Welcome to today's conference call to discuss the combination of IFF to combine with DuPont Nutrition and Biosciences. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note this call may be recorded. At this time, I would like to turn the call over to Michael DeVoe, Head of Investor Relations at IFF.
Please go ahead.
Thank you. Good morning, good afternoon, and good evening, everyone. Thank you for joining our call to discuss the combination of IFF and DuPont's Nutrition and Bioscience Business. As a reminder, this call is being recorded and the press release and slide presentation regarding today's news are available on the IR section of IFF and DuPont's respective websites as well as our transaction website, www. Strongerinnovationtogether.com.
Today's presentation will include non GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non GAAP financial measures to their respective GAAP measures is set forth in our press release that we issued today and is on our website. I would like to remind everyone that all statements made during the call that relate to future results and events, including the proposed transaction, are forward looking statements and are based on current expectations. Actual results and events could differ materially from those discussed here. Please refer to the information on the disclaimer slides in the presentation as well as the additional information contained in the regulatory filings for both companies.
Presenting on the call today will be Andreas Phibig, IFF's Chairman and CEO Ed Breen, Executive Chairman of DuPont Matthias Heinzel, President of DuPont's Nutrition and Bioscience Business and Rich O'Leary, IFF's Executive Vice President and CFO. With that, I would now like to introduce Andres.
Thank you, Mike. Today is an extraordinary day for both IFF and DuPont's Nutrition and Bioscience Business and represents a pivotal moment in IFF's strategic journey to create a new global leader and providing differentiated integrated solutions for the food and beverage, health and wellness and home and personal care markets. We are extremely excited to combine the 2 customer focused and conservative organizations with leading positions in high value categories. Together, we will have among the industry's most robust and diverse set of products to deliver the innovation and growth to our customers' demand and capitalize on increasing consumer demand for healthier, more natural ingredients and solutions. I will take you through the highly compelling value we believe this combination will deliver to our business, our team and our shareholders as well as the transaction terms.
Ed will outline the immediate value creation opportunity this powerful combination provides for DuPont's shareholders and Matthias will talk through an overview of the NMB business. Rich will cover the financial outlook for the combined business and I will conclude by diving into our integration planning and how we will bring this vision to life. Starting with Slide 5. This combination is a true partnership of Equals and has been unanimously approved by the Boards of Directors of IFF and DuPont. The transaction value values the NMP business at approximately 26,200,000,000 and the combined company at $45,400,000,000 on an enterprise value basis based on IFF's share price as of December 13, 2019.
Under the terms of the agreement, DuPont will receive a onetime 7,300,000,000 special cash payment subject to certain adjustments and DuPont shareholders will own 55.4% of the shares of the combined company. IFF shareholders will own 44.6% of the combined company. Once the transaction closes, I'm pleased to say that I will be Chairman and CEO of the combined company. DuPont Executive Chairman, Ed Wien, will join the Board as a DuPont appointee and become our Lead Independent Director in June of 2021. He will play a key role in integrating the businesses.
Moving to Slide 6. This is a truly a powerful combination. Consumer demands are shifting towards natural health and wellness products and the combination of IFF and NMB will be among the only industry players able to lead and accelerate these trends, a key early mover advantage. IFS leadership in Natural Solutions and NAB's leadership in clean label, including cultures, enzymes and soy proteins will be a vital component in the creating ingredients that meet consumer needs for better for you products. This is not about scale.
This is about 1st mover advantage to redefine our industry and deliver what our customers demand. Our complementary product portfolio will be among the most balanced in the industry. Together, we will have positions 1 or 2 positions in high value, most in demand ingredient categories across our shared markets of food and beverage, health and wellness and home and personal care. Our team of more than 20,000 strong will have cutting edge innovation and powerful R and D and application development capabilities to create industry leading solutions for our customers. This is a category redefining opportunity for IFF and NMB for our shareholders and our global teams.
We will expand our reach to 40,000 customers worldwide with a differentiated set of solutions, a better serve both large multinationals and fast growing small and medium sized customers. By meeting our customer demands, we will be an invaluable partner to them and in turn generate strong financial returns for our shareholders. On Slide 7 outlines the compelling financial profile of the combined business with strong margins and prospects for enhanced growth and margin expansion. On a pro form a basis, we estimate combined 2019 revenues to be greater than $11,000,000,000 and EBITDA to be 2,600,000,000 dollars And we are targeting an adjusted EBITDA margin of approximately 23% pre synergies and approximately 26 percent as we capture our cost synergies. I would like now to turn it over to Ed to say a few words.
Great. Thanks, Andreas. Turning to Slide 8, I'm very pleased to be here today to announce the combination of these 2 strong businesses. We are creating an industry leader with the combined R and D engine, product portfolio and common cultures to deliver the natural, healthy, sustainable solutions customers increasingly demand. We all know how the food, beverage, health and wellness and personal and home care industries are evolving.
