The vitamin C landscape ‘will not change materially’ with DSM’s acquisition of China-based vitamin C maker, Aland, said an analyst, as the Dutch group announced the finalization of the deal today.
DSM had announced in April this year that it was in exclusive talks to acquire Aland.
“The Aland deal was never about DSM trying to outpace Chinese producers of vitamin C or gaining market share. DSM is a niche player in this sector, and the Chinese deal is just a complimentary acquisition.
So the picture is pretty much going to stay the same – DSM is not focused on trying to be number one in this domain,” said a Frankfurt based investments expert, who prefers anonymity.
DSM said its acquisition of the Chinese producer is set to close in the next six to nine months.
Aland targets the global market and sold €65 million ($90m) worth of vitamin C in 2013. But low cost manufacturing is the order of the day at the 24-year-old Jiangsu-based firm, said the German analyst.
“The quality of production is not at all on par with the vitamin C output of DSM’s facility in Dalry, Scotland,” he said.
Currently DSM manufactures all of its vitamin C at the Scottish plant. It is used mainly in food, supplements, cosmetics and feed.
In April, the Dutch group said the deal for Aland, if completed, would represent a “relatively small acquisition” that would, add to its position in vitamin C, the world's largest vitamin measured by volume.
“To my mind, the Aland deal is about ensuring DSM can supply different end markets and be a one-stop shop in terms of vitamin C, serving lower end - perhaps animal feed - from the Chinese facility and higher end - human nutrition and pharmaceutical applications - from the Scottish plant,” the analyst told feednavigator.com
The Chinese producer’s other offerings include multivitamins, glucosamine, minerals and herbal extracts.
China dominates vitamin C market
China produces about 80% of the world’s supply of ascorbic acid.
“We don’t see a lot of low cost innovations in China. We see a lot of low cost production,” says John Connor, professor emeritus of Industrial Economics at Purdue University who has written extensively on global vitamin production.
Last year a group of Chinese vitamin C makers were ordered to pay $162.3m in fines by a US District Court after a jury found the companies guilty of price-fixing.
A jury in New York returned the verdict after American companies accused the Chinese producers of acting in concert to raise prices in violation of US antitrust laws.
Hebei Welcome Pharmaceutical Co Ltd and North China Pharmaceutical Group Corp were two of the producers penalized, while two others, Weisheng Pharmaceutical and China Pharmaceutical Group, settled out of court.
The companies' main defense over the course of the case had been that they were ordered by the Chinese government to corner the market and raise prices.