New York-based International Flavors & Fragrances (IFF) has emerged as a strong contender to purchase DuPont's nutrition division, challenging Kerry Group for the $25 billion (€22.6 billion) asset.
IFF and Kerry are both negotiating with DuPont and the winner could reach a deal by year-end, Bloomberg has reported, citing unnamed sources. The transaction will create a new company comprised of the bidder's assets and DuPont's nutrition business that will be spun off to existing investors, sources said.
The Irish Times had previously reported that Kerry has turned to Wall Street giant Goldman Sachs to help it seal what would be the largest deal carried out by an Iseq-listed company. An all-stock transaction would double its €20.6 billion market value.
Tax-efficient deal
Dealreporter, a publication that specialises in covering mergers and acquisitions activity, first reported in October that Kerry was in pole position to buy the DuPont unit, which the seller is looking to execute through a tax-efficient deal called a reverse morris trust.
This would involve DuPont handing its shareholders stock in the unit being sold, which would then merge with another business, in this case, Kerry. As long as shareholders in the DuPont nutrition business own at least 50.1 per cent of the combined entity, the original spin-off of the DuPont unit is a tax-free transaction for the US group’s shareholders.
IFF presents DuPont chairman Ed Breen and chief executive Marc Doyle with a distinct alternative to Kerry. While a reverse morris trust is easier between two US companies, IFF's $7.1 billion purchase of Frutarom Industries last year is still absorbing management time and has increased leverage.
However, Kerry trades at a higher earnings multiple than IFF, offering a potentially bigger valuation uplift to DuPont shareholders.
Kerry’s historical strategy has focused on small, bolt-on deals – including more than 200 purchases in the past 25 years alone. This has allowed it to build a global nutrition business with about €7 billion of revenues, selling ingredients to beverage, confectionary, culinary food and pharma companies.
