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DSM and Firmenich in €21bn mega merger

Dutch ingredient supplier DSM and Swiss flavour & fragrance supplier Firmenich are to merge in a deal they say will create an industry leader in food, nutrition, flavour, and wellbeing.

The new entity, DSM-Firmenich, will have annual revenue of more than €11 billion ($12bn). DSM shareholders will retain majority control, owning in aggregate 65.5% of DSM-Firmenich while Firmenich shareholders will own in aggregate 34.5% and receive €3.5bn in cash.

DSM co-CEOs Dimitri de Vreeze and Geraldine Matchett will continue as co-CEOs of the combined business, with CFO and COO responsibilities respectively.

“This merger is about bringing two iconic companies together and creating an industry leader,” said Matchett.

It will result in four businesses: Perfumery & Beauty, with combined revenues of €3.3bn; Food & Beverage, with combined revenues of €2.7bn; Health, Nutrition & Care, with revenues of €2.2bn; and Animal Nutrition & Health, with revenues of €3.3bn, the companies said.

According to Stifel analysts, the Firmenich deal values the Swiss company at €19.2 billion euros including debt, based on DSM’s closing price on Monday. DSM said its contribution to the merged entity had an implied value of €21.6 billion.

Once the merger is completed – subject to regulatory approval – the Swiss-Dutch global group will be domiciled in Switzerland and listed on Euronext Amsterdam, with dual headquarters in Switzerland (Kaiseraugst) and the Netherlands (Maastricht).

The merger, which is expected to incur one-time implementation costs of around €250m, will bring some 28,000 employees under one entity.

The analyst’s view: ‘Highly complementary and a win-win’

Matchett and de Vreeze, co-CEOs of DSM, said the deal would lead to "one of the largest creation communities in the industry, enabling us to unlock new opportunities for customers as well as position us to deliver enhanced long-term growth and shareholder value, sustainably."

Gilbert Ghostine, CEO of Firmenich, said the merger was the natural next step in Firmenich's evolution. “We are excited to build on Firmenich's tradition of entrepreneurial excellence and create a global leader that will be able to bring breakthrough innovation and technologies to our customers, addressing the most pressing needs of consumers,” Ghostine added. “DSM shares our purpose-led values and, like us, creates value for its customers through its science-based approach and pioneering technologies, making a real difference to people and planet.”

In a joint statement, the companies noted their synergies, such as past ingredient innovations including biodegradable fragrance encapsulation, renewable fragrance materials, sugar and salt reduction, plant-based foods, and fermentation processes for human milk oligosaccharides.

DSM-Firmenich’s combined portfolio will include more than 16,000 patents across 2,600 patent families. The companies noted “significant cross-fertilization opportunities” in the fields of bioscience, fermentation, green chemistry, receptor biology, sensory perception and formulation, augmented by analytical sciences, data sciences and artificial intelligence.

Jean-Philippe Bertschy, an analyst at Swiss bank Vontobel cited in the Financial Times, said the deal was “highly complementary: a win-win.”

“DSM has likely been preparing the deal for some time, streamlining and strengthening its portfolio in nutrition, while Firmenich has been rumoured to be looking for an exit for several years,” he added.

Highly consolidated: Is the food industry becoming ‘too big to feed’?

The DSM-Firmenich announcement comes on the back of a similar deal last year in which Firmenich’s rival, International Flavors & Fragrances (IFF), acquired DuPont’s nutrition and biosciences business.

In recent years, consolidation in the agri-food sector has grown – as have warning about the dangers of a food system reliant on a diminishing pool of companies.

In the retail space, for instance, Amazon acquired Whole Foods while on the agri-food side, ChemChina acquired Syngenta and, in 2018, Bayer acquired Monsanto for $63bn. Food and drink manufacturers have also been consolidating their businesses. Heinz and Kraft Foods merged while beverage giants AB InBev and SABMiller merged in a deal worth $120 billion (€102 billion).

Environmental commentator George Monbiot recently warned that the diminishing number of actors and links in the food industry has made the entire agri-food system more fragile and vulnerable to shocks, such as those currently posed by the Ukraine war. 

In its 2017 report, Too Big to Feed, the International Panel of Experts on Sustainable Food Systems (IPES) warned that the trend of mega mergers was weakening the food system, and making farmers ever more reliant on a handful of suppliers and buyers, squeezing their incomes and eroding their ability to choose what to grow, how to grow it, and for whom.

“Dominant firms have become too big to feed humanity sustainably, too big to operate on equitable terms with other food system actors, and too big to drive the types of innovation we need,” it said. “A shift towards diversified and decentralized innovation, locally-applicable knowledge and open access technologies – a new ‘wide tech’ paradigm’ – is urgently needed to harness the benefits of Big Data for all.” 

The IPES report authors called for short supply chains, innovative distribution, and exchange models – such as ‘solidarity economy’ initiatives –to circumvent, disrupt, and de-consolidate mainstream supply chains, adding that these must be supported by integrated food policies.