We've seen the pace of change, the growing consumer expectation for products across the range of industries we serve that are healthier, naturally sourced and more sustainable. Together, we will be able to deliver the solutions that enable these products faster, better and more efficiently than anyone in the industry, and we'll be able to quickly penetrate a larger segment of each market than any of our competitors. N and V is a special business and our team has built incredible value. So we conducted a thorough process to find the right partner to advance that progress. IFF is the best partner in every respect.
The transaction is truly a win win. It creates growth opportunities that will benefit all stakeholders of both companies, and it creates attractive value for shareholders over the short, medium and long term. The transaction, as Andreas says, values NMP at $26,200,000,000 and most importantly, it is tax efficient for our shareholders. It unlocks value that we could not have realized in the context of our other DuPont businesses. We will deliver approximately $300,000,000 in cost synergies and about $400,000,000 in growth synergies on a run rate basis.
We have learned over the past couple of months that our management teams and cultures see the business and the opportunity very similarly. So it makes sense that we will also have a balanced Board and we have a highly experienced leadership team with representation from both companies. I am personally looking forward to serving as Lead Independent Director and to working closely with Andreas as Chairman and CEO as we help the team drive the integration process. I am confident that given the highly complementary nature of these two businesses, the path to integration is clear. We'll have the time necessary to do it right and do it efficiently and have a lot of collective experience to get it done on time.
I look forward again to working closely with Andreas and the broader team as we move through the integration process and following that to realizing the many value creation opportunities that we see from this combination. For DuPont, as I said, this unlocks the incredible value tied up in NMB. We are very pleased to have found the right partner. Our remaining businesses will continue to create value by applying competitive advantages to solving customer problems in high margin fast growing markets. And as this transaction indicates, active portfolio management will continue to be a key strategic value driver.
Now let me turn it over to Matthias.
Thank you, Ed. For those who may not be as familiar with our N and B business, we are truly a global innovation driven special ingredient business. Turning to Slide 9. Our NMB business continues to deliver strong results. We generate about $6,000,000,000 in annual sales with an industry leading 24% EBITDA margin.
Additionally, we have a very strong R and D pipeline and generate approximately 25% of our sales from products introduced within the last 5 years. NNV has more than 10,000 employees spread globally with 70 manufacturing sites and more than 30 technology and innovation centers across 4 continents. We serve more than 10,000 customers with a diversified portfolio in food and beverage, health and biosciences and pharma solutions. Slide 9 shows that we are a world leading bioscience innovator with product segments that deliver sustainable, clean label and high performance solutions. In our food and beverage segment, we have one of the broadest portfolios of natural and plant based specialty food ingredients.
This is where consumers are headed, and we are leading the way. Our Pharma Solutions segment is a global player in acceptance for pharma and dietary supplements. Like IFF, our customers are at the center of everything we do. We share the same vision and are aligned on the same goal: to build a world class leader, the premier choice for our customers, giving us a durable long term advantage in the specialty ingredients and solutions space. My N and B leadership team and I are very excited about the opportunities of the combined company and we are looking forward to working with Andreas and his team on a smooth integration.
So with that, I'll turn it back to you, Andreas.
Thank you, Ed and Matthias. We are very delighted to have you here and to welcome the NMB team to the IFF family as we work together to transform the industry with differentiated ingredients and solutions. Those of you who follow us closely know that IFF is a global leader in natural taste, scent and nutrition. We have a strong financial profile, broad customer base and a diverse revenue base. Slide 12.
We are a long time industry leader in developing natural and synthetic fragrance ingredients. Coming out of our Frutarom acquisition early last year, IFF strengthened its position as a top provider of flavors, savory solutions and natural taste solutions for the food and beverage industry. With this combination, we are also strengthening our position in the nutrition and ingredient space, where we are now delivering a full suite of natural product offerings for the fast growing segment of small, midsized and private label customers. Further, this transaction is strongly aligned with our Vision 2021 goals. The customer is a focus of everything we do.
And with this combination, we are strengthening each of our 4 pillars of Vision 2021 unlocking growth opportunities, driving innovation, managing our portfolio and accelerating our business transformation. Slide 13. When I think of a company that can redefine its category, I think of the combination of these two businesses. We will be a powerful leader with even better R and D and application development capabilities and even deeper and more robust product development pipeline and a portfolio that will be among the most balanced in the industry. And we will have real strength from our shared cultures led by science and creativity to unlock the potential of this combination.
Slide 14 firmly demonstrates our combined leading positions in food and beverage, health and wellness and home and personal care, which we believe will truly be the envy of the industry. While our peers may have strong positions in 1 category or select few, the new IFF will have debt, breadth and strengths of capabilities across categories, which will give us an exceptional competitive advantage. We have a clear path to become an invaluable partner of choice for our customers. Turning to Slide 15. IFF and NMB together will deliver highly compelling value proposition to all of our customer types.
