Roche gets ready to hand over vitamins business

Netherlands-based DSM and Swiss chemicals group Roche said today they have received approval from the US Federal Trade Commission for the Roche vitamins deal. With final transfer of the business to DSM expected at the end of the month, industry will be eagerly waiting to see what the unit can do under its new ownership.

Netherlands-based DSM and Swiss chemicals group Roche today announced that they have received approval from the US Federal Trade Commission (FTC) for DSM's purchase of the Roche vitamins business.

Cleared by European Union anti-trust authorities in July, the final transaction and the transfer of the vitamins and fine chemicals business is scheduled to take place by the end of September, said the companies.

Approval for the acquisition from both EC and US competition authorities was subject to DSM and BASF dissolving their feed enzymes alliance. DSM confirmed today that BASF will continue independently in this business, with DSM producing feed enzymes for the German company until it has set up its own enzyme production.

DSM will continue to be active in the feed enzymes business through Roche Vitamins' alliance with Novozymes. "The feed enzymes market is a very interesting growth market and fits extremely well within DSM's strategy to further build its nutritional ingredients business," explained Feike Sijbesma, member of DSM's managing board of directors.

DSM is working towards its highly publicised goal of reaching sales of €10 billion by 2005 (in 2002 sales came close to €5.6 billion). By that time at least 80 per cent of sales should be generated by specialities, it states.

It remains to be seen whether Roche Vitamins can contribute to this growth. The unit has consistently failed to achieve growth for some time. Sales at the unit had dropped by 9 per cent in the first half to July 2003 compared with last year's first six months, affected by the weaker dollar and lack of targeted growth over recent months.

But DSM says it can improve performance using "planned integration and transformation measures", although for the short term it will still face the same competition and price pressure concerns as the rest of the vitamin industry. To counter the short-term costs, it has managed to gain a number of concessions from Roche, including a €200 million reduction in price for the new unit, owing to its recent poor performance and costs associated with the long approval process.

DSM will now pay around €1,750 million for the business, made up of €1,650 million in cash and 2.24 million ordinary shares in DSM. The Dutch firm is aiming to make €100 million in operating profit from the unit per year, (last year Roche said vitamins and fine chemicals made SF223million or €144m), with the acquisition to contribute to earnings per share from day one.

Peter Elverding, DSM's managing board chairman, said the acquisition "fits in extremely well with our strategy of transforming DSM into a multi-speciality company".

Roche's sale of the unit is part of its strategy to focus on its core healthcare business, particularly the pharmaceuticals and diagnostics divisions.

The deal is expected to close on Tuesday, 30 September, and become effective from Wednesday, 1 October when DSM will hold a press conference.