JLL Partners and Royal DSM have today announced the creation of a new company, which will be a leading global contract development and manufacturing organisation (CDMO) for the pharmaceutical industry with anticipated sales of around $2bn.

The new company will be 51% owned by JLL and 49% by DSM.

It is provisionally known as NewCo, but its permanent name will be announced in the next few months. NewCo will be formed by combining DSM’s business group DSM Pharmaceutical Products (DPP) with Patheon Inc (TSX: PTI) (Patheon), after a successful completion of the transaction described below.

NewCo will be a leading global contract development and manufacturing organisation with anticipated 2014 sales of about $2bn (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 maximise 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 $489m in cash to NewCo and DSM will contribute DSM Pharmaceutical Products (DPP) and receive a seller note of $200m, valuing DPP at $670m
  • 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 $1.95bn (about €1.45bn). 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’s 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 $1.65bn has been secured from JP 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