Genencor buy fits into strategy, says Danisco

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Related tags: Danisco, Goldman sachs, Glucose

Set to see sugar profits dip with incoming European sugar reform,
Danisco's announcement last week to acquire enzyme player Genencor
is the latest in a string of acquisitions that will go some way to
bridging the sales gap, writes Lindsey Partos.

The Danish ingredients firm will become the world's number two enzyme player, behind the category leader Novozymes.

In a €419 million deal Danisco will buy Eastman Chemical's 42 per cent stake in the NASDAQ listed biotech company. Danisco already has a 42 per cent slice of the firm.

But the move surprised observers that had previously predicted Danisco might shuffle off its Genencor stake, to fuel growth and acquisitions in the food ingredients sector.

Investment in ingredients is deemed essential for the group to counterbalance lost income from the sugar unit when sugar quota reform arrives in 2006. Investment bank Goldman Sachs predicts sugar profits for Danisco could drop by as much as 40 per cent.

Brushing aside criticism of the move, Michael von Bülow, vice president communications and investor relations at Danisco asserts the acquisition fits snugly into the firm's strategy.

"We would like to expand our presence in biotechnology. This acquisition also gives us the opportunity to build on our enzyme knowledge,"​ he explains to

Not only this, von Bulow claims expertise at Genencor will be transferable to other ingredients units in the group, bringing added value to a range of areas, such as production techniques.

In addition to enzymes, Danisco supplies emulsifiers - where it holds the number one slot - flavours, cultures, bio-preservation, stabilisers, functional systems and sweeteners.

Arguably, some of the surprise in Danisco's move to buy Genencor is sourced in the current assumption that enzymes are not high margin ingredients.

According to a report last month from Business Communications Company, the €1.53 billion enzyme market is currently staring at relatively flat growth of about 2 to 3 per cent, expected up to 2009.

Danish firm Novozymes dominates the enzyme market with about a 50 to 60 per cent share, and Genencor, following behind in second place with about 30 per cent.

Observers had expected Danisco would spend a generous slice of funds consolidating in higher margin ingredients, such as flavours, an area where the firm has clear ambitions to reach a top five global position.

Although buying on the same scale as Genencor may prove challenging, fears that Danisco will now lack sufficient funds to fuel any future acquisitions in ingredients are also quashed by Mr. Von Bulow.

"We will still be out there looking for opportunities. There is still room on the balance sheet for acquisitions, but perhaps not of the same magnitude, although to create value for shareholders,"​ he says.

The Genencor acquisition, due to be cleared by May this year, is the latest in a string of deals that have consolidated Danisco's position in ingredients.

The €320 million purchase last year of Rhodia Food Ingredients, lifted Danisco into the number two cultures firm, as well as considerably strengthening its position in enzymes and hydrocolloids.

Building up market share in semi-refined carrageenan, the Danish firm in June 2004 acquired the assets for processing the ingredient from liquidated firm Scottish Scotcol.

The move followed swiftly on from Danisco's drive into the burgeoning Chinese market, through a 80/20 joint venture agreement with xanthan gum supplier Chinese Henan Tianguan group.

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