IFF and DuPont announced that they have entered into a definitive agreement for the merger of IFF and DuPont’s Nutrition & Biosciences (N&B) business in a Reverse Morris Trust transaction. The deal values the combined company at $45.4 billion on an enterprise value basis, reflecting a value of $26.2 billion for the N&B business based on IFF’s share price as of Dec. 13, 2019. Under the terms of the agreement, which has been unanimously approved by both boards of directors, DuPont shareholders will own 55.4% of the shares of the new company and existing IFF shareholders will own 44.6%. Upon completion of the transaction, DuPont will receive a one-time $7.3 billion special cash payment, subject to certain adjustments.  

The combination of IFF and N&B creates a global leader in high-value ingredients and solutions for global food & beverage, home & personal care and health & wellness markets, with estimated 2019 pro forma revenue of more than $11 billion and EBITDA of $2.6 billion, excluding synergies. The complementary portfolios will give the company leadership positions across key taste, texture, scent, nutrition, enzymes, cultures, soy proteins and probiotics categories. The combined company’s global reach and enhanced set of capabilities will enable the creation of innovative solutions to respond to customer demands and increasing consumer preferences for natural, healthier, and “better for you” products.

“The combination of IFF and N&B is a pivotal moment in our journey to lead our industry as an invaluable innovation and creative partner for our customers. Together, we will create a leading ingredients and solutions provider with a broader set of capabilities to meet our customers’ evolving needs,” said IFF chairman and CEO, Andreas Fibig. “With highly complementary portfolios, we will have global scale and leading positions in key growth categories to capitalize on positive market trends, drive strong profitable growth for our shareholders and create opportunities for our employees. I have been impressed by N&B’s management team, which shares our culture and values, and we look forward to welcoming them to the IFF family.”

“DuPont and IFF share long and successful histories of customer-driven innovation and cultures of excellence, which is why I am confident that N&B will be well-positioned for its next phase of growth. I am pleased to join the Board of the combined organization and remain involved in unlocking the potential of this new company,” said Ed Breen, executive chairman of DuPont. “We conducted a very thorough process leading us to the selection of IFF as the preferred strategic partner for N&B. I am excited about the future of the new company and all the opportunities it has for long-term value creation.”

Strategic Rationale

The new company will be ideally equipped to deliver in-demand differentiated solutions for more natural, healthy products to an expanded customer base spanning both large multinationals and fast-growing small and medium-sized customers.

Best-in-Class Innovation Portfolio Creates Differentiated Offering and Compelling Value Proposition – The company will be an immediate leader in the rapid consumer-driven industry evolution toward healthier, “better for you” products.  With leading R&D and applications development capabilities and an expanded customer base, the combined company is expected to significantly increase customer speed to market, create new efficiencies in product development and provide critical consumer insights for next-generation products.
Leading Positions Across High-Value Added Ingredient Categories – The company will have #1 or #2 positions across attractive taste, texture, scent, nutrition, cultures, enzymes, soy proteins and probiotics categories.

Highly Attractive Financial Profile – Shareholders will benefit from a highly profitable business with strong cash generation. The company expects to generate attractive top-line growth and enhanced margins with further benefit from cost synergies and revenue growth opportunities.  The combined company will maintain IFF’s current dividend policy.
Shared Culture and Vision, a Strategic Asset to Execution – IFF and N&B are customer-focused organizations with cultures that emphasize science and creativity. The combined company will benefit from the best of both organizations’ experienced leaders and talented teams. Our shared commitment to sustainability, along with the combination of our complementary capabilities, will allow us to positively shape the evolution of the industry.

“My team and I are excited about the opportunity to build the new company and create a new world-class leader. Our expertise together with IFF will best position us to address customer needs and ultimately redefine our industry,” said N&B president, Matthias Heinzel. “IFF’s innovation and customer-centric culture is remarkably similar to ours and we look forward to working with them for a smooth integration of our two organizations.”

