DuPont, reconfigured through the historic merger and demerger with Dow, is changing once again. The 200-year-old chemical company will leave the food additives business by combining its nutrition and biosciences division with International Flavors & Fragrances.
DuPont announced on Sunday, Dec. 15, that it will merge the division, which has annual sales of $6.8 billion, with IFF in a tax-free transaction that values the division at $26.2 billion. With the deal, IFF will more than double in size to about $11 billion per year, becoming a leading provider of ingredients for the food, personal care, and pharmaceutical industries.
DuPont shareholders will own 55.4% of the enlarged IFF. Upon completion of the deal, expected by the first quarter of 2021, DuPont will receive a one-time $7.3 billion special cash payment.
The sale is the latest in a series of changes that have radically remade Wilmington, Delaware-based DuPont. The process arguably began in 2011 when DuPont, under the leadership of CEO Ellen Kullman, entered the enzyme and food ingredient businesses by purchasing the Danish company Danisco for $6.3 billion. In 2013, Kullman initiated the spin-off of the industrial chemical company Chemours.
Change accelerated in 2015 when Kullman was pushed out and Ed Breen, a DuPont board member who once led the conglomerate Tyco, was named CEO. He immediately began talks with his counterpart at Dow about a merger and demerger that would shuffle businesses between the two companies and spin off new versions of DuPont and Dow, plus an agriculture company later named Corteva.
After European antitrust regulators objected to aspects of the agriculture combination, DuPont struck a deal to swap a large portion of its crop chemicals business for cash and FMC’s $700 million-per-year nutrition business, which makes food additives such as carrageenan and alginates.
The FMC business plus the former Danisco make up a large portion of the nutrition and biosciences division that will be combined with IFF. Among the division’s other operations are a legacy DuPont food protein business and Dow’s former cellulosic ingredients unit.
For IFF, the acquisition will add large-volume food ingredients such as proteins and probiotics to a company that has traditionally focused on specialized flavor and fragrance ingredients.
Executives on a call to discuss the deal noted that the two firms have almost no overlap in products but significant overlap in customers. They used the example of a plant-based burger to show how the businesses fit together. IFF sells seasonings, taste modulation products, antioxidants, and natural colors for the popular hamburger alternative, while the DuPont division sells texturants, binders, proteins, and emulsifiers.
Similarly, for the laundry detergent industry, IFF provides fragrances and encapsulation products, while DuPont sells enzymes and microbial control products.
Nutrition and biosciences is the largest of DuPont’s four divisions—the others are electronics and imaging, transportation and advanced polymers, and safety and construction—and the transaction will shrink DuPont’s annual sales by about 30%.
Analysts will be watching to see if DuPont will soon reach a steady state or if more change is in store. Earlier this year, the company indicated that it wants to divest several businesses with combined annual sales of about $2 billion. They include biobased 1,2-propanediol, solar panel raw materials, and sulfuric acid regeneration services. DuPont earlier sold its safety consulting business, DuPont Sustainable Solutions.
Industry watchers note that Breen, who is now DuPont’s executive chair, has a penchant for breaking up companies, having done so earlier with Tyco. On the conference call to discuss the IFF deal, several analysts referred to DuPont as “RemainCo,” implying that they see DuPont as a portfolio of businesses to be managed rather than a cohesive company.
On the call, Vincent Andrews, a stock analyst with Morgan Stanley, asked Breen if he needs to wait until the deal with IFF closes before considering subsequent large transactions. “I’m going to try to get some downtime over this holiday,” Breen joked in response.
Breen went on to say that he likes the businesses that remain in DuPont but that his team is quite able to do more than one thing at a time. “We’ve been very transparent that we’re going to actively manage the portfolio,” he said. “We’re obviously not afraid to make moves like this.”