Biotech Values

[DewDiligence]

DSM Hits M&A Road With $1.1B Martek Buy

http://www.reuters.com/article/idUSTRE6BK51J20101221

›Tue Dec 21, 2010 1:19pm EST
By Aaron Gray-Block

AMSTERDAM (Reuters) - Dutch group DSM (DSMN.AS), the world's largest vitamins maker, has agreed to buy U.S. baby food ingredients maker Martek Biosciences Corp (MATK) for $1.1 billion, kicking off an expected acquisition spree.

DSM this month completed a program of divestments worth 1.2 billion euros ($1.6 billion), getting out of low-margin bulk chemicals to focus on nutrition.

It is now expected by analysts to spend more than 2 billion euros on acquisitions, making it less of a takeover target itself.

Martek shares were up 35.4 percent at $31.62 by 1810 GMT, above the offer price of $31.50, and while Needham and Co analyst Dalton Chandler said another offer was possible, he said it was "probably not likely."

"The shares are most likely up on short covering," Chandler said, adding that he considered the offer price to be "reasonable."

DSM noted that the offer price was a 35 percent premium to Martek's December 20 closing price and DSM shares closed up 3.9 percent at 42.60 euros on Tuesday, an all-time high.

"Martek's leading position in healthy, natural ingredients and algal technology will add a new growth platform to our nutrition business," DSM's chief executive Feike Sijbesma said.

Martek, whose customers include Kellogg's (K), Mead Johnson Nutrition Co (MJN) and French group Danone (DANO.PA), had estimated earnings before interest, tax, depreciation and amortization (EBITDA) of $115-$120 million in the year to end-October on net sales of $450 million, DSM said.

In February, Martek bought dietary supplement company Amerifit to broaden its product range away from baby food ingredients, which made up almost 90 percent of its 2009 sales.

MORE DEALS TO COME

Chief Financial Officer Rolf-Dieter Schwalb said DSM would continue to look for acquisitions and could still spend more than 2 billion euros, including debt.

Analysts had previously said DSM, which also makes materials used in bullet-proof vests and fishing nets, could become a takeover target if it did not make a large acquisition soon.

But UniCredit analyst Andreas Heine said DSM is already looking more difficult for a predator to swallow, with a market capitalization of 7.4 billion euros up from a year-low of 5.4 billion in May.

DSM said the Martek deal, expected to close by the second quarter of 2011, would be immediately earnings per share accretive for DSM by 15-20 euro cents on a full-year basis and will also provide material revenue synergies.

Excluding Martek's $31 million fourth-quarter restructuring charge and including Amerifit, Schwalb said DSM was paying roughly 8 times Martek's estimated EBITDA.

RBS analyst Mutlu Gundogan said compared with the 7 times multiple paid by Yule Catto (YULC.L) for PolymerLatex and BASF's 6.9 times for Cognis, DSM was not overpaying, given Martek's strong growth record.‹