03 September 2002 15:33 [Source: ICIS news]
LONDON (CNI)--DSM said Tuesday the acquisition of Roche’s vitamins and fine chemicals division for Euro2.25bn ($2.2bn) will boost net sales to around Euro8bn next year from current levels of around Euro6bn.
The Dutch chemicals, performance materials and life sciences group added that by 2005 it expects life sciences and performance materials to account for 80% of an annual Euro10bn turnover.
Last year net sales totalled Euro7.97bn. However, excluding the petrochemicals division - which was sold to Saudi Basic Industries Corp (Sabic) for Euro2.25bn in June, the number is around Euro6bn.
Analysts, although surprised at the price, which was below expectations of Euro2.4bn-Euro3bn, were unimpressed with the deal. Shares in DSM were down 4% on the Euronext Amsterdam stock exchange at Euro42 at around 15:10 hours CET (13:10 hours GMT), with analysts expressing concerns about weak margins in the vitamins and fine chemicals business.
Question marks were primarily raised over the future of the vitamin activities, which represent 50% of the division’s sales. According to the chemicals team at Credit Suisse First Boston (CSFB), the earnings before interest, tax, depreciation and amortisation (EBITDA) margin for vitamins has slumped from 29.9% in 1997 to the current 14.7%. It cited the price fixing cartel and increased competition in Asian commodity markets for the fall. CSFB concluded: "The sluggish growth of the [vitamins] market will likely drag down DSM’s growth rate."
CSFB noted that the deal carries a fair portion of execution risk as vitamins and cartenoids, which together make up 70% of the division’s sales, are new activities to DSM. In addition, it only expects to see small synergies within fine chemicals.
DSM said the acquisition will make it the world number one in vitamin production, adding that the lack of synergies and the integration of new business areas was beneficial and meant there would be no plant closures. No details of the deal’s impact on jobs at the Roche unit have yet been provided.
Credit rating agency Standard & Poors said the deal is not likely to affect its ratings or outlook for DSM. It said completion of the transaction would increase DSM’s net debt position to around Euro1.2bn, or about 20% of its capitalisation, revealing still-ample flexibility in current DSM ratings.
The deal is scheduled for completion in the first quarter 2003, subject to regulatory approval.
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