DSM and CVC Capital Partners (London), a private equity and investment advisory firm, have formed a partnership for DSM’s activities in polymer intermediates — caprolactam and acrylonitrile — and composite resins, through the formation of a new company, DSM says. The new company will be 65% owned by CVC and 35% by DSM, with 1,950 employees. The net cash proceeds at closing to DSM will be about €300-€350 million ($315-$367 million). For DSM, this proposed transaction is a logical step in the execution of its strategy as caprolactam, acrylonitrile and composite resins no longer fit with its more resilient portfolio in nutrition and performance materials, DSM says. “This proposed transaction delivers on the strategic actions DSM announced for these businesses in November 2014 and is a decisive step in further optimizing our portfolio and reducing our cyclicality,” says Feike Sijbesma, CEO and Chairman of the managing board of DSM.
DSM will contribute its global caprolactam business including its 60% stake in the caprolactam joint venture DNCC at Nanjing, China and the caprolactam licensing business; DSM’s acrylonitrile business and DSM’s composite resins business including its 75% stake in JDR, a composite resins facility at Nanjing, to the new company. DSM’s 65% stake in the service organization Sitech Services held via its caprolactam and acrylonitrile businesses will also be transferred. Sitech Services is the on-site service provider at the Chemelot Industrial Park in Sittard-Geleen, the Netherlands. The new company will operate as an independent company with three business units: caprolactam, acrylonitrile and composite resins. Pro-forma third party sales of the new company amounted to €2.1 billion ($2.20 billion) in 2014 with an Ebitda of €106 million. The transaction is expected to close in the third quarter of 2015. The enterprise value of the transaction is €600 million plus an earn-out of up to €175 million.
DSM Engineering Plastics has secured at least 80% of its caprolactam needs for 15 years after closing via a drawing rights contract, effectively maintaining DSM Engineering Plastics’ backward integration, DSM says.
The partnership with CVC allows DSM to further reduce the cyclicality of its portfolio, secure a long-term competitive supply position of caprolactam for DSM Engineering Plastics and fully focus on the nutrition, performance materials and innovation activities.
“We have found a good partner in CVC after a careful process in which we evaluated all options. We believe the partnership with CVC is the best way forward for these businesses. The new company will operate as an independent, dedicated company under the leadership of CVC. DSM can now focus fully on improving the operational performance of its nutrition and performance materials businesses as well as benefitting from the future value creation in this new venture,” Sijbesma says.
As a 35% shareholder, DSM will be able to benefit from any improvements in the businesses that will become part of the new company.
Financing of the new company will primarily be through an equity contribution from both shareholders, third party financing and a €100 million bridge loan provided by DSM. DSM will recognize an initial book loss of about €130 million after tax and non-controlling interests, as an exceptional item in the first quarter of 2015.
DSM’s advisors on the transaction were Allen & Overy and the Valence Group. Advisors to CVC were Aon, Bain & Co., Citigroup, Clifford Chance, Deloitte, Environ, KPMG and McKinsey. Financing for the transaction is being provided by Citigroup and Rabobank.
By Deepti Ramesh