International Flavors & Fragrances to Acquire Frutarom
International Flavors & Fragrances Inc (IFF) and Frutarom announced that they have entered into a definitive agreement under which New York, New York-based IFF will acquire Tel Aviv, Israel-based Frutarom in a cash and stock transaction valued at approximately USD $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 USD $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 4 May 2018, represents a total value of $106.25 per share.
By combining with Frutarom, IFF is accelerating its Vision 2020 strategy to create a global leader in taste, scent and nutrition. The combination unites two 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.
“This transaction is a big win and a fantastic outcome for shareholders, customers and employees of both companies. 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,” says IFF chairman and CEO, Andreas Fibig. “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.”
“We are extremely excited to combine Frutarom with IFF and together create global leadership in natural taste, scent and nutrition,” says Ori Yehudai, president and CEO of Frutarom. “The growth potential for the combined company is substantial and our shareholders will continue to enjoy this upside.”
Frutarom is a flavours, savoury solutions and natural ingredients company, with production and development centers on six continents. It markets and sells over 70,000 products to more than 30,000 customers in over 150 countries. Frutarom is primarily focused on natural products, which drive more than 75% of its sales. Frutarom’s product portfolio consists of innovative and integrated solutions combining taste and health, natural and clean label products. In addition, Frutarom mainly serves local and mid-size customers, and has a compelling presence in fast-growing adjacent and complementary categories such as natural colours, health and beauty ingredients, natural food protection and enzymes. Frutarom has expected sales greater than USD $1.6 billion in 2018.
The merger creates a differentiated portfolio and enhances capabilities. In addition to IFF’s and Frutarom’s highly complementary flavour capabilities, Frutarom’s portfolio creates opportunities to expand into attractive and fast-growing categories, such as natural colours, enzymes, antioxidants, and health ingredients. The combined company’s customers will have access to a comprehensive portfolio with more integrated solutions.
Furthermore, the merger broadens a complementary and growing customer base as Frutarom significantly enhances IFF’s exposure to the fast-growing small- and mid-sized customers, including private label. Approximately 70% of Frutarom’s sales are to these two customer groups.
On a pro forma basis, the combined company would be expected to have approximately USD $5.3 billion of revenue in 2018. Following the completion of the transaction, IFF is expected to benefit from enhanced top line growth rates and a strong EBITDA margin.
IFF and Frutarom expect to realize approximately USD $145 million of run-rate cost synergies by the third full year after closing, with approximately 25% achieved in the first full year. Synergies are expected to come from procurement, footprint optimization and streamlining overhead expenses. In addition, cross-selling opportunities and integrated solutions are expected to provide revenue synergies, creating further value to shareholders over time.
The transaction is expected to be neutral to adjusted cash earnings per share in the first full year and double-digit accretive to adjusted cash earnings per share in the second full year. The combined company is also expected to generate enhanced cash flow to meet operating, financing and strategic needs.
IFF expects to maintain its quarterly dividend consistent with prior guidance.
Following the close of the transaction, Ori Yehudai, president and CEO of Frutarom, will serve as a strategic advisor supporting Andreas Fibig, chairman and CEO of IFF. IFF will remain headquartered in New York City and will maintain a presence in Israel. IFF’s stock at closing will be listed on the New York Stock Exchange (NYSE) and the Tel Aviv Stock Exchange (TASE).
The transaction is expected to close in six to nine months and is subject to approval by Frutarom shareholders, clearance by the relevant regulatory authorities and other customary closing conditions.