The proposed divestment follows DSM’s recent acquisitions of the Biomin and Romer Lab’s business from the Erber Group, which is set to close shortly, along with Danish human milk oligosaccharides supplier, Glycom, and specialty dairy solutions provider, CSK.
Completion of the deal with Covestro, which is subject to the customary conditions and approvals, is expected to occur in the first half of 2021.
DSM said it expects to receive approximately €1.4bn net in cash following closing, including repayment of RFM’s net debt, and after transaction costs and capital gains tax.
Geraldine Matchett and Dimitri de Vreeze, Co-CEOs of Royal DSM, commented: “This sale builds on our approach of actively managing our businesses, as DSM continues to evolve as a purpose-led, science-based company operating in the fields of nutrition, health and sustainable living. The deal delivers strong value to DSM and is strategically attractive for all parties.”
When DSM acquired the Erber Group businesses in June this year, it entered the mycotoxin control business “as the world leader.” The move was also set to enhance the company’s position in the animal gut performance management market.
In an evaluation of that deal, commentators said the acquisition should help DSM benefit from a transition to more 'sustainable' farming globally.
"Still, Erber needs to increase its current €330m in revenue by over a tenth annually over the next five years for DSM to make a return broadly in line with an estimated 10% cost of capital, assuming a 20% operating margin and an 18% tax rate."
The use of proceeds from the sale of the RFM businesses has not yet been determined.
"Assuming all transactions proceed as expected, we will be broadly at the same leverage levels as we were prior to the Glycom and Erber transactions. Therefore, as of now, the intention is to continue to allocate that capital according to our existing priorities as we always do. One of those priorities, which were set back in 2018, is for value creation acquisitions, predominately in nutrition. But that is not our only capital allocation approach and we will need to see once the transactions conclude," a spokesperson for DSM told FeedNavigator.