For global multinationals, we will bring deep experience with high growth segments, faster speed to market and deep consumer insights. For regional organizations, we will provide global reach to support regional and or global expansion, paired with strong local presence and a culture of collaboration. For new brands, we will be their end to end partner from idea to creation, providing the reliability of scale and the power of global reach. We will be exceptionally well positioned to solve real problems for our customers. We will be able to meet our customers' expectations for more integrated solution.
On day 1, the combined company will immediately be positioning positioned to capitalize on cross selling opportunities, leveraging the breadth of our combined portfolio and expanded customer base to drive sales and profitability. Integrated solutions are not just one thing. By joining forces, our company will go from limited capability to leading capability in the core areas critical to fully integrated solutions. Those include bundling of 2 or more ingredients in a single solution, building full prototypes and either off the shelf or in collaboration with customers offering a full solution. Together, we will be among the only player in our space able to accelerate our capabilities further along this continuum of product integration.
So how will we achieve this differentiated offering for our customers? Turning to Slide 16, we will have industry leading R and D capabilities and an even deeper product development pipeline to be a strong innovation partner for our customers. This powerful capability will help our customers drive growth and meet their consumer demands. And we will be able to help some of the most exciting fastest growing consumer products succeed around the world. We will do all of this while continuing both companies' leading commitments to sustainability.
On Slide 17, here are two examples that illustrate what this will mean for our customers and the incredible opportunity ahead of us with this combination. Across our shared end markets, we see meaningful opportunities for full service solutions to drive growth and innovation. Let me share these two examples. Today, IFF provides the flavors, seasoning, taste modulation and natural color for plant based burgers, while NMB provides the texturants, binders, enzymes and plant based proteins. In Personal Care, IFF provides the encapsulation delivery system and scent products for detergents, with NMV providing the enzymes for fluidity and stain removal.
In each of these cases, together, we will be able to deliver all of these products in one solution to our customers. And now, I would like to turn the call over to Rich, who will talk us through the financials. Thanks, Andreas. Turning to
Slide 18. IFF and NB are very complementary, and we share many of the same end markets. The combined business will have a balanced geographic footprint and an extended customer base. We will have access to faster growing, more profitable categories with an enhanced ability to drive sales by our cross selling opportunities across the entire portfolio. On Slide 19 highlights our tangible path to drive approximately $400,000,000 of gross revenue synergies by year 3.
We expect to achieve these synergies by targeting overlapping end markets to cross sell flavor and fragrances into N and B customers and vice versa. Examples of this include meat replacement, ice cream, infant nutrition and fabric care. We also plan to cross sell complementary solutions and leverage NMB's extensive product portfolio to increase penetration with IFF's large SME customer base. For cost synergies, we're targeting approximately pro form a cost synergies of $300,000,000 on a run rate basis by year 3, driven by procurement excellence along with manufacturing and organizational efficiencies. Together, the combination will have pro form a 2019 estimated sales greater than $11,000,000,000 with the strongest pro form a 2019 EBITDA margin compared to our peers at almost 26% with run rate cost synergies included.
The combined entity's attractive financial profile and a highly efficient business model will support both continued growth and reinvestment in high return areas. Turning to Slide 20, we expect to have a moderate pro form a leverage of approximately 4 times at transaction close and we will target a deleveraging profile to below 3 times by year 2 post close. Deleveraging will be driven by our substantial free cash flow generation and we commit to maintain investment grade credit rating and we'll continue our current dividend policy.
With that, let me turn it back over to Andres. Thank you, Rich. While we focus on separating the NMB business from DuPont, we will be diligently working to execute our roadmap to integrate these businesses as described on Slide 22. This will happen in parallel with our ongoing Frutarom integration work, which is proceeding well and which will be expected to be completed in the Q3 of 2020. We will tap the combined integration muscle of both IFF and NMB along with robust external subject matter experts.
Our integration office to be composed of leaders from both companies will be planning for 3 main objectives for integration. These include delivering on our base plans for both businesses, establishing a dedicated team to ensure execution and synergy realization and seamlessly combining activities to extract the best of both companies. In summary, today is a big day for our 2 companies. It is a culmination of a long strategic journey for IFF and once the transaction is complete, we will become a global specialty ingredients and solution leader. We will instantly lead the race to develop integrated solutions and we will have greater global scale to meet what our customers demand, high quality products, innovative solutions and strategic partnerships to deliver growth.
We are incredibly excited for what comes next. With that, let's open for questions.
And we will take our first question from Mark
Sorry about that. Can you guys hear me now?
Yes. Good morning, Mark.
Thanks and good morning, everybody. So I guess maybe one question for DuPont, one question for one question for IFF. So from DuPont standpoint, I guess I'm curious what's most compelling about IFF's offer compared to others and what gives confidence to being tied to IFF shares is the best path for DuPont shareholders? And then for Andreas and Rich and team, how do you keep DuPont employees, customers motivated, as well as customers happy and engaged over what's likely to be a fairly disruptive process in demerging and merging DNB into your business. It seems to always be a bit more complex than expected at first.
So maybe if you could give a bit of comfort that you have some idea of how you can handle that, that would be helpful.
