Flavor and fragrances concentrate manufacturer Frutarom Industries Ltd. (TASE: FRUT; LSE:FRUT; Bulletin Board: FRUTF), known as a serial acquirer of companies, has made a number of acquisitions in recent years. The company, whose share is traded at a NIS 7.2 billion market cap, is now training its sights on a local company: Gan Shmuel Foods Ltd. (TASE: GSFI), which makes natural juices and raw materials for the soft drinks industry. The target's share is currently traded at a NIS 400 million market cap, and negotiations are under way for the acquisition of 50% of Gan Shmuel Foods (following the purchase of the public's shares through an offer to purchase) at a company value of NIS 500 million, in other words 25% higher than the market price.
It was reported today that the two companies had in the past, including the recent past, held initial negotiations for an investment by Frutarom in Gan Shmuel Foods, but that no agreement had been reached. At the same time, the wording of the report to the TASE left room for the possibility of a future deal between the two companies. It was stated that the negotiations "had not ripened into an agreement at this stage," The Gan Shmuel Foods share responded with a 10% leap during the day's trading.
Gan Shmuel Foods is controlled by Kibbutz Gan Shmuel, which owns 41.4% of the company's share capital, while Kibbutz Gat and Kibbutz Beit Nir each own 12.6%, and Strauss Group Ltd. (TASE:STRS) owns 6.3% through the Yotvata Dairies. The company, managed by CEO Uri Cinnamon, deals mainly in industrial manufacturing of products on citrus fruit, tropical fruit, and tomatoes, which it sells mostly overseas. In the retail area, it produces natural fruit juices and nectar for consumers in Israel and overseas, among other things through the Primor brand.
Gan Shmuel Foods affected by the crisis in Russia
The company was recently affected by the severe economic crisis in Russia, to which it exports some of its products, with the company share sliding 18% over the past three months. The damage to the company's business in the Russian market is reflected in its financial results in recent quarters caused by the plummeting ruble, a drop in demand, and the difficulties experienced by local importers in continuing their regular activity. The company's sales were down 5% to $181 million over the first nine months of 2014, and the company explained that the negative trend in its business was "due to a drop in sales in Russia and Ukraine, following the geopolitical crisis in the region."
Gan Shmuel Foods added, "The crisis created a shortage of cash and credit, together with a weakening of the local currency against the dollar, which made it difficult for its customers to buy from the company." The company further noted that the damage to its exports was part of "a prolonged crisis and economic slowdown in the sector that has continued with ups and downs since 2008."
Simultaneously with the fall in its revenue, Gan Shmuel Foods also saw a decline in its gross and operating profit margins, and its net profit in the first three quarters of 2014 was halved to $7.5 million. The company broke even in the third quarter, compared with a net profit of almost $4 million in the corresponding quarter in 2013. The company noted," The substantial drop in net profit is a direct result of the drop in sales that begin in the second quarter, which requires adjustment of its current expenses, first and foremost in its procurement policy, but obviously also in other current expenditures. The company is preparing to make these adjustments"
Frutarom, managed by president and CEO Ori Yehudai, in recent months acquired companies in Peru, Slovenia, Spain, and the UK. It had $57 million in cash at the end of the third quarter of 2014.
Published by Globes [online], Israel business news - www.globes-online.com - on February 16, 2015
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