IFF Joins M&A Rush in Flavorings With $7.1 Billion Frutarom Deal

(Bloomberg) -- International Flavors & Fragrances Inc. jumped into a rush of dealmaking in the food-flavoring industry, agreeing to buy Israel’s Frutarom Industries Ltd. for $7.1 billion including debt.

In acquiring a creator of alfalfa and wild cherry bark flavors, IFF is tapping the fast-growing market for natural food ingredients. The purchase, IFF’s biggest ever, will make the New York-based company the industry’s No. 2 player, displacing closely held Firmenich International SA and trailing Givaudan SA.

The deal extends a consolidation push as growth slows and flavor makers contend with volatile raw-materials prices, Liberum analyst Adam Collins said in a note. The acquisition will boost IFF’s sales to small and midsize customers as well as in regions such as Eastern Europe, Chief Executive Officer Andreas Fibig said. IFF will also make inroads in faster-growing markets for natural colors, cosmetic ingredients, enzymes and antioxidants.

“Frutarom has an extremely attractive product portfolio, including broad expertise in naturals,” Fibig said in a joint statement Monday with the Haifa, Israel-based company. “We believe this combination will lead to faster and more profitable growth.”

IFF tumbled 6.5 percent to $132.91 at 11:41 a.m. in New York after dropping as much as 7.7 percent for the biggest intraday decline in 18 months. Frutarom gained 2.6 percent to 355 shekels at the close in Tel Aviv for a market value of 21.1 billion shekels ($5.9 billion).

Deal Valuation

Frutarom shareholders will receive the equivalent of $106.25 a share in cash and stock, according to the statement. The cash portion is $71.19 a share and IFF will also assume about $700 million in net debt. The deal was unanimously approved by both boards and represents an 11 percent premium to Frutarom’s May 6 closing price.

IFF is paying 20.3 times Frutarom’s expected 2018 earnings, according to a company presentation. That’s almost as much as the 22 times that Switzerland’s Givaudan paid in its $1.6 billion acquisition of Naturex earlier year, which analysts deemed steep. IFF said the price tag for Frutarom would fall to 14.3 times earnings if $145 million in annual cost savings, to be achieved three years after completing the deal, are included.

German rival Symrise AG spent $2.2 billion in recent years acquiring Diana Ingredients and Pinova Holdings, while Frutarom CEO Ori Yehudai has overseen the purchase of more than 25 companies since 2015. Liberum’s Collins warned of potential integration challenges as a result of Frutarom’s rapid, acquisition-fueled growth.

Shareholder’s Support

The acquisition requires the approvals of regulators and Frutarom shareholders. ICC Industries Inc., Frutarom’s largest shareholder with a 36 percent stake, has agreed to vote for the transaction, the companies said. Closing is expected in six to nine months.

Frutarom said last month it was considering a potential sale. The maker of extracts, fragrances and essential oils began operations in 1933 cultivating and processing aromatic plants and flowers. Yehudai built the company up to chase market leaders Givaudan and IFF.

--With assistance from Chiara Remondini David Verbeek Jeff Sutherland and Gwen Ackerman

To contact the reporters on this story: Niclas Rolander in Stockholm at nrolander@bloomberg.net, Jack Kaskey in Houston at jkaskey@bloomberg.net.

To contact the editors responsible for this story: K. Oanh Ha at oha3@bloomberg.net, Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel, Michael S. Arnold

©2018 Bloomberg L.P.