Yes, Mark, this is Ed. I'll start out and take the first part of your question. And by the way, it was a rather interesting process. I'll describe it to you a little bit. But the punch line was we wanted the best strategic fit for the long haul.
But let me come back to that because thank heavens we didn't have to scratch our head and make a decision based on price and value that we were getting for the business. We had 3 highly motivated bidders that wanted the company. All three offers literally sat financially on top of each other. The mix of cash was different in each one depending on size and EBITDA, but they literally sat right on top of each other. So I think it kind of proves we got the value for the business that the DuPont shareholder should have and everyone viewed the value pretty much the same way.
So it was nice not to have that as the consider one of the considering kind of items. And then it was really to us the most important thing, strategic fit. And by the way, when I say that there's many aspects to it, but if I just give you the punch line on that, it's the breadth of this portfolio that is so powerful that is going to give us a major competitive advantage moving forward. And Barry, I would just point back to the one chart with the two examples on it with the meatless burger and the detergent. There are dozens of examples like that, where we're going to be combining significant ingredients together for customers.
So just the power of this, you can't duplicate again easily. No one can go merge with somebody else in one deal and create this combination that we now have. So that was the number one key. And then I would say very much importantly because I've done many mergers before and things like this in my career, Culture is extremely important here. And I can say this to a person and Matthias is already smiling, he knows what I'm going to say.
Our team unanimously has been bugging Mark and I to please do the deal with IFF because we think the same. Our R and D machine is kind of the same the way we go about it, the way we focus on our customers and the two teams get along. Obviously, they know each other from the industry. And so that cultural fit becomes really important to us. So that was the big reasons.
And Mark, before I take it, I would like to give it to Matthias,
outcome. I mean the Board unanimously approved, but I can also say my leadership team were unanimously awarding for that outcome because we are really excited about the strategic rationale to really offer combined solutions for our customers, but also about the fit in terms of cultures, the passion for innovation and science. So great outcome and we're really looking forward to building a great company together. Yes.
The good thing is Mark that we believe the teams will stay focused in the period until we close the deal. And we will prepare very, very well for day 1. And we are already, Matthias and myself, thinking how we organize ourselves. I think we have a clear road map and a clear plan already in place. And the good thing is, if you look at the carve out, it is more about the enabling function because the business is already very, very out torque and very, very separated and they can focus on their customers and driving growth.
And the excitement is certainly very high on the IFF side as well because we have tipped now our toes for more than a year into cross selling and some complete solutions And we just see the opportunities. And what we can generate here together, it's unbelievable. So the excitement on our side is high. I believe the professionalism and the execution of it is high on both teams because NMB has done integrations before, IFF has done it before. I think we will form a highly professional team who can do that.
And we will go next to David Begleiter with Deutsche Bank. Your line is now open.
Thank you. Good morning. Good morning, David. Good morning. What will the role of the current nutrition and product science of management be in the new company?
In terms of your role, why the delay, assuming that the lead independent director position until June 2021? Why not immediately upon close?
Well, that we'll have closed and then we'll do it at the annual meeting, which won't be any later than June of 2020, whatever that is, 2021. So it's just the transition at that point. So it's effectively around. We'll be closed a few months at that point in time. By the way, I do plan on going to a few board meetings with IFF pre us closing the deal because we got a lot of integration work that will be going on.
So we'll already be cross pollinating. And my gut is, as I've done in the past on deals like this, as we start announcing the Board members that we will be bringing on, they will also come and meet with the Board of IFF and all that. So we're already integrating, talking about the strategy, and everyone hits the road kind of day 1, ready to move and understands what we want to accomplish and is going on. I'd also point out on the integration side, Andreas made a couple of these points, but to highlight them. There's heavy lifting to do with DuPont to get this done, carve outs, IT work.
And many of you on the phone have heard me agnostic in the last 4 years because that's what we've been doing. But legal entity work and all that, but it has nothing to do with Mattias' team running the business. We do all that with separate teams at corporate, and we're pretty darn good at that kind of stuff. So it doesn't distract them. And I'd also make the point on the integration.
Our team is highly efficient at this. You've watched us for 4 years. We've done some major, major deals here. I think from the outside, they went pretty smoothly. And Matthias, by the way, was here for the Dinesco integration with his team in the last two years.
Remember, we integrated the Dow business into N and B. We put in the FMC business into this company, and we also merged our IB business into this business all in the last 2 years. So and again, it happened seamlessly. You didn't really notice the behind the scenes. So we will set up the integration office just the way we've always done it, which Andreas is in agreement with, and we will click and clock this thing every day as we go through the next year.
So I feel really good about it. We've spent a lot of time already talking about how this is going to get accomplished.
I mean, I think on our side, it fits well from a timing standpoint. Also, you've heard us talk in the Q3 call that from the front end of the business, the go to market implementation from the Frutarom side will be done by the Q2 of next year from an operational standpoint and the integration on the footprint side will be about 90% done by the end of Q3 of next year and that works well in terms of then being able to fully focus on this integration when the transaction closes in Q1 of 2021.
