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IFF reaches US$26.2b deal for DuPont's nutrition unit

New York

INTERNATIONAL Flavors & Fragrances Inc. (IFF) reached a US$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 comprising the bidder's assets and DuPont's nutrition business. The new company will have an enterprise value of US$45.4 billion, with DuPont shareholders getting a 55.4 per cent stake and IFF shareholders getting 44.6 per cent, the companies said in a statement on Sunday after Bloomberg News reported the deal was near.

The deal is the biggest ever for New York-based IFF, which makes flavours and fragrances for food, personal-care and household products. It comes as businesses are tapping into so-called wellness products, with consumers become increasingly health-conscious.

DuPont's unit specialises in products such as sweeteners and emulsifiers to dairy cultures and dietary fibres, 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.

IFF shares fell 6 per cent in early trading, while DuPont rose 1.9 per cent. DuPont shares have lost 15 per cent this year, and earlier this month closed at the lowest level since 2016. IFF shares are down 0.2 per cent 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 US-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 US$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 Mr 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.

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.

The deal is the latest as the food-flavouring industry rushes to consolidate as growth slows and flavour makers contend with volatile raw-materials prices. Last year, IFF bought Israel's Frutarom Industries Ltd. for US$7.1 billion as it chased industry leader Givaudan SA. That transaction is still absorbing management time and has increased leverage.

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 US$12.5 billion.

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