Kerry Group linked to $20bn DuPont deal as it flags ‘robust’ takeover pipeline

Kerry Group said it has a "robust" pipeline of potential takeover targets.

The company's M&A strategy is focused on acquiring rivals to expand globally, as well exploit efficiency gains, chief executive Edmond Scanlon said on Wednesday. The Tralee-based company is exploring a potential takeover of DuPont's nutrition and bioscience business, according to sources.

“M&A is a really important part of our strategy,” Mr Scanlon said on a call with analysts, without discussing specifics. “We’ve generated a significant amount of shareholder value.”

Kerry shares have risen 32 per cent this year, making it the top performer in the Euro Stoxx Food and Beverage Index. The company, which spent €200 million on deals in the third quarter, could see its M&A spending jump by 100 times that amount in the final quarter if it successfully navigates talks with DuPont for the unit.

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Acquiring the US-based nutrition business, estimated to be worth more than $20 billion (€18 billion), would add one of the broadest food ingredients portfolios globally including bacteria cultures, sweeteners and enzymes.

The Irish company is viewed as the front-runner to take over the business, which has previously attracted interest from other players including Royal DSM, sources said. Swiss fragrances and flavourings maker Givaudan is no longer in the running, they said.

Dupont, DSM and Givaudan declined to comment. Kerry didn’t comment beyond the chief executive’s statements.

Tax free?

DuPont’s preferred option is a so-called reverse Morris trust, where its shareholders would initially retain more than 50 per cent ownership in what would become a new company comprised of its nutrition and biosciences business and Kerry. An RMT is potentially a tax-free transaction.

Maintaining a healthy valuation will be crucial as Kerry negotiates with DuPont. To reward its shareholders, the US company will be looking for a buyer with a higher enterprise to earnings multiple than DuPont’s existing conglomerate one.

Kerry is currently valued at about 19.16 times earnings, according to data compiled by Bloomberg. Morgan Stanley estimated DuPont’s nutrition business would have a 16 times multiple in an RMT with DSM, according to a note in September.

Kerry is conducting due diligence work needed for such a deal, which could be announced before the end of the year if discussions are successful, the sources said. No decision has yet been taken, and talks could yet fall apart, they said.

Sales rise

The Irish company strengthened its case with nine-month results that saw sales advance 3 per cent with improved profitability and its outlook for 2019 earnings per share growth of 7 per cent to 9 per cent intact.

"While the debate around Kerry is now more about the strategic choices it may contemplate in terms of M&A, such an 'uneventful' set of results, especially in the context of a very difficult earnings season for European staples, should at least support the multiple and buy time ahead of any new acquisitions," said Cedric Besnard, an analyst at Citigroup. He also didn't refer to the DuPont sale in a note to investors. – Bloomberg