But we
feel really good about that.
And by the way, many of you know this from mergers. We have we can lay out everything except customer strategy. We got to kind of stay away from that. We will stay away from that. But everything else operation, as Rich just said, factory footprints, overhead structures, who's in management populated, all that will get done as fast as we can move and the planning will be done by the time we actually do the merger.
And we will take our next question from Jeff Zekauskas with JPMorgan. Your line is open.
Thanks very much.
Good morning, Jeff. Good morning, Jeff.
Hi, good morning. Because IFF and the DuPont Nutrition and Health Business don't directly compete, but you probably have overlapping raw materials. Can you, I guess work together and understand your raw material position in advance of the closing of the deal? And can progress be made on upgrading the ERP systems to make them more compatible so that in the 1st year of your combination, the realized synergies are larger rather than smaller?
Yes, Jeff. I think that's as Ed and Andreas already talked about, that's going to be a key focal point of the integration office and the program that's in place. We use similar approaches already in both businesses. I think that's the procurement side. What we can't get into is specific economics in terms of pricing.
We still have to respect that both companies are independent until the closing. But we can work through clean room and work with the consultants. We've already done an extensive amount of work already and that really is the driver, the single biggest driver about half of the savings related to the cost synergies are coming from the procurement side. So that's certainly the focal point and we'll have ample opportunity on the IT side to work on while N and B is getting carved out of DuPont. On our side, we have to do the planning in terms of how do we connect those systems into the IFF side.
But again, as was mentioned earlier, these business from an operational standpoint are already operating independently today. And so there's a lot less disruption, because it's more complementary than overlap. And actually coming back to the procurement piece of the raw meds, that is certainly something we did during the
D and D already to look what could be the magnitude of the savings. And I would like to remind everybody that during the Frutarom integration, we are over delivering on our procurement savings. So we feel Yes.
And Jeff, just to one of your points, I think, is key here. Yes. And Jeff, just one of your points, I think, is key here. I think our time line to close this transaction is very safe because it is there is not overlap. It's the we're broadening out the portfolio.
So antitrust issues aren't there. So we're not going to have second reviews and things like that, and I think that really helps the time line.
Okay, great. Thank you.
Thank you.
And we will take our next question from Jeffrey Sprague with Vertical Research. Your line is open.
Thank you. Good morning. Just one follow-up on that last point and then a different question. Ed, so what is the long pole in the tent here then to getting to completion? It doesn't sound like it's regulatory.
It sounds like it's just the kind of the underlying blocking and tackling?
Yes. It's really 3 well, 2 about 3 things. It's the carve out financial work, by the way, again, happens at our corporate office, not at N and B. It's the IT capability to lift it out and transfer. There will be test periods with IFF you go through to make sure everything's ticking, tying and working and we can close our books and all that.
We have by the way, as you know, we have great experience at that too. We've done many of them. And then the legal work, you got to kind of go country by country and redo your legal structure to make sure you're still being very tax efficient, you get everything right and all that. So that would be the 3 big buckets. And again, they're all done in Jean Marie's team up in corporate in Wilmington.
And then with this dividend that DuPont will receive, Ed, dollars 7,300,000,000 I imagine you're going to pay down some debt. But what about the remainder? Are you thinking share repurchase? Or what would be the game plan?
Yes. So we're going to have to pay down a good kind of $5,000,000,000 to delever because of the EBITDA leaving the company. We still want to keep ourselves in a very strong financial profile. So that will occur. So give or take, there's $2,300,000,000 $2,300,000,000 of excess cash.
And look, you know our profile, we're very shareholder friendly. There might be some bolt on M and A we want to do here. We've watched us do a few interesting things lately in the water space. But generally speaking, we're not going to sit on the cash and we'll be shareholder friendly.
Thanks. Congrats. Great deal.
Thanks, Jeff.
And we will take our next question from Lauren Lieberman with Barclays. Your line is open.
Great. Thank you. Good morning. Good morning, Lauren. I have a few questions.
Thanks. The first thing was just around the mid single digit revenue target for the combined companies going forward. I just wanted to understand a bit what the expected growth is, if you will, for the 2 legacy businesses? Because my understanding is the DuPont business has sort of been flattish to up 1% more recently and even the last couple of years. So just a little bit of visibility on that and why that business should accelerate would be great.
And then the second thing was just on integration timeline. It just sounds like because a couple of different times on the call you've talked about getting going right away with integration planning. And in RMTs that I've seen in the past, there's really been a pretty heavy restriction on the companies being able to work together because of competitive dynamics. I just want to be clear, there's nowhere that the 2 companies currently compete, so you really can start this planning work immediately? Thanks.
Yes. Good morning, Lauren. Let me start with the second one. You got it exactly. From a market standpoint, there's almost no overlap.
