UPDATE 3-DSM to fold pharma arm into venture with private equity firm

Tue Nov 19, 2013 3:14pm EST
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(Adds details from conference call, analyst comment, share price move)

By Sara Webb and Euan Rocha

AMSTERDAM/TORONTO Nov 19 (Reuters) - Dutch food and chemicals group DSM will spin off its pharmaceuticals unit into a new joint venture majority-owned by private equity firm JLL Partners as the company shifts its focus toward higher-margin products.

New York-based JLL will merge the DSM business with that of Toronto-based drug maker Patheon Inc, forming a joint venture boasting some $2 billion in annual sales that the companies said on Tuesday will be a leader in manufacturing medicines for pharmaceutical companies.

As part of the deal, JLL, which already owns 55.7 percent of Patheon, has offered to acquire the remaining stock for $9.32 a share - a 64 percent premium to its closing price on Monday. The deal values Patheon at about $1.36 billion.

Patheon's Chief Executive Jim Mullen, who is going to be CEO of the new venture, said the deal will create an entity with a broad footprint spanning 23 sites across North America, Australia, Europe and Latin America.

"Our customers have indicated a strong desire to streamline their outsourcing network, and at the same time, increase their outsourcing," Mullen said on a conference call. "They want to work with fewer companies with broader capabilities."

JLL will own a 51 percent interest in the new venture that is yet to be named, with DSM owning the remainder. JLL is contributing $489 million in cash to the new venture, while DSM is vesting its pharma arm and will receive a sellers note of $200 million as part of the deal.

DSM shares rose nearly 4 percent to an all-time high of 60.2 euros after the deal was announced, while Patheon's Toronto-listed shares rose to an eight-year high of $9.66 on Tuesday.   Continued...