Kerry CEO Sees M&A Opportunities as DuPont Sells Unit

(Bloomberg) -- Kerry Group Plc, the flavor and sweetener maker, said it has a “robust” pipeline of potential takeover targets.

The Irish company’s M&A strategy is focused on acquiring rivals to expand globally, as well exploit efficiency gains, Chief Executive Officer Edmond Scanlon said on Wednesday. The Tralee, Ireland-based company is exploring a potential takeover of DuPont Inc. nutrition and bioscience business, according to people with knowledge of the matter.

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

Kerry shares have risen 32% this year, making it the top performer in the EURO STOXX Food & Beverage Index. The company, which spent 200 million euros ($222 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.

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

The Irish company is viewed as the frontrunner to take over the business, which has previously attracted interest from other players including Royal DSM NV, said the people who asked not to be identified as details of the sale process are private. Swiss fragrances and flavorings maker Givaudan SA is no longer in the running, they said.

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

Tax Free?

DuPont’s preferred option is a so-called reverse Morris trust, where its shareholders would initially retain more than 50% 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 U.S. 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 people 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% with improved profitability and its outlook for 2019 earnings per share growth of 7% to 9% 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 Inc. He also didn’t refer to the DuPont sale in a note to investors.

Kerry shares gained 1.9% to 116.10 euros as of 9:32 a.m. in Dublin.

--With assistance from Beth Mellor.

To contact the reporters on this story: Andrew Noël in London at anoel@bloomberg.net;Kiel Porter in Chicago at kporter17@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Aaron Kirchfeld, Dara Doyle

©2019 Bloomberg L.P.