So I think that's why we feel very confident in our ability to, 1, from a regulatory standpoint, no challenges. 2nd thing, it enables us to get into the details of the integration planning. In terms of the growth rates, I would say that post closing, the growth rates that we're projecting for the N and B business is right in the middle of our organic growth rates that we've had historically of 3% to 5%. On the IFS side, it's we've got sort of the same thing, the middle point of our 3% to 5%, but plus we still have some of the cross selling synergies from the Frutarom side. So we'll probably be at the higher end of that 3% to 5% range.
And then on top of that, you get the cross selling the $400,000,000 of the combined this combined deal that drives it above the 5% range. Maybe on the RMT?
Yes. On your comments, Loren, on the RMT and all doing the integration work, if you put it in 1%, about 90% of what we need to do, we're allowed to do during the next year. And again, it's really you got to stay away from customer, customer profitability and sharing those types of things. But all the other work, looking at overhead structures, factory efficiency, warehouse efficiency, procurement, all those things we're going to preplan literally. We'll have a playbook line by line by line of exactly what's the item, how we're going to get the cost synergy, who's responsible for it, what's the return on investment on each one of them and we'll just very rigorously track them and that system will work very well for us.
Yes. Matthias, may you comment on the business?
Yes. Hello, it's Matthias here talking about the NMV situation. I mean, we have been up to mid single digit over the last couple of years. If you look at the organic growth, there's some very high growth in probiotics and enzymes business. 2019 is a bit of an adjustment year due to some market situations in China and in the U.
S. We see already growth going back in Asia in probiotics. So we're very confident about our growth expectations going forward. We have put enough now capacity and the right capacity in place in the high growth areas in probiotics and cultures. So we are very committed and getting back to this kind of growth curve going forward.
Yes. And finally, for those not familiar on the call, we just finished 3 months ago, dollars 100,000,000 expansion on our pro buyout line. We were flat out of capability from a production standpoint. So we just completed that, and that will help us now over the next few years.
And we will take our next question from Vincent Andrews with Morgan Stanley. Your line is open.
Thank you. Good morning, everyone, and congratulations. Ed, maybe you could talk to us about how you're thinking about next steps at Remainco, DuPont. IFS is showing you they can do 2 transactions at once. Is that something you think you could potentially do if it made sense with 1 of the other segments?
Or do we have to wait before nutrition and bioscience is separated before you might consider another large scale event?
Well, I will say this to you. I'm going to definitely try to get some downtime over this holiday. So don't expect anything in the next couple of weeks. But no, no, look, we're capable of doing more thing than more than one thing at a time, and we've said that before. And look, it's I think we've been very transparent that we're going to actively manage the portfolio.
By the way, I like what's in new DuPont. I guess some people are calling it Remainco right now. It's a great set of assets, and we will do whatever we need to do to create value long term for our shareholders. And we're obviously not afraid to make moves like this. So if there's something there that's good for our shareholders, we will clearly look at it and make a move against that.
So on the other hand, we like growing our business organically. We have some interesting bolt on opportunities we like in the company that are good returns for us, and we'll be looking at that also.
Thank you and enjoy your vacation.
Yes. Thanks, Matthew.
And we will go next to Faiza Alwy with Deutsche Bank. Your line is open.
Great. Thank you. Good morning.
Good morning, Faiza.
Good morning. Andreas, I wanted to ask about press on the potential disruption point and maybe it would help if you could compare on contrast relative to Frutarom, because I think you would agree that in year 1, Frutarom hasn't performed in line with expectations. So how do you ensure that the same thing doesn't happen again?
Look, Faiza, I think that's a very, very valid question. And I believe that we have made good learnings over the last couple of months. And I would say what has worked extremely well was everything related to cost synergies, whether it is procurement, manufacturing footprint or overhead cost. That's the reason why we are over delivering. And we will take this blueprint and we're already talking to Matthias how we basically can do this then for the new combined company.
I think we are good on this. And both companies, as we said before, have great experience. On the other hand, the things which didn't work so well were some one time effects on the sales side and then the compliance in Russia. So I would say here we are very, very secure because we don't expect any compliance topics. We have 2 U.
S. Entities and U. S. Companies emerging together. That's number 1.
Number 2, we will go with nice tailwind into that sales wise into that integration because we expect a good rebound, as Matthias just said, in his business for next year. We are pretty set what we can expect for our business. So I believe that's good and we will see no of these onetime effect. And the major, major topic and maybe Matthias can comment on that one as well. It's the combined culture because it is when I during the DD walked into some of the DuPont facilities, it felt like home.
We were talking the same language and we have same capabilities in different areas, but it's very science driven, science led. So we believe that this is something which is very, very strong going forward. But Matthias, please, your comment.
Yes. Thank you, Andreas. Certainly, I mean, like Ed mentioned over the years, we've built quite a bit of expertise starting with the Dineshka integration, which I was involved in the FMC, the Dowpurn and Karma. So I think my leadership team, which is a very global, very diverse team, has built the expertise. We will apply the right processes.
But at the end of the day, it's I think the people working together and the shared vision, the passion for innovation and customers. So certainly, I can echo what Andrea said. I mean, already through the due diligence, we came up with a very collaborative and again shared vision for the future.
