Doubts creep in over DuPont’s Danisco deal

By Teis Jensen and John Acher

COPENHAGEN (Reuters) – Market turmoil following crises in the Middle East and Japan has increased the risk that American chemicals company DuPont’s (DD.N: Quote, Profile, Research) $6 billion takeover of Denmark’s Danisco (DCO.CO: Quote, Profile, Research) could fail as the U.S. group will be less inclined than ever to sweeten its bid, analysts said.

Risk aversion and falling markets will not make it easier for DuPont to justify a higher bid to its own shareholders as alternative uses for the money — such as share buybacks — become more attractive, analysts said.

Despite the soft markets, resistance among Danisco shareholders to the DuPont offer has shown no signs of crumbling as many Danisco owners believe that forecast-beating third-quarter results prove that the company is worth more.

Alm. Brand analyst Michael Friis Jorgensen said his best bet now is that the deal announced in January will be derailed as acceptance by Danisco shareholders is probably still far below the required 90 percent and DuPont will hardly pay much more.

“DuPont will have a hard time to get the required backing from Danisco shareholders, unless the bid is raised significantly, and I don’t see that happening,” Jorgensen said.

Jorgensen said that DuPont would need to find big synergies in Danisco over the next few years for an increased bid for the Danish food ingredients and enzymes maker to give as good a return to DuPont owners as a share buyback.

DuPont is however likely to extend its 665 crowns ($125.3) per share bid again this week, taking another month to clinch the deal, analysts said.

In mid-February, DuPont prolonged the bid to April 1 after its friendly offer was accepted by only 5 percent of the Danisco shareholding.

New figures on the acceptance level were not available.

DuPont has also said it may extend the offer for another four weeks if necessary. It has repeatedly said it will not raise its offer, which remains the only bid on the table.

Last month, when Danisco reported forecast-beating third-quarter earnings and raised guidance, Chief Executive Tom Knutzen said it was a “very likely scenario” that DuPont would extend the offer again by another month.

RISK OF COLLAPSE

Calculations by Reuters last month showed that Danisco shareholders with just under 5 percent have rejected the bid and by teaming up with one of the largest, undecided shareholders with 5 percent stakes they could prevent DuPont from getting the required acceptance.

“I now see a real risk that it can actually collapse, whereas back in January, when the bid came, it seemed to be more or less of a formality for DuPont to push it through,” said Sydbank analyst Morten Imsgard.

“It is starting to look like something that it will be hard to reach agreement on, and that problem has certainly not diminished with the extra uncertainty now in the stock market,” Imsgard said.

Danisco’s share has traded just below the bid level since the bid was launched and was at 664 crowns at 1427 GMT.

Even if some Danisco shareholders keep pushing for a higher bid, it would be harder than ever in the current market for DuPont to justify that to its stockholders, Imsgard said.

COLD SHOULDER

Niels Andersen, head of Danish equity investments at SEB Asset Management which has about 2 percent of Danisco stock under management, said his company had not changed its view that DuPont’s bid is too low.

“The company (Danisco) is performing strongly, continuously upgrading and surprising the market, and it still has a good upside potential compared to peers,” Andersen said, noting that Danisco trades at lower multiples than Danish peers Chr. Hansen (CHRH.CO: Quote, Profile, Research) and Novozymes (NZYMb.CO: Quote, Profile, Research).

“We think DuPont will have to increase the bid to secure this deal,” he said.

Andersen said DuPont could call off the deal if acceptance has not risen since DuPont extended the bid last time.

“If they are still hovering around 5 to 10 percent, it won’t make sense to keep this circus going,” Andersen said.

Jyske Bank senior analyst Jens Houe Thomsen said he saw only about a 50 percent likelihood that the deal would succeed.

“I have difficulty seeing how DuPont could argue for raising the bid,” Thomsen said. “They would have a hard time selling that to their shareholders.”

(Editing by David Cowell)

Doubts creep in over DuPont’s Danisco deal