DuPont’s $6 bln Danisco bid looks safe

January 10, 2011

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

LONDON — M&A has resumed in 2011 with a textbook deal — DuPont’s $5.8 billion agreed cash offer for Danish enzymes group Danisco. Initially, the market got carried away with the transaction, pushing Danisco stock above the value of the U.S. chemical giant’s 665 crown-a-share offer. But expectations of a counterbid proved short lived.

DuPont’s offer equates to an enterprise multiple of 12.8 times Danisco’s trailing 12-month EBITDA. That’s rich for the sector, though largely justified by the target’s above-average growth and profitability. The offer is also a 90 percent premium to Danisco’s market value a year ago. Meanwhile, the synergy benefits are unclear. While EBITDA is forecast to grow rapidly, the likely return on the all-in $6.3 billion acquisition price would be less than 5 percent in year one.

The U.S. group has not got a bargain, though there is strategic rationale in expanding into food science at a time when feeding the world is an increasing challenge.

As for Danisco, it’s easy to see why the board has recommended the offer, having run an auction which — astonishingly — did not leak. For the same reason it is hard to see any counter-bidding action. There is always a chance that a new buyer emerges, or that this deal galvanises one of the failed suitors to return to the table. But any potential interloper is likely to be intimated by DuPont’s show of commitment and its firepower: the deal is funded by $3 billion of cash on DuPont’s balance sheet and a supporting facility from Goldman Sachs and JPMorgan.

DuPont was not the first bidder to signal interest in a deal, according to a person familiar with the situation. This transaction, therefore, provides evidence that corporate chieftains are ready to exploit favourable debt markets to pounce on targets that come into play — even when that means being dragged into an auction and having to pay a “strategic price”. Expect deal flow to pick up further.

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