International Flavors & Fragrances Inc. (NYSE:IFF) (Euronext Paris: IFF) and and Frutarom Industries Ltd. (TASE: FRUT; LSE:FRUT; OTCBB:FRUTF) today announced that they have entered into a definitive agreement under which IFF will acquire Frutarom in a cash and stock transaction valued at approximately $7.1 billion, including the assumption of Frutarom’s net debt. Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, Frutarom’s shareholders will receive for each Frutarom share $71.19 in cash and 0.249 of a share of IFF common stock, which, based on the 10-day volume weighted average price (VWAP) for IFF’s common stock for the period ending May 4, 2018, represents a total value of $106.25 per share.
This was the second-largest ever sale of an Israel company after Mobileye, which was sold to Intel last year for $15.3 billion.
On the announcement of the acquisition deal, Frutarom's share price rose by more than 4% on the Tel Aviv Stock Exchange to nearly NIS 360 (about $99). In the past five years, Frutarom's share price has risen nearly 600%.
IFF says that by combining with Frutarom it is accelerating its Vision 2020 strategy to create a global leader in taste, scent and nutrition. "The combination unites two industry-leading, innovative companies with complementary customers, capabilities and geographic reach, resulting in more exposure to fast growing end markets and an enhanced platform to deliver sustainable, profitable growth. The combined company’s customers will have access to comprehensive and differentiated integrated solutions with increased focus on naturals and health and wellness," the companies' announcement said.
“This transaction is a big win and a fantastic outcome for shareholders, customers and employees of both companies,” said IFF chairman and CEO Andreas Fibig. “Frutarom has an extremely attractive product portfolio, including broad expertise in naturals and diverse adjacencies with capabilities beyond our core taste and scent businesses. It also has significant exposure to complementary and fast-growing small- and mid-sized customers. By combining our deep R&D expertise with Frutarom’s, we are offering our customers a broader range of solutions and accelerating our growth strategy. We believe this combination will lead to faster and more profitable growth, enhanced free cash flow and generate greater returns for our shareholders.”
Mr. Fibig added, “We have long admired Frutarom and have a great deal of respect for its team and all of its dedicated and talented employees around the globe. We look forward to welcoming Frutarom to the IFF family.”
Frutarom president and CEO Ori Yehudai said, “Frutarom has had a fascinating journey of accelerated growth, far above our industry benchmarks through our investment in unique technologies and focus on natural products in the growing world of health and taste.
“Today, we are extremely excited to combine Frutarom with IFF and together create global leadership in natural taste, scent and nutrition. The growth potential for the combined company is substantial and our shareholders will continue to enjoy this upside."
After completion of the deal, IFF's shares will be listed for trading on the Tel Aviv Stock Exchange as well as in New York. The transaction is expected to close in six to nine months and is subject to approval by Frutarom shareholders.
IFF intends to maintain Frutarom's R&D and production activity in Israel at its current level for at least three years from the closing.
Six weeks ago, a large deal took place in the food ingredients and flavors industry when Swiss company Givaudan, the largest in the world in Frutarom's field, made a bid for French company Naturex worth €1.3 billion, representing a premium of 42% on Naturex's share price before the deal was announced, and a very generous profit multiple of 60.
Givaudan bought 40.6% of Naturex for €522 million and announced that it would publish a tender offer to purchase the remaining shares at the same price. The deal caused negotiations on mergers and acquisitions in the industry to move up a gear.
The controlling shares in Frutarom are owned by company chairman John Farber (92), his wife Maya (80) and their daughter Sandra (60), who hold them via ICC Industries Inc. Today's deal announcement states that "IFF has entered into a voting agreement with affiliates of ICC Industries Inc., which hold in total approximately 36% of Frutarom’s outstanding shares, pursuant to which they will vote their Frutarom shares in favor of the transaction." The Fidelity group owns 8.8%, and Yehudai owns 0.8%, after selling shares to the tune of hundreds of millions of shekels over the years. The rest of the shares (about 55%) are held by the public.
“This transaction represents a major milestone for Frutarom and opens the door to a new chapter of growth and shareholder value creation,” John Farber said. “I am pleased to support this historic combination of two world-class companies and look forward to the next chapter of the IFF and Frutarom story.”
Talking to "Globes", Yehudai said, "Frutarom has expanded at an astonishing rate in recent years. In this agreement, we have preserved the Israeli activity. IFF will list on the Tel Aviv Stock Exchange and there will be a very good connection between the two companies. This is an important agreement for Israeli industry."
The American company is supposed to raise $2.2 billion. Will the deal be closed in any case?
"Yes. The deal is not conditional on this or that fund raising round. There's a lot of synergy between the two companies, which complement each other to a very great extent. This was the main consideration in choosing the partner and the deal. Their products are different from ours, and their geographical strengths are different from ours. In my opinion, the synergies will bring substantial added value to IFF and Frutarom's shareholders. This is an excellent story for the Israeli economy and for the Israeli stock market as well. A global industrial company with a market cap of a little under $20 billion will be traded here, similar to Teva, and perhaps second only to Teva."
What will happen to you and the senior managers? Will you stay?
"The deal should close in about six months' time. I plan to stay on at the company in a senior position in the coming years. After the deal closes, I see myself continuing in a position in which I will take best advantage of my strengths. No layoffs are expected in Israel in the next three years at least, including in companies we recently acquired in Israel. It was very important to me to secure that in the framework of the deal."
Published by Globes [online], Israel business news - www.globes-online.com - on May 7, 2018
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