And Ann Pai, I think that's a big distinction. Frutarom brought a lot of great ingredients and products and all to the table, but they didn't have there's no depth. The depth of the N and B team is very, very strong. And I mean this in a positive way. It's very process driven.
They know what they're doing. They know how to do this. I think that's a huge distinction. And there's another big distinction. We have a full year to plan this one, which was not the case in the other.
So that's a lot of planning time to get this right. We will definitely use that time to our advantage.
And we will go next to Steve Bryant with Bank of America. Your line is open.
Yes. On Slide 14, you list 10 businesses where the combination here results in a category leader. Just wanted to ask whether that category leadership in any of those 10 businesses was a result of the combination? And then also wanted to ask Matthias, which of your businesses do you see the most potential for revenue synergy by tapping into IFF's customer relationships?
Maybe, Matthias, you can take it right away.
Yes. Certainly. I mean, look, I mean, if you look at the food and beverage segment, that's certainly where we see strong synergies. At the end of the day, we are all consumers every day, and we like products with the right texture, with the right mouthful. But at the end of the day, they need to taste well.
And I think through this combination, we will be able to really bring even better innovation going forward, which we as consumers will like even more. And the other aspect is like, for example, Home and Personal Care. We will again serve the similar customer base, but we really bring now the expertise together. So I think we're really tremendously looking forward to this unleashing now the potential going forward.
And it makes it actually, Steve, easier for us because we have limited overlap in some of these categories, but the categories play very well together. And I think that's a huge difference. And I think it's I'm glad you picked Slide 14 because that's for me the pivotal slide because it shows the strength of the combined company, which is not replicable easily by any of our competitors. And that will drive us as a very invaluable partner for many, many of our customers, whether they're big or small customers.
And Ed, any of your corporate costs going to be allocated to this deal?
Yes. No, we're going to end up having some stranded costs on the DuPont end. Gene's already got a team, as we've been through this before, has a team working to identify all the stranded costs that we'll have. And obviously, we'll have to deal with that, but we're well on top of it. We know what we're doing.
By the way, it's probably in the ballpark, give or take, dollars 100,000,000 So I mean, in the scheme of the company, it's not a big number, but we have some lifting to do to clean that up. But nothing from corporate will obviously go over to IFF. That won't happen.
Okay.
Thank
you. Thank you. I could give you a summary.
And we will take our next question from John Roberts with UBS. Your line is open.
Thank you. It doesn't seem like
there are any cost savings in R and D. I was thinking this might have been a little bit like the crop protection combinations that form Corteva where R and D might have been a synergy area. But if you could talk a little bit about that because I would assume you work on a lot of the same type of programs.
Yes. I'll let IFF talk a little more detail and think about it. But, Fiery, this is a very key point. By and large, you keep the R and D from both organizations here. It's over $700,000,000 And by the way, to give you a couple of data points, if you line up all the peer companies in the industry, the next spend is just a little over half of our R and D spend.
And the next for this company to be spending R and D at that clip, we for this company to be spending R and D at that clip, which by the way is the same percentages the 2 companies have been running at, is a really competitive advantage over the next set of years. So it's not an area where you're going to take a lot of your synergies from. There'll probably be some overlap here you would look at and redivert those dollars. But as Rich said and where synergies are coming from, it's really in a lot of other overhead structure, procurement, factory consolidation looks, those type of things are the bigger lift.
Yes. I think there's a little bit in there, I mean, more from a program standpoint. But I mean, when you look at the strategic rationale of this deal, it's about the growth, it's about the product portfolio and innovation, and we don't want to cut corners on that. I think there are some programs that both sides are working on that we can take the best of both and get some of it, but it's not a key driver
in it. No. Actually for us, the focus on where we want to spend is go to market, make sure that we bring in the sales and having a really great R and D machine here. And that's a good thing. It's actually one of the first things we will do.
And John, you will like that that we review again after DD what our programs in R and D and how can we roll out these combined technologies. And just look at the IP portfolio we're having right now, this is as well completely unmatched by any of our competitors.
And Ed, the tail end of the release reiterates your Q4 guidance, but notes that the mix is going to be a little bit different than we earlier thought. Maybe you could just give us the offsets continued weakness in the Transportation and Industrial and Electronics area?
The 2 a couple of issues were in S and C. And in E and I, we had some supply disruption in E and I, mostly on the silicon side that slowed us down a little bit. It goes into our semiconductor, so it happens to be a high margin category for us. So it affected us more. If you notice our sales guidance, we left, but we had a little bit of a mixed shift in the EBITDA because of that.
And then we had a very key customer. I don't want to say names, but it was very public, had a fire, and that slowed down on our Nomex side and all that, and that's a very high margin business also. So one of them is kind of resolved, the other one is almost resolved. And they're just one offs, but it hit us by a little bit. So we reconfirmed sales, we reconfirmed meeting our EPS guidance, and we just wanted to let you know maybe just a little drift to the lower end of our guidance range on EBITDA.
