Royal DSM & JLL Create Leading Pharma Services Company in $ 2.6-Billion Transaction

LL Partners and Royal DSM recently 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 $2 billion. It will be 51% owned by JLL and 49% by DSM.

The name of the company (provisionally called NewCo) will be announced in the coming months. NewCo will be formed by combining DSM’s business group DSM Pharmaceutical Products (DPP) with Patheon Inc. after a successful completion of the transaction described further. NewCo will be a leading global CDMO with anticipated 2014 sales of about $2 billion (pro-forma) and a strong EBITDA and operational cash flow.

NewCo will have an end-to-end 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.

Combining DPP and Patheon is fully in line with DSM’s strategy for its Pharma cluster as well as an excellent value creation opportunity as DSM and JLL will work together to maximize the value of NewCo. For DSM, combining DPP with Patheon into NewCo is also a key step in the strategic transformation of its Pharma activities into partnerships.

Once the transaction is complete, NewCo will add scale and new value chain capabilities/technologies to expand its end-to-end service offering as a comprehensive solution provider to the industry. NewCo will operate as an independent standalone company.

The highlights of the transaction are as follows:

• NewCo will be owned by JLL (51%) and DSM (49%).
• JLL will contribute $489 million in cash to NewCo, and DSM will contribute DSM Pharmaceutical Products (DPP) and receive a seller note of $200 million, thereby valuing DPP at $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 $9.32 per share in cash resulting in a total enterprise value for Patheon of approximately $1.95 billion, and 64% premium to Patheon’s closing share price on November 18, 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 $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.

NewCo will have a unique breadth of service offerings with a focus on drug products and APIs with a wide range of technologies and will be able to offer comprehensive end-to-end solutions to a broad spectrum of companies ranging from large pharmaceutical and biotech companies to specialty pharma companies, generics, and emerging pharma companies. The combined company will also be a leader in proprietary softgel formulations for OTC, prescription, and nutritional consumer products. The exclusive synthesis products and intermediates are targeted to the crop protection, personal care, and fine chemicals products industries.

Jim Mullen, currently CEO of Patheon, will be appointed CEO of NewCo upon completion of the transaction. Mr. Mullen joined Patheon in 2011 as CEO. Prior to joining Patheon, he served as CEO and President at Biogen Idec Inc., one of the world’s largest biotechnology companies from 2003 to 2010.

JLL Partners is a middle-market private equity firm with a 25 year track-record of adding value to complex investments through financial and operational expertise. Since its founding in 1988 by Paul S. Levy, JLL Partners has committed approximately $4.2 billion across six funds, and developed significant expertise in the healthcare and other sectors.