UPDATE 5-DuPont bets on food, fuel with Danisco deal

* DuPont, Danisco have biofuels joint venture

* Danisco to boost DuPont’s food biz to half of revenue

* DuPont says deal to add to earnings in 2012

* Danisco shares up 24 pct, DuPont down 1.5 pct
(Adds analyst comment, context on biofuels, links)

By Ernest Scheyder and Jon Acher

NEW YORK/COPENHAGEN, Jan 10 (BestGrowthStock) – DuPont’s (DD.N: ) $5.8
billion bid for Denmark’s Danisco A/S (DCO.CO: ) marks a major bet
by the U.S. chemicals company on the nascent biofuels market and
the profitable food additive sector.

The deal, which would be DuPont’s biggest acquisition since
1999, is another step in its transformation from an industrial
chemical maker to one that has diversified businesses ranging from
bulletproof vests to solar panel films.

DuPont and Danisco have a joint venture in cellulosic ethanol,
a technology that involves turning agricultural waste, such as
wood chips and switchgrass, into fuel. Some investors are nervous
about this fledgling technology, which is propped up by a $1.01
per gallon U.S. tax credit and a mandate for gasoline producers to
blend in a certain amount of ethanol.

The tax credit is slated to expire at the end of 2012, and it
remains unclear if Congress will renew it and the mandate.

The deal is a bet that industrial biotechnology will pay off,
Soleil Securities analyst Mark Gulley said. “If that happens …
this is going to end up being a really attractive acquisition.”

Changing business patterns isn’t new for 208-year-old DuPont.
The company produced much of the gunpowder used in World War One,
invented nylon and Teflon, and held a controlling stake in paint
customer General Motors (GM.N: ) during the 1920s and 1930s.

Currently it is more expensive to turn cellulosic ethanol —
instead of crude oil — into fuel. Increased research, including
at DuPont, are expected to drive the cost down over time.

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DuPont’s bid for Danisco [ID:nN09219516]

Reuters Insider http://link.reuters.com/zuw55r

Reuters Breakingviews [ID:nLDE7090P9]

TAKE A LOOK-Global M&A [ID:nLDE7090OF]

Global M&A graphic http://r.reuters.com/kyb46q

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In addition to biofuels, Danisco’s food ingredients business,
such as yogurt cultures, gums and natural sweeteners, attracted
DuPont Chief Executive Ellen Kullman.

DuPont has been increasing its investments in the food
business, which offers more stable earnings during economic
downturns though growth tends to be relatively limited.

Food-related revenue accounted for about 32 percent of
DuPont’s 2009 revenue, with most of that coming from its Pioneer
seed unit that it bought in 1999 for $7.7 billion, its largest
acquisition to date.

After the Danisco deal closes, expected in the second quarter,
almost half of DuPont’s revenue will come from food products,
analysts said.

ADD TO 2012 EARNINGS

DuPont said it expects the deal to add to earnings in 2012,
but forecast a 30 cents to 45 cents per share hit this year.
DuPont had previously forecast 2011 earnings of $3.30 to $3.60 per
share.

“This is a very attractive transaction from a financial point
of view,” Kullman said on a call with investors.

DuPont offered 665 crowns ($115) per share for Danisco, a 25
percent premium to Friday’s close. Danisco Chairman Jorgen Tandrup
said the company had received other bids, but did not expect a
rival to trump DuPont.

Tandrup declined to name the other bidders, though admitted
that until late Sunday night in Denmark, it was unclear who would
clinch the deal.

“There was a lot of tension,” Tandrup told Reuters Insider.
“If you had asked me at 10 o’clock yesterday night who was going
to be the winner, I couldn’t have told you.”

Danisco shares initially rose as high as 670.50 crowns early
on Monday, above DuPont’s cash bid, but then fell back to close at
657 crowns, up 24 percent. Shares in Danish rivals such as
Novozymes A/S (NZYMb.CO: ) and Chr Hansen Holding A/S (CHRH.CO: ) also
jumped, along with Britain’s Tate & Lyle Plc (TATE.L: ) and DSM NV
(DSMN.AS: ) of the Netherlands.

DuPont’s investment could help establish the growing biofuel
enzyme sector, Novozymes said. [ID:nLDE7091PC]

DuPont said its bid values Danisco at 12.8 times Danisco’s
earnings before interest, taxes, depreciation and amortization.
Analysts put the valuation at around 11 times EBITDA, about where
the highly rated consumer goods company Reckitt Benckiser (RB.L: )
currently trades.

“To us, the bid seems reasonable,” said Pieter Busscher, a
portfolio manager at SAM Smart Materials Fun, the 13th-largest
investor in Danisco. “Novozymes is already well positioned on
first-generation ethanol, and I have a feeling that DuPont does
not want to be left behind.”

DuPont shares fell 1.5 percent to $49.03 in afternoon trading.
Shares of acquiring companies tend to drop just after large deals
are announced.

DuPont is paying $5.8 billion cash and assuming $500 million
of Danisco debt. DuPont will use $3 billion in existing cash to
pay for the deal, and raise the rest in debt.

Danisco’s “sales growth over the last five years is very
comparable to the sales growth at DuPont,” Alembic Global Advisors
analyst Hassan Ahmed said. “If you look forward the next five
years, you see a very similar profile.”

Deutsche Bank (DBKGn.DE: ) is advising Danisco on the deal.
JPMorgan Chase (JPM.N: ) is advising DuPont.
($1 = 5.76 Danish crowns, DKK)
(Additional reporting by Ole Mikkelsen in Copenhagen, Megan
Davies in New York, and Quentin Webb, Cecilia Valente and David
Jones in London; Editing by Sophie Walker, John Wallace, Phil
Berlowitz)