But no change in business tone out there. T and I is kind of running where we said it would. So it's really no change is kind of how you see the demand out there in the global market.
And we will take our next question from Kevin McCarthy with Vertical Research. Your line is open. Kevin, your line is open. Please check your mute function. Once again, Kevin, if you can hear us, please check your mute function.
Hi, operator. We can go to the next question, please.
And we will take our next question from Mike Sison with Wells Fargo. Your line is open.
Hey, guys. Congrats on the deal. Wanted to get a feel for what you think the long term value creation sort of metrics are going to be. Your EBITDA is about $2,600,000,000 combined, add in a lot of the synergy if you get the growth. Is the EBITDA potential $1,000,000,000 plus over the next 3 years?
Is that kind of the math you get to generate the value you think this entity will do over time?
Yes, Mike, I think that, again, what I see, the way I think about it, strong mid single digit top line growth, significant margin expansion as we've talked about going from both businesses are in the 23% 22%, 23% range today. With just the cost synergies alone, basically 26%. So that's going to drive the value creation and drive the increase in EBITDA. So I expect us to see long term EBITDA growth in the high single digit range. So that's the fundamentals of it.
And then we quickly delever as we've talked about given the strong cash flows. So we'll be able to over that period of time, that's going to drive incremental benefit from a shareholder standpoint.
And what we should not, Mike, underestimate that with this portfolio and I'm focusing that on Slide 14, we have certainly different profitability categories in our portfolio. And we will certainly focus on the more profitable ones. We did this already during the IFF times and I know that Matthias did the same on his portfolio. But now we have great opportunities to basically enhance our mix and that will drive at least mid- and long term profitability as well. Okay.
And a quick follow-up. In terms of the DuPont businesses, so the customers have been continued focused on naturals and natural products. How much of the DuPont asset supports that trend with customers? And when you combine it with IFF, the total portfolio going forward is how much of that is sort of natural sort of related?
Yes. Hello, it's Matthias here. I mean, you're certainly right. I mean, we do see a vastly growing trend towards health and natural. We are very positioned with our broad portfolio.
I'll give you a few examples. For example, the enzymes using in the bakery industry are a great example. I think the whole plant based trend where we are positioned with our soy proteins with additional ingredients, also making sure that then other products have a longer shelf life. I mean, we are using the full suite of offerings and then combining that with the IPEV Natural's offering, I mean, we are well positioned to really grow that trend. In my view, there is no other company positioned like us and this combination to serve this trend going forward.
And as we said during our discussions, you could improve the flavor on the plant based burger, but we can do this now. Yes.
We will
take our next question from Jonas Oxgaard with Bernstein. Your line is open.
Good morning.
Good morning, Jonathan.
Looks to me like Nutrition Biosciences has gone through a lot over the last couple of years, the merger and more merger and reorganization and spin and now we're doing this. IFF seems to have gone through some and further on. How are you thinking about fatigue at the employer or at the employee level for those?
Jonas, it's Matthias here. I mean, certainly, I think we appreciate that it's certainly known. I mean, we have done a lot with the Donezco and all the integrations. But as I said, I mean, the team is really excited. Of course, they're a little bit tired.
And like Ed, I mean, we all go for a long deserved break, but really excited about this potential of combining both companies. So that's clearly the bottom line. Yes, we have done a lot, but we have built expertise momentum. And I'm also really happy that we really kept the laser sharp focus on the customer and our product development. So again, with that mindset, you will see us planning next year building a great company together.
Yes. I can see from the team perspective that you can overcome it. I was more thinking from the frontline employees. At least my experience is that you do end up hitting a wall at some point with the workers.
Yes. I mean, look, I mean, we are working with our global sales team, with our application teams. I mean, we are doing a lot of communications. But again, all the feedback I got already over the last, whatever, 12 hours is extremely positive. And again, we are very well positioned and working with them closely to help them through the change.
Again, also here, we have built a lot of expertise of bringing people through the change.
Jonas, I would make one point, having been through this before. People love working for the global leader. And they know they're not going to get distant down there. They're going up to the top of the heap. It's a pretty darn good feeling.
And if you're a salesperson, it's a pretty motivating thing that you're like, oh my gosh, look at the tools I'm not going to have in my tool bag. So I think it's actually a motivator. We're not naive about fatigue with people and all that, I actually think this is it makes it very exciting for the NMB team and the IFF team and everyone in the trenches.
Yes. I think the excitement is clearly there. And again, the complementary nature of this, it's more about opportunity and how do we leverage all the capabilities and the breadth of the portfolio versus a significant amount of overlap where you have to get through more complex integrations.
Thank you. And that is all the time we have for the Q and A session today. I'd like to turn the call back over to Andreas for closing remarks.
Yes. Thank you very much for your time. For us, it's certainly a historic day, and we will take more calls in 1 on ones. Thank you very much.
Thank you for your participation. This does conclude today's program. You may disconnect at any time.