Capital Partners Ltd. to accelerate a refocus on nutritional ingredients.

DSM and CVC will form a new company from operations making composite-resins, caprolactam and acrylonitrile that will be 65 percent owned by the private-equity company, according to a statement today. The accord values the assets at as much as 775 million euros ($816 million), and CVC is paying a multiple of about six to seven times earnings, DSM Chief Executive Officer Feike Sijbesma said on a call.

CVC provided a speedier exit route for DSM after years of initially seeking a buyer for caprolactam assets alone. Sijbesma in November outlined plans to broaden the remit for disposals to about 2 billion euros in revenue to help reduce DSM’s exposure to commodity products.

“For these kinds of deals, it’s a good expedited process,” Sijbesma said, adding that there were several interested parties in the assets.

The transaction has an enterprise value of 600 million euros plus an earn-out of as much as 175 million euros. The operations generated 106 million euros in earnings before interest, taxes, depreciation and amortization in 2014. DSM will recognize an initial book loss of about 130 million euros after tax and non-controlling interests.

Third Point

DSM is employing a tried and tested model employed when the Dutch company entered a similar partnership for active pharmaceutical ingredients with New York-based JLL Partners Inc. in 2013. That joint venture “turned out to be a very good set up and construct,” Sijbesma said today. DSM holds 49 percent in that business.

The structure of the deal, which includes a 15-year supply agreement, means DSM retains access to vital raw materials for its higher-performance plastics business. While CVC will take the lead on any future plans for the new company -- whether a break-up or initial public offering -- DSM will have a say in the matter, Sijbesma said.

Under the watch of Third Point, which has pushed for asset sales to unlock value, Sijbesma has so far resisted calls to divest the whole of its 4.3 billion-euro plastics division supplying materials for car parts to soldier body armor. The CEO has spent about $3.2 billion on acquisitions to expand DSM’s nutrition business to expand in additives for baby food and health supplements.

The engineered plastics division “will remain as competitive as it is today with this contract,” Sijbesma said, declining to give any details of the supply arrangement.

DSM’s advisers on the transaction were Allen & Overy LLP and the Valence Group Ltd. Advisers to CVC were Aon Plc, Bain & Co, Citigroup Inc., Clifford Chance LLP, Deloitte LLP, Environ, KPMG, McKinsey & Co.

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