Royal DSM to Acquire Patheon and Create New, Global CDMO

Source: DSM

Nov 19, 2013

JLL Partners, a middle-market private equity firm, and Royal DSM announced the creation of a new company, which will be a leading global contract development and manufacturing organization (CDMO) for the pharmaceutical industry with anticipated sales of around USD $2 billion. It will be 51% owned by JLL and 49% by DSM.

The new company (a/k/a NewCo) will be formed by combining DSM’s business group DSM Pharmaceutical Products with Patheon Inc. After a successful completion of the transaction, the company (to be named in the coming months) anticipates 2014 sales of about USD 2 billion (pro-forma) and a strong EBITDA and operational cash flow. It will have a complete offering from finished dosage (drug products) to active substances (APIs) and a global footprint of 23 locations across North America, Europe, Latin America and Australia with about 8,300 employees.

According to a corporate press release, highlights of the transaction are as follows:

- NewCo will be owned by JLL (51%) and DSM (49%).
- JLL will contribute USD 489 million in cash to NewCo and DSM will contribute DSM Pharmaceutical Products (DPP) and receive a seller note of USD 200 million, thereby valuing DPP at USD 670 million.
- NewCo has entered into a definitive agreement to effect a Plan of Arrangement pursuant to the Canada Business Corporations Act (“POA”) with Patheon under which NewCo would acquire Patheon for USD 9.32 per share in cash resulting in a total enterprise value for Patheon of approximately USD 1.95 billion (about €1.45 billion); and a 64% premium to Patheon’s closing share price on 18 November, 2013
- Patheon’s Board of Directors, acting on the unanimous recommendation of a committee of independent directors, recommends that Patheon’ shareholders vote in favor of the POA.
- JLL and the executive officers and directors of Patheon, who collectively own approximately 66% of the outstanding shares of Patheon, have signed Voting Agreements in support of the POA.
- Committed financing to be funded at closing of USD 1.65 billion has been secured from J.P. Morgan, UBS, Jefferies, Morgan Stanley and KeyBank.
- Subject to customary conditions, the transaction is expected to close in H1 2014.
- DSM will deconsolidate DPP after closing.
- The transaction is expected to be EPS accretive for DSM from 2015 onwards.

Jim Mullen, currently CEO of Patheon, will be appointed CEO of NewCo upon completion of the transaction. Mullen joined Patheon in 2011 as Chief Executive Officer.

Feike Sijbesma, CEO and Chairman of the DSM Managing Board, said: “Fully in line with our strategy, this is for DSM Pharmaceutical Products the perfect way to accelerate growth and for DSM to maximize value for this business. By creating a global top CDMO organization I am convinced that NewCo as a standalone company will be able to create substantial value. With this partnership DSM has made a key step in the strategic transformation of its Pharma activities into partnerships whilst creating maximal value for all stakeholders.“

Paul S. Levy, Managing Director of JLL Partners, Chairman of the Board of Patheon shared: “This partnership demonstrates JLL’s commitment to building companies that create value, fill unmet needs and drive excellence within their respective industries. This is the strategic initiative and execution ‘know how’ that stakeholders have come to expect from JLL. NewCo is poised to transform the CDMO industry and we are excited to bring these two entities together.”

To read the full release, click here.