COPENHAGEN, DENMARK - Novozymes A/S ("Novozymes") has today signed a definitive agreement to acquire EMD/Merck Crop BioScience Inc. ("EMD/Merck Crop BioScience") from Merck KGaA. The acquisition is subject to customary regulatory approvals and is expected to be completed between February and May 2011.
The total consideration to be paid to Merck KGaA is USD 275 million (approximately DKK 1,550 million), subject to customary post-closing adjustments. EMD/Merck Crop BioScience has had an average annual growth rate of roughly 15% over the last seven years, and expected sales in 2010 is roughly USD 60 million (roughly DKK 340 million). Future expected sales growth supports Novozymes' long-term expectations of more than 10% annual organic sales growth. EMD/Merck Crop BioScience is also a profitable company with EBIT margins supportive of Novozymes' long-term expectations of more than 20%.
"We have long admired EMD/Merck Crop BioScience for its track record of innovation and performance, and I'm very pleased that we have now reached an agreement so that the company will become a part of Novozymes," says Steen Riisgaard, President & CEO of Novozymes. "The acquisition strengthens our presence in the growing field of agricultural biologicals, and the complementary business of EMD/Merck Crop BioScience's has a strong strategic fit with our existing BioAg business. Sustainable products and technologies will in the future play an even greater role in the agricultural industry as they allow effective and more sustainable ways to grow crops. Novozymes is dedicated to leading continued innovation in this space, developing biotechnology solutions for agriculture."
The strategic rationale for acquiring EMD/Merck Crop BioScience includes:
• Established and proven technology: EMD/Merck Crop BioScience's biofertility products and technologies are well defined and established, with documented and proven efficacy gains on numerous soils and crops
• Growing business: The biofertility solutions business is growing fast. It is currently estimated to be worth around USD 250 million, forming part of the agricultural biologicals industry, which is worth more than USD 1 billion. Biofertility solutions provide farmers with an environmentally friendly and cost-efficient crop yield enhancer. EMD/Merck Crop BioScience's biofertility business has grown by roughly 15% annually during the last seven years.
• Strategic fit: EMD/Merck Crop BioScience has a strong strategic fit with Novozymes' existing BioAg business, complementing its product range and geographical scope. EMD/Merck CropBioScience has a long track record of commercializing innovative and highly efficient products, and Novozymes' unique biotechnology platform can be leveraged to develop new and improved products
• Global leadership: EMD/Merck Crop BioScience's strong presence in the US and South America, combined with Novozymes' strong presence in Canada and Brazil, make Novozymes a major player in sustainable solutions for the ag biologicals industry and the market leader in biofertility solutions. The acquisition is thus an important step in strengthening Novozymes' presence in the biofertility solutions segment and expanding our presence in ag biological
• Supportive of long-term expectations: The expectations for EMD/Merck Crop BioScience's longterm sales, earnings, and balance sheet performance support Novozymes' long-term
Expectations Novozymes entered the ag biologicals business in 2007 with the acquisition of Philom Bios in Canada and has gradually increased its activities, most recently with the acquisition of Turfal in Brazil earlier this year.
EMD/Merck Crop BioScience in brief
EMD/Merck Crop BioScience is a leading developer of natural inoculants used by farmers to improve plant health and crop yields. Its products are applied to crops, including soybean, pulse crops, forage crops, peanuts, corn, and wheat. These products are currently primarily sold in the US, Canada, Argentina, and Brazil.
EMD/Merck Crop BioScience is headquartered in Milwaukee, Wisconsin, and has operations in the US and Argentina. About 165 people are currently employed at EMD/Merck Crop BioScience.
In 2009 EMD/Merck Crop BioScience generated sales of USD 46 million (roughly DKK 260 million) and had an EBIT margin supportive of Novozymes' long-term EBIT margin expectation of more than 20%. For 2010 EMD/Merck Crop BioScience is expected to generate sales of roughly USD 60 million (DKK 340 million) and an EBIT margin again supportive of Novozymes' long-term expectation.EMD/Merck Crop BioScience has increased revenues at an average annualized rate of roughly 15% during the past 7 years.
Integration of EMD/Merck Crop BioScience into Novozymes
The transaction comprises acquisition of EMD/Merck Crop BioScience USA, EMD/Merck Crop
BioScience Canada, and EMD/Merck Crop BioScience Argentina, including the transfer of related tangible and intangible assets, liabilities, and employees. The acquired business will be consolidated within Novozymes and will be reported as part of BioBusiness (microorganisms) going forward.
Financial impact on Novozymes
There is no impact on Novozymes' latest 2010 sales and earnings guidance as communicated on October 28, 2010, as a result of the transaction. The actual takeover date is still uncertain and could be as early as February, but also as late as May, depending on regulatory approvals. Combined with high seasonality in EMD/Merck Crop BioScience's sales pattern (the bulk of sales occur in the first and last quarters of the year), it is difficult at this time to estimate the full sales and earnings impact of the transaction for 2011. Furthermore, IFRS accounting policies require inventories at the acquired company to be valued at selling price net of selling and other costs linked to sales, which will impact EBIT negatively.
As we move closer to the final takeover, we will be able to communicate more precisely on the
expected full-year 2011 impact. Hopefully, we will be able to be much more precise in our full year announcement on January 21, 2011.
Regardless of the acquired sales impact for 2011, we expect EBIT for the transaction to be around zero due to the aforementioned unpredictable takeover date, the IFRS inventory accounting impact, and transaction and integration costs. After 2011 the acquisition is expected to support Novozymes' long-term expectations for sales and earnings.
Novozymes will finance the transaction from existing financial resources.