DSM to spin off pharmaceutical arm
DSM, the world’s largest vitamin producer, is preparing to spin off its pharmaceuticals division in a deal that will create a $2.6bn drugmaking business. The Dutch cod-liver oil to petrochemical conglomerate will sell the division to JLL, a New York-based private equity group, which will merge it with Patheon, the drugmaker of which it is the majority shareholder. The deal is expected to close early next year. The combined company, with staff of 8,300, will hope to cash in on the trend among the world’s largest pharmaceutical groups of scaling back their in-house drug manufacturing capabilities. In exchange for its pharmaceutical division, valued at $670m, DSM will receive 49 per cent of the new company’s shares. JLL, which will buy the 44 per cent of Toronto-listed Patheon that it does not already own, is putting $500m of equity and $1.65bn of debt into the combined business. The combined company will manufacture and distribute drugs in the US, Europe and Latin America. The move to reduce its direct role in pharmaceuticals highlights DSM’s ambition to increase its dominant position in the vitamins and nutrients market. The Dutch company, which has annual revenues of €9bn and reported €342m of earnings before interest, tax, depreciation and amortisation in the third quarter, is the world’s largest vitamins maker by volume. It has been acquisitive during the past three years, buying producers of vitamins and proteins, such as fish-oil maker Ocean Nutrition Canada last year. It has also been developing biological methods for making plastics, fuels and chemicals. Originally founded as the Dutch state coal miner in 1902, DSM has moved from being a bulk chemicals business to specialising in nutrition and high-tech materials and chemicals, while expanding into emerging markets. JLL will fund the deal from its sixth fund, for which it has raised $1bn. The fund is relatively new and JLL is not expected to seek an exit from the investment early. It plans to build the new business – expected to be one of the largest such contract drug manufacturers – alongside DSM through modest acquisitions. Jim Mullen, chief executive of Patheon, will become CEO of the merged company. JPMorgan, UBS, Morgan Stanley and Jefferies provided the debt for the deal.