Dutch group DSM, the world's largest vitamins maker, is buying U.S. baby food ingredients maker Martek Biosciences Corp for an agreed $1.1 billion, kicking off an expected acquisition spree.
"Martek's leading position in healthy, natural ingredients and algal technology will add a new growth platform to our Nutrition business," chief executive Feike Sijbesma said.
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DSM said on Tuesday the offer price of $31.50 per Martek share was a 35% premium to its December 20 closing price.
DSM has increasingly focused on nutritional products, moving away from low-margin bulk chemicals. It completed 1.2 billion euros ($1.6 billion) in divestments this month ahead of an expected series of acquisitions to use its cash pile.
Chief financial officer Rolf-Dieter Schwalb said DSM would continue to look for acquisitions and could still spend more than 2 billion euros, including leverage. "So, there is still quite some (room) left," he told reporters.
Martek, whose customers include Kellogg's (NYSE:K), Mead Johnson Nutrition Co (NYSE:MJN) and French group Danone, had estimated earnings before interest, tax, depreciation and amortization (EBITDA) of $115-$120 million in the year to end-October on net sales of $450 million, DSM said.
In February, Martek bought dietary supplement company Amerifit to broaden its product range away from baby food ingredients, which made up about 90% of its 2009 sales.
DSM shares were up 4.3% at 42.765 euros at 1043 GMT (5:43 a.m. ET) to reach an all-time high and outperform a 1% rise in the STOXX Europe 600 Chemicals .SX4P.
Excluding Martek's $31 million fourth-quarter restructuring charge and including Amerifit, Schwalb said DSM was paying roughly 8 times Martek's estimated EBITDA.
RBS analyst Mutlu Gundogan said compared with the 7 times multiple paid by Yule Catto (YULC.L) for PolymerLatex and BASF's BASF.DE 6.9 times for Cognis, DSM was not overpaying, given Martek's strong growth record.
He said DSM shares appeared to be rallying on relief it would not overpay and its strategy so far made sense.
"They can do two or three more of these acquisitions before thinking of returning cash to shareholders," he said.
Analysts had previously said DSM, which also makes performance materials used in bullet-proof vests and fishing nets, could become a takeover target if it did not make a large acquisition soon.DSM said the Martek deal, expected to close by the second quarter of 2011, would be immediately earnings per share accretive for DSM by 15-20 euro cents on a full-year basis and will also provide material revenue synergies.