Valuation of Danisco: The sale of the sugar division

Eirik Bang Søberg

Studenteropgave: Kandidatafhandlinger


This thesis deals with the sale of Danisco’s sugar division and sets out to evaluate the decision to accept Nordzucker AG’s offer. The thesis is interesting because Danisco have been under a lot of pressure the past two years, both form shareholders and analysts, due to poor performance. Furthermore, Danisco have undergone a change moving from a conglomerate to a focused firm. The Sugar segment has been accused of slowing down the growth in the Ingredients segment. The steady cash flow is reduced due to the uncertainty around the EU sugar reform. Despite a greater clarity around the future sugar reform, the investors are more interested in the greater growth potential in Ingredients. By strategically and financially analysing Danisco’s two segments I have been able to calculate an enterprise value for both the Ingredients segment and the Sugar segment. The calculated enterprise value of Sugar has been compared to the enterprise value in the sales agreement with Nordzucker AG. The calculated enterprise value of Ingredients constitutes, together with the received cash from the Sugar sale, the remaining Danisco. To analyse the sales decision I have first looked at Danisco’s strategic history. I found that Danisco have had a similar development in shareholder value, measured in stock price, when being a conglomerate and focused firm. Growth through acquisitions is an important strategy for Danisco. I found indications that acquisitions did not add shareholder value the first years. The frequent acquisition activity seemed to cancel out the increase in shareholder value from fully implemented acquisitions. The results were in line with research on the subjects, which is dubious. I conservatively estimated the enterprise value of Sugar to be DKK 6.508 million. This was above the received sales price from Nordzucker, which was DKK 5.600 million in enterprise value plus DKK 600 million in compensation for a sugar quota. Despite of the slightly low price, I determined that the decision to sell was right because of the displeased investors. The sale fits with Danisco’s strategy of becoming a first choice within ingredients and bio-actives which have a greater growth potential.

UddannelserCand.merc.aef Applied Economics and Finance, (Kandidatuddannelse) Afsluttende afhandling
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