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International Flavors & Fragrances to buy DuPont nutrition division

The agreement extends a dramatic overhaul of DuPont's portfolio

By Nabila Ahmed, Kiel Porter, Dinesh Nair and Aaron Kirchfeld

International Flavors & Fragrances Inc. reached a $26.2 billion agreement for DuPont Inc.’s nutrition division, prevailing over Ireland’s Kerry Group Plc as it continues to expand in the fast-growing food-ingredients business.

The transaction will create a new company comprised of the bidder’s assets and DuPont’s nutrition business. The new company will have an enterprise value of $45.4 billion, with DuPont shareholders getting a 55.4% stake and IFF shareholders getting 44.6%, the companies said in a statement Sunday after Bloomberg News reported the deal was near.

The deal is the biggest ever for New York-based IFF, which makes flavors and fragrances for food, personal-care and household products. It comes as businesses are tapping into so-called wellness products as consumers become increasingly health-conscious. DuPont’s unit specializes in products such as sweeteners and emulsifiers to dairy cultures and dietary fibers, and has seen growth in areas such as plant-based meats and probiotics.

“The company will be an immediate leader in the rapid consumer-driven industry evolution toward healthier, ‘better for you’ products,” according to the statement.

    What Bloomberg Intelligence Says

    “Demand for food, fragrance and cosmetic ingredients may outpace global GDP growth in 2020.” DuPont’s unloading of its nutrition and biosciences unit “may transform the sector’s competitive landscape in 2020.”

    --Christopher Perrella, chemicals analyst

IFF shares fell 6% in early trading, while DuPont rose 1.9%. DuPont shares have lost 15% this year, and earlier this month closed at the lowest level since 2016. IFF shares are down 0.2% for the year.

For DuPont, the agreement extends a dramatic overhaul of the company’s portfolio as it looks to salvage shareholder value in the face of the U.S.-China trade war that has crimped growth.

DuPont has been transforming itself following the breakup of DowDuPont, the chemical giant created in a 2017 megadeal. That colossus has now split into three, as the Dow division was spun off earlier this year followed by the agriculture business, now called Corteva Inc.

The transaction is structured as a Reverse Morris Trust, reflecting the desire of DuPont Chairman Ed Breen and Chief Executive Officer Marc Doyle for a tax-efficient option to reward shareholders after the nutrition business had wallowed within the diversified company.

DuPont will receive a one-time cash payment of $7.3 billion once the deal is completed, expected in the first quarter of 2021. IFF CEO Andreas Fibig will be chairman and CEO of the new company, with Breen as the lead independent director starting in June 2021. The board will have 13 directors, including seven from IFF, until 2022, when the total drops to an evenly split 12.

Rival Bidders

IFF had competition from Kerry Group, the milk and cheese producer that has long wanted to expand in healthy bacteria strains, ingredients found in dietary supplements, cheese and bakery products, and nutritional products that claim to have some sort of role in assisting in disease treatment or prevention. IFF emerged as a strong contender to win the deal last week, people familiar with the talks said at the time.

Kerry shares traded 4 percent lower at 108.40 euros as of 9:28 a.m. in Dublin.

The deal is the latest as the food-flavoring industry rushes to consolidate as growth slows and flavor makers contend with volatile raw-materials prices. Last year, IFF bought Israel’s Frutarom Industries Ltd. for $7.1 billion as it chased industry leader Givaudan SA. That transaction is still absorbing management time and has increased leverage. Switzerland-based Givaudan paid $1.6 billion for Naturex in 2018, while German rival Symrise AG has also been snapping up companies in recent years.

The DuPont purchase would make “strategic sense, allowing IFF to offer a more complete product suite to a broader customer base,” according to Mark Astrachan, an analyst at Stifel, who said last week the deal would make it the largest global specialty ingredients company.

However, Seaport Global Securities analyst Brett Hundley said last week that an IFF deal would be “fraught with risk,” noting that the combined company would have a large pro-forma debt load of more than $12.5 billion.

Cost Savings

On a pro forma basis for 2019, the new company would have revenue of $11 billion for 2019 and $2.6 billion in earnings before interest, taxes, depreciation and amortization. The companies expect more than $300 million in cost savings by the third year after closing.

Both companies reiterated their financial guidance for 2019.

The deal is subject to approval from IFF shareholders. IFF has already secured the support of its biggest shareholder, 19% holder Winder Investment Pte Ltd., the companies said in the statement.

Greenhill & Co. and Morgan Stanley served as IFF’s financial advisers, with Cleary Gottlieb Steen & Hamilton LLP as legal counsel. DuPont’s financial advisers were Credit Suisse and Evercore, with legal counsel from Skadden, Arps, Slate, Meagher & Flom LLP.

--With assistance from Kevin Miller and Lisa Du.
To contact the reporters on this story:
Nabila Ahmed in New York at nahmed54@bloomberg.net;
Kiel Porter in Chicago at kporter17@bloomberg.net;
Dinesh Nair in London at dnair5@bloomberg.net;
Aaron Kirchfeld in London at akirchfeld@bloomberg.net
To contact the editors responsible for this story:
Matthew G. Miller at mmiller144@bloomberg.net
James Ludden, Jeff Sutherland
© 2019 Bloomberg L.P.
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