NEW YORK ( The Deal) -- Dutch chemicals and nutrition company Royal DSM NV is to merge its pharmaceuticals division into a new entity majority owned by New York-based private equity firm JLL Partners Inc. to create a company valued at $2.62 billion. DSM said Tuesday, Nov. 19, that it will combine DSM Pharmaceutical Products, or DPP, with JLL-backed Patheon Inc., after the new entity acquires Patheon for $9.32 per share in cash, or 64% above Patheon's closing share price Monday. The transaction values Patheon at about $1.95 billion, including debt, and DPP at $670 million. JLL, which owns 55.7% of Patheon, will invest $489 million in cash in the new venture, while DSM will contribute DPP and receive a seller note of $200 million. To fund the deal, JLL has committed financing for $1.65 billion from JPMorgan Chase & Co., UBS, Jefferies & Co., Morgan Stanley and KeyCorp. The still-unnamed new entity will be 51% owned by JLL and 49% by DSM and be run by Patheon CEO Jim Mullen. It is projected to have 2014 sales of about $2 billion, with an 8,300-strong workforce in 23 locations across North America, Europe, Latin America and Austria. The new entity will be a contract development and manufacturing organization selling finished dosages and drug products and active substances to customers in the pharmaceuticals, crop protection, personal care and fine chemicals products industries. "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," said DSM CEO Feike Sijbesma "With this partnership, DSM has made a key step in its strategic transformation of its Pharma activities into partnerships whilst creating maximum value for all stakeholders." JLL Partners Managing Director Paul S. Levy led the deal for the buyout firm. DSM shares rose 3.35% to €59.91 in Amsterdam, giving it a market value of nearly €10.9 billion. The stock is up 51.34% over a year ago. Patheon shares closed at C$5.95 ($5.70) in Toronto on Monday. JLL Partners, which typically targets mid-market investments in North America, has committed about $4.2 billion across six funds, made its initial investment in Patheon in 2007. Patheon's board backs the deal, which was vetted by independent directors. The company is incorporated and traded in Toronto but has corporate head offices in Durham, N.C.
Tuesday's announcement comes a little more than a year after Patheon agreed to acquire Banner Pharmacaps, a niche maker of gelatin-based capsules, from Vion NV of the Netherlands, for an undisclosed amount. JLL's portfolio of healthcare companies also includes Wakefield, Mass.-based American Dental Partners, Medical Card Systems Inc., of Puerto Rico, and BioClinica, a Newtown, Penn.-based provider of clinical trial management services to pharmaceutical, biotechnology, medical device and contract research organizations worldwide. The deal is expected to close in the first half of 2014. DSM, of Heerlen, expects the deal to be accretive to earnings per share from 2014 onwards. For advice on the deal DSM turned to JPMorgan and Latham & Watkins LLP, supported by Cleary Gottlieb Steen & Hamilton LLP, Norton Rose Fulbright Canada LLP, Allen & Overy LLP and Hinckley, Allen & Snyder LLP. Morgan Stanley and Jefferies are serving as financial advisers to JLL Partners. Its legal advisers are Skadden, Arps, Slate, Meagher & Flom LLP, Borden Ladner Gervais LLP and Simpson Thacher & Bartlett LLP. The independent directors at Patheon used BMO Capital Markets as independent valuation expert. RBC Capital Markets is the committee's financial adviser and its law firm is Blake, Cassels & Graydon LLP. -- Written by Renee Cordes in New York