Large acquisition by Kerry Group

By Eric Donald

The Kerry group's acquisition of Quest ingredients for US$440 million is its most significant expansion in the ingredients sector since the purchase of Dalgety Food Ingredients in March 1998, for €396 million.

With sales of US$255 million and operating profits of US$30 million, the acquisition of Quest from ICI is expected to make a modest contribution to earnings in 2004 but could add up to 2% to EPS in 2005.

This acquisition, which is due to be completed before the half year, will push Kerry's turnover beyond €4 billion for the first time ever this year. This move continues the group's expansion into high-margin ingredient businesses.

This business also brings Kerry into a whole new area of pharma-ingredients, supplying hydrolysed proteins for use in cell tissue culture, specialist ingredients for making tablets along with therapeutic and nutritional products. This will open up a whole new customer base in the pharmaceutical industry to the Kerry group.

The company has strong capabilities in research and development of new innovative products.

This is driven from the company's centres in Naarden in Holland and Chicago in the US. Quest Food ingredients, which was previously owned by Unilever, has nine production facilities, including one in Cork. The others are in the Netherlands (two), the USA (two), Canada, Malaysia, Philippines, and the UK. the value of these net assets is US$150 million.

Employing 900 people, these facilities manufacture a range of products, including emulsifiers, yeast flavourings, enzymes, cultures and fermentation products.

It has sales into 23 countries, strengthening Kerry's presence in areas like Egypt, South Africa, Sweden, Eastern Europe and Asia.

ICI plan to retain the Quest flavour business and some parts of this, particularly in research and development, will have to be untangled from the ingredients business. ICI plan to use the net proceeds from the sale of US$365 million to reduce the group's debt.

The transaction will give rise to a loss after tax of Stg£50 million for ICI which they will treat as an exceptional item. ICI also plan to further restructure the remaining Quest operation to reduce costs. This is expected to cost around US$20 million.

This latest acquistion by Kerry comes after a spend of over €450 million on smaller bolt-on acquistions during 2002 and 2003.

This pipeline of smaller additions is expected to continue.

Consolidation in ingredients business

This acquisition of Quest by Kerry continues the global consolidation that is taking place in the ingredients business.

Since Kerry's acquisition of Dalgety Food Ingredients in 1998, Danisco has bought Cultor, Lehman Brothers have purchased Kelco, IFF have acquired Bush Boake Allen, while Haarman and Reimer has also changed ownership.

Currently, Danish company Danisco are in exclusive negotiations to buy the food ingredients business of the French company Rhodia.

Rhodia has operations in Europe, North America, Latin America and Asia. Their ingredients operations generated sales of €211 million in 2003 and employ 860 people. The deal is expected to be finalised in the second quarter.

It's understood that Danisco edged out rivals ABF and Degussa and DSM to enter exclusive negotiations.