Recent Acquisitions

Analyzing the Roche Vitamins and Loders Croklaan acquisitions.

By Adam Ismail

Two major acquisitions were an­nounced back-to-back in September in the natural products industry, both of which saw major players exiting the nutrition space. Neither deal is actually complete, but both had advanced enough that the companies felt they should announce the deals. Roche, a Switzerland-based pharmaceutical giant, said it was selling its Roche Vitamins division to DSM, a Netherlands-based life sciences company that already has a major stake in nutrition. The other deal saw Unilever, the consumer products giant, sell its Loders-Croklaan specialty fats and oils division to IOI Group, a diversified conglomerate from Malaysia.

At first glance, the divestitures of Roche Vitamins and Loders Croklaan appeared to allow two major players to leave the space because they no longer see positive financial returns in the future, but the flip side to the story is that the two buyers see a tremendous amount of upside to the space and have paid high prices to take advantage of the situation.

The real reason Roche left is what many people foresaw three or four years ago when other pharmaceutical manufacturers were making acquisitions to enter the space; pharmaceutical companies, in general, will not be satisfied with the returns of their nutrition businesses. It makes sense because pharmaceutical products have such high margins that any business that operates below the pharmaceutical margins makes the company look less efficient. Roche has been saying for a couple years that it wanted to focus its entire business on pharmaceuticals and that all non-core business would be divested or spun-off. The vitamins division was basically the last non-core business left at Roche.

For Unilever, a similar problem existed with Loders Croklaan. Unilever has certainly gained a number of synergies from having Loders Croklaan in its portfolio because in its branded food products, it uses almost all of the fats and nutritional oils Loders makes. However, Unilever is a brand machine and not a raw material supplier, so it made little sense for them to try to focus on growing the Loders Croklaan division. The division is still very important for Unilever, though, because they buy so much product from it, so they had a vested interest in finding a buyer that would support the business long-term and would still be a partner for Unilever. The company also said they had been very satisfied with the highly profitable company and valued the contributions of its employees, so any buyer had to agree to properly care for the division’s employees.

Although the buyers have similar motivations, they could not be more different. It is important to understand their strategies, however, because once the deals close they will be two of the largest raw material suppliers in the industry.

DSM is already a leader in food and pharmaceutical ingredients, as well as other specialty chemicals. On top of that, it has dabbled in the nutrition space with a handful of specialty ingredients like creatine monohydrate and arachidonic acid. The new addition of Roche’s Vitamins and Fine Chemicals division seemingly fits that portfolio of products very well because not only does Roche sell complementary products like polyunsaturated fatty acids, but it also sells high volume ingredients, like vitamin raw material, which DSM has used as a core platform in other industry segments, including pharmaceuticals. Also, DSM made a bold promise last year to its shareholders that it would reach €10 billion in revenues in the next three years, under a plan it called Vision 2005. With €7.9 billion prior to the acquisition, the deal puts the company within “spitting distance” of that goal.

The IOI group, how­ever, is a different story. IOI is a large multinational conglomerate based in Malaysia with interests ranging from real estate to petrochemicals. IOI already has a strong palm oil business, but only sells crude product that cannot be used in food or supplement applications. The acquisition will allow the company to extend its palm oil business internationally, as well as expand its oil product portfolio. The two companies are actually very complementary to each other in terms of their geographic and product reach. Loders business is primarily centered in Europe and North America, while IOI is almost entirely focused on Asia. IOI also focuses on the very beginning segments of the value chain like growing harvesting, and crude production of palm oil products, while Loders focuses on the next steps like refining, blending, distribution, and marketing of palm and other oils.

The two deals to­gether total more than €2.7 billion, marking the biggest month for transactions in the industry in the past two years. As such, un­der­standing the rationales and stra­tegies underlying the transactions is vitally important, especially since both companies have made significant investments in areas like omega 3 fatty acids and lutein, which it hopes will spur growth in nutritionals.NW