Croda International, the Snaith, East Yorkshire-based FTSE 100 speciality chemicals giant, said on Wednesday it signed a definitive agreement to sell the majority of its Performance Technologies and Industrial Chemicals (PTIC) businesses to Cargill Velocity Holdings Limited for an enterprise value of £778 million (€915 million).
Croda said the sale of the bioindustrial business — which has 1,000 employees — delivers its transition into a focused life sciences and consumer care company, with these two sectors accounting for well over 90% of the group’s 2020 adjusted operating profit following completion.
Croda said it intends to reinvest proceeds from the transaction “into faster growth areas, increasing its exposure to health care and further developing its position as a sustainability leader in consumer care and crop care markets.”
The group said its priority is to use the capital released in the transaction “for organic capital expenditure and take advantage of the significant growth opportunities available in these markets.”
Croda added: “This will be supplemented by potential acquisitions of disruptive technologies in existing and adjacent markets.
“The group will maintain its long-standing capital allocation policy, retaining an appropriate balance sheet and returning excess capital to shareholders if leverage remains below the target range of 1-2 times group EBITDA and if sufficient capital is available to fund investment opportunities.”
Croda and Cargill are currently working together on the process to separate the two businesses, with completion of the deal expected in summer 2022.
The transaction is subject to customary regulatory approvals but is not subject to approval by shareholders of Croda or Cargill.
“The divested business, which represented 77% of PTIC’s 2020 revenue, is comprised of five manufacturing facilities, including the Gouda plant in the Netherlands, the Hull plant in the UK and Croda Sipo in China (a joint venture in which Croda owns 65%), together with additional laboratory facilities supporting key aspects of the divested business’ activities in smart materials, energy technologies and industrial chemicals,” said Croda.
“The consideration of €915m includes 100% of Sipo in the divested business. If the sale of 100% of Sipo cannot be realised, Sipo will be excluded from the sale, reducing the consideration by €140m.
“The retained parts of PTIC will provide integral support to the group’s consumer care and life sciences sectors.
“These retained activities will become the Industrial Specialties (IS) sector and play a key role in Croda’s integrated model.
“Going forward, IS will generate additional revenues from a new supply agreement, whereby Croda will supply certain ingredients from its retained manufacturing plants to the acquirer.
“Similarly, the acquirer will enter a supply agreement to provide Croda with certain ingredients from the divested business’ manufacturing plants.”
Croda CEO Steve Foots said: “Today’s announcement completes our transition into a pure-play consumer and life sciences company.
“We will focus our capital and resources on delivering sustainable solutions and scaling our consumer, health and crop care technologies, leading to consistent sales growth and an even stronger profit margin.
“Cargill is a company with a distinguished history and strong values.
“Under its ownership, the divested business and our talented, hardworking employees can look forward to a bright future.”
Colleen May, president of Cargill’s bioindustrial business, said: “The bioindustrial space is a priority for Cargill, as we strive to support our customers with innovative, nature-based solutions that deliver real-world benefits.
“Combining our diverse, global supply chain and deep operational expertise with Croda’s extensive industrial business capabilities and broad bio-based portfolio will spark a new wave of innovation and create tremendous value for our customers.”
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said: “Croda International’s share price has dipped on the news that it’s selling its bio-based industrial business to US firm Cargill Velocity Holdings for £778m.
“Given the review of this part of the business, a sale had been on the cards, so rather than the strategic direction of the Yorkshire based company, it may have been the price tag which disappointed some investors, with expectations that it could have clinched an even higher price tag.
“The 1.2% fall in early trading is a minor dent in a spectacular performance for Croda over 2021.
“It’s one of the FTSE 100 biggest risers, climbing 48% over the year, riding high on a surge of success.
“It reported some cracking record results for the first half in the summer and said annual profit would be well ahead of expectations.
“Broker upgrades on the stock also sent the share price soaring.
“The extent to which Croda is benefiting from the ongoing vaccine boom has become clear over recent months and it’s down to its investment in innovative technologies.
“It supplies lipid nanoparticles for Pfizer’s mRNA technology and given the demand for booster jabs, that area of Life Sciences is bounding ahead.
“Although revenues from Pfizer may wane, there is expectation that there will be growing customer demand for a broader range of use of its products in medical treatments like oncology.
“Recovery in consumer markets has also helped its personal care sector which focuses on ingredients for skin, hair, and cosmetic products and the focus on sustainability should help drive sales among an increasingly eco-conscious customer base.’’