Where next for ingredients since Cognis and National Starch?


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Where next for ingredients since Cognis and National Starch?

Related tags Corn products Goldman sachs Cognis

‘Billion dollar deal’ was not a phrase bandied about the food ingredients industry much last year. With BASF buying Cognis for €3.1bn and Corn Products International paying $1.3bn for National Starch, M&A looks to be thawing – but best not get over-excited just yet.

These serious sums from BASF and Corn Products are unlikely to have been scribbled down and passed across the negotiating table in recession-struck 2009 – even less to have reached the bit where two people get to sign their names on a dotted line.

Sure, some small minnows that got into difficulties in the troubled economic waters were tasty acquisition morsels for bigger fish with stronger cash positions and credit lines. But a billion dollars? Even the behemoths that usually have spare change or credit lines jangling about in their back pockets were hanging on to it in 2009.

But now, with these two big deals, it’s as if the M&A market has gone: “Ta dah! We’re back, and so is financial mobility!”

Both deals have been a long time coming. In both cases analysts have been abuzz with speculation about the lucky buyer. Sheer anticipation means that when a deal is finally announced everyone will have a view on whether it is any good or not.

National Starch has been for sale since 2007, when Azko Nobel bought ICI and decided that a starch business revolving largely around food was not for keeps. Then hit the crisis, and interest dried up as potential buyers couldn’t get the credit they needed.

Meanwhile, Corn Products International tried to sell itself to Bunge in 2008 for $4.8bn, but that deal fell apart after corn process took a dive.

In the soap opera of the M&A markets, this has been a gripping story line. But the denouement for National Starch has disappointed some. Corn Products’ shares plummeted as the news broke, as analysts reckon the largely debt-funded deal will be cash dilutive for at least the first three quarters of 2011.

This means shareholders will have to sit tight if they are to get some goodies. In true theatrical style, we’re still on a cliff hanger.

Rival suitors

As for Cognis, private equity players Permeira and Goldman Sachs picked it up for €2.5bn in 2001, and after 9 years – almost double the usual turn around time for private equity – sold it for a mere 24 per cent more. They had been mulling an IPO, a messier exit, as offers received in 2006 didn’t break the $3bn barrier.

BASF knows Cognis well and has come to love it. It had considered asking for its hand in 2007 and in 2008. Then, at the eleventh hour, its bliss was threatened as another suitor, Lubrizol, stepped in with a higher offer, according to rumours – but was knocked back.

Skipping off into the sunset, to live happily ever after? We’ll see…

The analysts are trailing a spate of new matches in the wake of BASF and Cognis. Lubrizol clearly has money to spend, and other chemical companies spent 2009 strengthening their balance sheets.

But both of last week’s deals have their roots in the pre-2008 era. Their conclusions, at long last, might signal a thaw, but making these billion dollar deals a reality has been a long path fraught with pitfalls.

Big purchases don’t happen on carefree shopping sprees, even less so since 2008.

As a journalist covering food ingredients companies, I am not expecting to write the words ‘billon dollar deal’ many more times this year.

Jess Halliday is senior editor of FoodNavigator.com. Over the past twelve years she has worked in print, broadcast and online media in both Europe and the United States.

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