DSM, Cargill Line Up For France's Provimi

French animal feed firm Provimi, put up for sale by private equity group Permira, has attracted offers from Dutch firms Nutreco and DSM , U.S. group Cargill and China's New Hope Group, two sources close to the deal said on Thursday.

Sources said first-round offers were lodged this week in a potential deal that could value the group at about €2 billion ($2.9 billion).

Second-round offers are due in about six weeks' time, one of the sources said, adding there has been wide interest. Joint bids are also possible.
The animal feed business is highly fragmented, and analysts consider the industry ripe for consolidation. About one third of the industry is in the hands of large international corporations, while many family-owned companies are active in local markets.

Provimi reported €154 million in earnings before interest, tax, depreciation and amortization (EBITDA) last year, and Permira is said to be looking for a double-digit multiple on estimated 2011 EBITDA, which could push the price tag to about €2 billion given average growth in the sector.

"Double digit sounds reasonable given the interest in the nutrition sector," said Peter Hall at M&A advisory Valence.

DSM shares were down 2.5% and Nutreco shares were off 1.1% compared with a 1.2% fall in the Amsterdam AEX index.

Cargill earlier this month announced plans to buy Italian animal feed company Raggio di Sole in a deal analysts said shows its continued interest in expanding in animal feed.

"At any one time, Cargill is assessing a number of initiatives to progress its business strategy," a Cargill spokeswoman said. "We do not comment on rumors or speculation."

Nutreco has looked at buying Provimi twice before, but Rabo Securities analyst Patrick Roquas said a potential 2 billion euro price tag might prove too expensive for Nutreco.

"It would clearly stretch their balance sheet ratios and Nutreco would have to divest its meat division," he said.

He said a price of €1.5 billion and €45 million in cost savings could make the deal value accretive within four years, meeting Nutreco's acquisition criteria.

DSM has greater firepower, with more than €2 billion available for deals, but the company's board member responsible for the nutrition operations, Stephan Tanda, said previously that DSM was not interested in all of Provimi, but would be interested in some of Provimi's pre-mix businesses.

RBS analyst Mutlu Gundogan said making a joint bid with a partner would be a good choice for DSM, but raised doubts about whether DSM would be prepared to pay so much for Provimi.

"If they buy Provimi, DSM would be the absolute powerhouse in animal food and vertically integrated so it would be a very interesting position, especially in combination with Provimi's emerging market exposure," ING analyst Fabian Smeets told Reuters recently.

"We estimate DSM could fetch higher synergies than Nutreco, somewhere in the order of €50 -70 million based on overlapping feed plants and raw material purchasing."

China's New Hope Group has annual sales of around $6.5 billion and said on its website it is the largest feed producer in China.

It did not respond to calls to its corporate headquarters.

JP Morgan, which is conducting the auction, and Permira declined to comment. DSM and Nutreco also declined to comment.


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