IFF Vies With Kerry in Deal for DuPont Nutrition Business

(Bloomberg) -- International Flavors & Fragrances Inc. has emerged as a strong contender to purchase DuPont Inc.’s nutrition division, challenging Ireland’s Kerry Group for the $25 billion asset, according to people with knowledge of the matter.

IFF and Kerry are both negotiating with DuPont and the winner could reach a deal by year-end, the people said, asking not to be identified as the discussions are private. 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, the people said.

DuPont shareholders will emerge from the so-called Reverse Morris Trust with a significant stake in the business, the people said. The new company aims to have an investment-grade credit rating and its board will include directors from DuPont and the bidder, the people said. The transaction is likely to take at least a year to close, they said.

Representatives for DuPont, IFF and Kerry declined to comment. Discussions between the companies could still fall apart or Dupont could opt for a spinoff instead, the people said.

IFF presents DuPont Chairman Ed Breen and Chief Executive Officer Marc Doyle with a distinct alternative to Kerry. While an RMT is easier between two U.S. companies, IFF’s $7.1 billion purchase of Frutarom Industries Ltd. last year is still absorbing management time and has increased leverage. In Kerry, they have an Irish company with deep roots in the dairy industry that’s keen to expand in food ingredients. Kerry trades at a higher earnings multiple than IFF, offering a potentially bigger valuation uplift to DuPont shareholders.

Shares of IFF dropped as much as 3.6% to $136.89 in New York. Kerry declined 0.1% to 116.40 euros in Dublin. Dupont gained as much as 2%.

The 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 it would make it the largest global specialty ingredients company. It would put IFF at a “strategic advantage versus peers, while not acquiring the asset would similarly disadvantage the company.”

DuPont opted for the most tax-efficient option to reward shareholders after the value of its nutrition business had wallowed below industry levels as part of a diversified company.

The deal would be the biggest ever for IFF, which makes flavors and fragrances for food, beverages, personal care and household products. The company’s last big acquisition was in the food-flavoring industry last year, when it bought Israel’s Frutarom Industries Ltd. for $7.1 billion including debt.

Kerry 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. Kerry’s heritage lies in milk, cheese and other dairy products, and the company collects a billion liters of milk a year from small family farms in the southwest of Ireland.

--With assistance from Andrew Noël and Kiel Porter.

To contact the reporters on this story: Nabila Ahmed in New York at nahmed54@bloomberg.net;Dinesh Nair in London at dnair5@bloomberg.net;Ed Hammond in New York at ehammond12@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Kevin Miller

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