Royal DSM, the Life Sciences and Materials Sciences company, and CVC Capital Partners (CVC), one of the world's leading investment advisory firms, have announced a partnership for DSM's activities in Polymer Intermediates (Caprolactam and Acrylonitrile) and Composite Resins through the formation of a new company, provisionally called NewCo. NewCo will be 65% owned by CVC and 35% by DSM, with 1,950 employees
Pro-forma third-party sales of NewCo in 2014 amounted to €2.1 bln with a 2014 EBITDA of €106 mln. The enterprise value of the transaction is €600 mln plus an earn-out of up to €175 mln. Financing of NewCo will primarily be through an equity contribution from both shareholders, third party financing and a €100 mln bridge loan provided by DSM
Estimated net cash proceeds at closing to DSM of €300-350 mln.
DSM will contribute its global caprolactam business (Europe, North America, its 60% stake in DNCC (China) and the caprolactam licensing business), DSM's acrylonitrile business and DSM's Composite Resins business including its 75% stake in JDR (China)
DSM's 65% stake in the service organization Sitech Services held via its caprolactam and acrylonitrile businesses will also be transferred
DSM Engineering Plastics has secured at least 80% of its caprolactam needs for 15 years after closing via drawing rights to secure its strategic position and competitiveness, effectively maintaining DSM Engineering Plastics' backward integration. For DSM, this proposed transaction is a logical step in the execution of its strategy as Polymer Intermediates (caprolactam, acrylonitrile) and Composite Resins no longer fit with its more resilient portfolio in Nutrition and Performance Materials. 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 complemented by accelerated actions to improve efficiencies and reduce costs.
CVC will work with current management of these businesses to make NewCo a success. CVC sees these businesses as a solid platform with leading positions and substantial potential for future growth. As a 35% shareholder in NewCo, DSM will be able to benefit from any improvements in the businesses that will become part of NewCo. NewCo will continue to supply at least 80% of DSM Engineering Plastics' caprolactam needs in Europe and North America for the coming 15 years via a drawing rights contract, effectively maintaining DSM Engineering Plastics' backward integration. In China DSM Engineering Plastics will continue to be supplied by NewCo as today. This secures an ongoing strategic and competitive position for the polyamide 6 business in which DSM is a global leader.
NewCo will operate as an independent company with three business units: caprolactam, acrylonitrile and composite resins. Due to the ownership change of DSM's caprolactam and acrylonitrile businesses, NewCo automatically becomes an indirect 65% shareholder in Sitech Services, the on-site service provider at the Chemelot Industrial Park in Sittard-Geleen (Netherlands). As a service provider, Sitech generally reinvests the majority of its profit into the Chemelot Industrial Park. DSM will remain a 5% shareholder in Sitech Services via DSM Engineering Plastics. In 2014 Sitech Services generated an EBITDA of €27 mln, reported within DSM's Corporate Activities, of which 65% is included in NewCo's pro-forma 2014 EBITDA of €106 mln mentioned above.
Over the past ten years, DSM has further developed the Chemelot Industrial Park and the Brightlands Chemelot Campus (Research) in Sittard-Geleen (Netherlands) into a world-leading innovation and production location. The close cooperation with the University of Maastricht and the Province of Limburg further enhances this development. Both the Industrial Park and the Campus have a deep-rooted cluster of activities, with over 100 companies and knowledge institutions such as Eindhoven University present, currently employing over 7,000 people, a number which is increasing. DSM is fully committed to its contribution for the further development of the Chemelot Industrial Park and Brightlands Chemelot Campus.