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Novozymes to Buy EMD/Merck Crop BioScience

21.12.2010 -

Novozymes, the world's top industrial enzymes maker, is buying U.S. based EMD/Merck Crop BioScience for $275 million from Merck KGaA , boosting its presence in the fast-growing agricultural biotech segment.

But EMD/Merck Crop BioScience, a leading developer of natural inoculants used by farmers to improve plant health and crop yields, did not come with a cheap price tag, analysts said about the by-far biggest deal in Novozymes' history.

"It is not cheap, but they are buying a company with very high growth, and they are paying for that," Sydbank analyst Morten Imsgaard said.

"The acquisition is well in line with Novozyme's plans to grow that part of the business. It is a very good match with their existing business and it will contribute to grow that division massively," Imsgaard said.

EMD/Merck Crop BioScience had an average annual growth rate of about 15% over the last seven years and expects 2010 sales of about $60 million, Novozymes said. Its operating profit margins were supportive of Novozymes' long-term expectations of more than 20%, it added.

"Strategically it is an important acquisition. They will get distribution in the U.S. and South America as well as a pipeline," said analyst at ABG Sundal Collier, Frans Hoyer. "But such a deal is expensive. But they are paying for the growth."

The agricultural biologicals market is estimated to be worth over $1 billion, with the biofertility solutions sector valued at about $250 million, and seen doubling in the next seven years, Novozymes told a teleconference.

"It's hard to quantify the potential of this market but it's part of a bizarrely huge market for fertilizers and other products for farming," Chief Executive Steen Riisgaard told Reuters.

He also said the group may carry out more acquisitions in coming months.

Earlier this year, Novozymes bought Brazilian producer of micro organisms Turfal, with an annual 2009 turnover of about $3 million.

Monday's deal would have no impact on Novozymes' 2010 sales and earnings guidance, it said.

On Oct. 28, Novozymes said it expected full-year 2010 sales to grow by 12 to 13% in Danish crowns and EBIT to grow this year by 24-25%.

The actual takeover date is seen between February and May, depending on regulatory approvals, the company said.

Regardless of the acquired sales impact for 2011, Novozymes expected EBIT for the transaction to be around zero due to the unpredictable takeover date, it said. Novozymes would in January discuss a potential share buyback program with the board, the group said.