Governance and Management

Upon closing, the new company’s board of directors will consist of 13 directors: 7 current IFF directors and 6 DuPont director appointees until the Annual Meeting in 2022, when there will be 6 directors from each company. Andreas Fibig will continue to be the chairman of the board and an IFF appointee, he will also continue as chief executive officer. The company will be headquartered in New York. DuPont executive chairman, Ed Breen, will join the board of the combined company as a DuPont appointee and will serve as lead independent director starting June 1, 2021.

The new company will draw upon the best talent from both organizations. IFF and N&B will form an integration office composed of leaders from both companies. 

Financial Benefits

The combined company will have a strong financial profile, including:

Pro forma revenues of more than $11 billion based on fiscal year 2019 estimated results
Adjusted EBITDA margin of ~23% pre-synergies and ~26% with run-rate cost synergies based on fiscal 2019 pro forma estimated results
Expected revenue growth rate in the mid-single digits over the long-term
Strong cash flow generation supporting an investment grade credit profile
Commitment to the continuation of IFF’s historical dividend policy
IFF expects to realize cost synergies of approximately $300 million on a run-rate basis by the end of the third year post-closing. These cost synergies will be driven by procurement excellence, streamlining overhead and manufacturing efficiencies. In addition, the combined company’s target is to deliver more than $400 million in run-rate revenue synergies, which would result in more than $175 million of EBITDA, driven by cross-selling opportunities and leveraging the expanded capabilities across a broader customer base.

IFF is committed to maintaining an investment grade rating and plans to delever from approximately 4.0x at transaction close to below 3.0x by year two following closing. Following the close of the transaction, IFF expects that substantially all of the debt of the combined company will be pari passu.  

Guidance

IFF is affirming its existing 2019 full-year guidance. The company reconfirms its full-year projections for sales to be between $5.15 billion and $5.25 billion with adjusted EPS to be between $4.85 and $5.05 and adjusted EPS excluding amortization to be between $6.15 and $6.35. 

DuPont reconfirms its expectations for total annual revenue of approximately $21.5 billion and an adjusted EPS[1] range of $3.77 to $3.82. DuPont expects operating EBITDA to be at the low end of the previously provided range, primarily driven by temporary supply chain disruptions in Safety & Construction (S&C) and Electronics & Imaging (E&I).

Transaction Details

The combination will be executed through a Reverse Morris Trust transaction. Upon completion, DuPont shareholders will own 55.4% of the combined company and IFF’s shareholders will own 44.6%. In addition, at the time of completion, DuPont will receive a one-time $7.3 billion cash payment, subject to adjustment. The transaction is expected to be tax-free to DuPont and its shareholders for US federal income tax purposes. 

Financing and Approvals

The transaction is subject to approval by IFF shareholders and other customary closing conditions, including regulatory approvals. As part of the transaction, IFF’s largest shareholder, Winder Investments, has agreed to vote in favor of the transaction. The parties target closing the deal by the end of the first quarter of 2021. IFF and N&B have obtained fully-committed debt financing from Morgan Stanley and Credit Suisse. The combined company is committed to maintaining an investment grade rating. 

Advisors

Greenhill & Co. LLC and Morgan Stanley & Co. LLC are serving as IFF’s financial advisors and Cleary Gottlieb Steen & Hamilton LLP is serving as legal counsel. Credit Suisse Securities (USA) LLC and Evercore are serving as DuPont’s financial advisors and Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal counsel.

Conference Call Details

The two companies will host a joint conference call on Monday, December 16, 2019, at 7:30 am ET to discuss the announcement. The call will include a slide presentation and participants are encouraged to view the presentation via webcast at www.strongerinnovationtogether.com/investors.

The conference call may also be accessed by dialing: (877) 830-2586 (Toll Free) or (785) 424-1734 (International) and using the Conference ID: 121619. A replay will be available for approximately 90 days and can be accessed by dialing: (800) 839-4199 (Toll Free) or (402) 220-2989 (International).

Additional information about the combination of IFF and N&B can be found at www.strongerinnovationtogether.com.