Cargill swallows Degussa unit

By Lindsey Partos

- Last updated on GMT

Related tags Flavor Cargill

Ending months of speculation, hungry US ingredients firm Cargill
strengthens pectin, lecithin and flavour positions, agreeing today
to buy the food ingredients unit of German chemical giant Degussa.

This latest bolt-on acquisition enables the ambitious US firm - that posted sales of $71 billion last year - to carve out a stronger position as a one-stop supplier for food ingredients.

Cargill, the largest private firm in the US with over 120,000 employees, has agreed to pay €540 million for the Degussa unit that posted sales of €441 million in 2004.

"This will be our largest acquisition since Cerestar in 2002 and supports our strategy of becoming the recognised global leader in providing food and beverage companies with innovative solutions that help them succeed,"​ said Warren Staley, Cargill chairman and chief executive officer.

The Degussa unit supplies flavours, texturants and bioactive units under its performance materials division. Flavouring systems target the food, dairy and beverage markets while the texturant arm supplies formulations based on hydrocolloids, blends and lecithins.

Of particular note, the acquisition includes Degussa's strong pectin position, and so fits snugly next to Cargill's recent purchase of pectin supplier Citrico.

In July this year Cargill entered the attractive pectin market for the first time, leapfrogging into a leading position, alongside players Danisco, Herbstreith & Fox, Degussa and JM Huber in a market demanding in excess of 30,000 tons annually.

At the time, optimistic observers claimed Cargill's entry may not have had a real impact on current business, because the production they took over is already available in the market.

Indeed, they believed that as a stable player, Cargill could be good for the market.

But with Degussa's facilities piled onto the 4,500 metric tonne capacity of Citrico, this view may change.

With a stronger market position comes the enviable power to undercut competitor prices.

The Degussa acquisition will also considerably strengthen Cargill's bargaining power in the field of lecithins and flavours. In 2004 Cargill acquired UK flavours firm Duckworth Flavours.

Citing insufficient leverage to match the performance of larger commercial players, at the end of 2004 Degussa, Germany's third largest chemical company, announced plans to divest the food ingredients arm of its business.

With sales of €441 million in 2004, the 2000 people-strong ingredients unit contributed just 4 per cent to Degussa's overall €11.2 billion sales figure.

A spokesperson for Degussa told​ today Cargill met Degussa's criteria of the 'magic triangle' to evaluate investors.

The three points of the triangle being economic and legal conditions, transaction security and speed, and thirdly, finding a 'good home' for the activities and the employees.

Cargill beat private-equity owned flavour firm Symrise to the post: in June the number four flavour firm announced it was heading into the second round of bidding for the Degussa unit.

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