Apax Weighs Giant IPO for Israeli Food Maker Tnuva

The U.K.-based private equity fund is eyeing a float that could value the company as high as NIS 8.5 billion.

Apax Partners is reportedly considering a mammoth initial public offering for Tnuva as Israel's biggest food maker ramps up profit. At least one of the company's Israeli minority shareholders, however, might try to scupper the plans.

The London-based private equity fund, which controls 56.3% of Tnuva, is weighing floating between 20% and 25% of the shares on the Tel Aviv Stock Exchange at a company value of as much as NIS 8.5 billion.

The plans face stiff opposition from Tnuva's second-biggest shareholder, Granot – the kibbutz and moshav purchasing organization that holds a 23.3% stake. In the meantime, no underwriters have been chosen for the putative IPO.

Yitzhak Bader, Granot's chairman, has repeatedly said he wants to buy a controlling stake in Tnuva from Apax and not to float the company. Bader will be stepping down as chairman at the end of the year.

"I know that Apax is fantasizing about the day I end my term, but as I've said in the past, I will continue to be involved in Granot," he said. "Floating Tnuva is in the interest of neither Tnuva nor the growers."

Tnuva is one of Israel's most famous brands. Its cottage cheese dominates the market and became the focus of protests in 2011 when the company raised prices. In addition to dairy, Tnuva makes and markets other food products including meat, fish and frozen food.

Mivtach Shamir, a TASE-traded company that has a 20.7% stake in Tnuva, released partial and unaudited results for the company last week.

Earnings before interest, tax, depreciation and amortization grew to between NIS 815 million and NIS 825 million from NIS 765 million in 2011. Revenues rose to between NIS 6.8 billion and NIS 6.9 billion from NIS 6.7 billion.

Meanwhile, Tnuva has begun reporting according to International Financial Reporting Standards, a key step in getting the company on the stock market.

Tnuva's naming of Ravit Barniv as chairwoman in January was another good sign; Barniv has served as chairwoman of Housing & Construction Ltd. and chief executive of Internet company Netvision.

Also, Tnuva cut its financial debt to around NIS 360 million at the end of last year from NIS 600 million a year earlier. And the debt is going to a good cause: working capital, investment in inventory and credit to customers.

Apax hopes to take Tnuva public based on such figures. The NIS 8.5 billion valuation creates a ratio of enterprise value to EBITDA of 10.8. Israel's two other big food makers have EV/EBITDA ratios of 10.4 and 7.15.

Formally, Apax does not need the consent of its minority shareholders, but it will be difficult to move ahead quickly without their support.

Granot's Bader said that as a publicly traded company Tnuva faced "insufferable" regulation and that transactions between the company and its controlling shareholders would become cumbersome and complicated. He said Tnuva was worth between NIS 5 billion and NIS 6 billion, based on annual profits of NIS 400 million and an 8% return on investment.

Bader admitted that as a minority shareholder he can't block an IPO, but noted that the company's complicated structure required everyone's cooperation for it to work.

Meir Shamir, the controlling shareholder of Mivtach Shamir, is being more flexible. He is reportedly willing to consider breaking up his company's partnership with Apax for controlling Tnuva. A deal could be structured so that Apax floats 25% of Tnuva while leaving Mivtach Shamir and Granot with 51%.

Moti Milrod