A Tale of Two Algae: DSM to acquire Martek; BioCentric Energy collapses amidst IRS, bad check, labor crises

DSM acquires Martek for $1.08 billion

In Maryland, Royal DSM agreed to acquire algal-based pioneer Martek Biosciences for US$1.087 billion in an all-cash transaction. Subject to customary conditions, the tender process is expected to close in February 2011, and the transaction is expected to close in the first or second quarter of 2011. The agreed price represents a premium of 35% to Martek’s closing share price of US$23.36 on December 20, 2010. Martek has $450 million in annual sales for the fiscal year ending October 31.

The DSM / Martek view

According to the companies, “The purchase by DSM of Martek will be the first major acquisition by DSM after its successful transformation into a Life Sciences and Materials Sciences company, and adds a new growth platform for healthy and natural food ingredients for infant formula and other food and beverage applications, especially focused on Polyunsaturated Fatty Acids (PUFAs) such as microbial Omega-3 DHA (docosahexaenoic acid) and Omega-6 ARA (arachidonic acid).

“Martek will provide DSM with new opportunities in the infant nutrition segment as well as food and beverage and dietary supplements and create a strong platform for DSM to enter the fast growing Omega-3 and Omega-6 market through Martek’s microbial DHA and ARA products.

“DSM will be able to leverage DSM’s global nutritional infrastructure (global market reach, application skills, R&D and manufacturing technology base) to channel and accelerate the growth of these products into other regions, applications and market segments beyond Martek’s current strong US-based position.

“Furthermore, Martek’s algal and other microbial-based biotechnology platform and its robust algal technology pipeline which complements DSM’s own biotechnology portfolio, is expected to deliver new nutritional and non-nutritional (industrial) growth opportunities.”

BioCentric Energy collapses

In California, escalating debts and a series of IRS, labor, and check fraud charges surfaced this week as BioCentric Energy (BEHL.PK) lost its Chairman, president and employee base to resignation.

In an extraordinary note posted at advfn.com, former company president Monique Berry wrote:

“The day we resigned, the company was $65,000+ in payroll arrears for approximately 15 employees. $45,000 was owed to the IRS (this check signed by Dennis bounced) $200,000 in trade debt, $22,000 in heath care etc. For several weeks and months employees were promised by Dennis that we would be compensated and we would be caught up. The employees stopped believing in Dennis after dozens of false promises to be paid. They came to work each day because I continued on , but they no longer trusted or believed in Dennis. I gave my employees my personal money for gas so that they could come to work, I bought lunch for those with no money to eat. I and other employees brought in toilet paper, coffee and creamer from our homes as the office had none or any money to purchase basic office necessities. This continued for months.

“Also, we were past due on rent for the office and eviction notices were in the works. Over Thanksgiving weekend, my home utilities and employees utilities were being turned off due to lack of us being paid. The algae in our carboy room was in dire need of supplies. Due to this the lab staff was unable to keep the algae healthy. I reached out to every potential investor / client asking for capital support to continue our operations, but my efforts were fruitless. With that stated and despite the dreary financial demise of the aforementioned, I, like my coworkers came to the office without fail without missing a day because of loyalty to the shareholders and the DVJ client.

“The average workday however consisted of a flood of calls from angry vendors regarding bad checks, lack of checks and payments due to them. Also, there were several calls and visits from the labor board and other government officials looking for Dennis Fisher. That was a basic synopsis of my last two weeks at BEHL.

I was questioned and asked a multitude of disturbing questions about Dennis Fisher by government officials. I performed some due diligence to confirm the information provided to me… needless to say, I became physically ill and was in disbelief.. Knowing what I knew about Dennis, I had no choice but to resign. The resignations of Nancy Fisher, Dennis Wife of 25 years, their best friends Helmut and Renate, Frank Rawson the controller, Marla Kennedy and the lab staff were all independent decisions but made for the same exact reason.”

Dennis Fisher himself responded with more background in a candid interview at Blog Talk Radio, and Algae Industry magazine wrote up a summary of some of the key parts of the interview. “We spent three million dollars and we only raised two and a half million. It all came down to the money…We have a half a million dollars worth of debt and we started to slide downhill the latter part of July and we never recovered. It got to the point where we couldn’t raise any more funds and, because of that, the debacle happened. Had I raised another half a million dollars none of this, not the dealing with the three charges of bad checks, not the labor board, not the IRS, none of that would have occurred.”

The interview goes on to record some extraordinary detail about personal and legal troubles in BioCentric chairman Dennis Fisher’s past life – including felony charges and a name change.”

According to Fisher, turnaround specialist Mike Burton has been issued a controlling interest in BioCentric shares and will become the new CEO and chairman of the company.

The Digest’s Take

The Wild, Wild Wet period in the development of the algal bio-based products industry is coming to a close, and winners and losers are beginning to emerge. Could there be any more stark contrast of the Tale of Two Cities type (“it was the best of times, it was the worst of times”) than the announcements regarding DSM, Martek and BioCentric?

One extraordinary winner: Martek, which has parlayed its development of a vital nutraceutical made from algal biomass into a billion-dollar business.

One extraordinary loser: BioCentric Energy, which had raised hopes with a promising series of announcements in the development of a closed-loop photobioreactor system, but appears to have all-but-collapsed in a series of major financial misjudgments for which the consequences may create some difficult personal consequences for individuals, and clearly wrought havoc on suppliers and employees for a good portion of 2010.

The DSM entry: DSM has been repositioning itself into a life sciences and materials sciences company, and the Martek acquisition should leave no doubt that the the Dutch vitamin giant is on the move, and can certainly be expected to use its sales and capital strengths to broaden the applications of Martek’s core technology, which produces high-value renewable oils from algal biomass.

The partnership with BP: Highlighted in the announcement is Martek’s partnership with BP, although we understand from BP Biofuels chief Phil New that the platform technology that BP and Martek are working on is yeast-based, rather than algae-based.

DSM has clearly stated its interest in the industrial side of bio-based products – which could lead it into chemicals, fuels, foods, plastics or other uses for renewable oils. Commercially, it could be a formidable competitor to the business model of companies such as Solazyme, although there is a big difference between the two companies in their core technologies, and clearly they are active in different ends of the algae-based product spectrum at this time.

We also note that the BP partnership – which would generally be understood from the BP point of view to be focused on fuel applications – could be understood as competitive in the long-term to Amyris – which, like Markek-BP, is working with yeast fermentation on fuels applications.

We’ll be watching DSM-Martek’s movements carefully with respect to applications of the core technology to industrial niches.