Israeli Food Giant Tnuva Mulls $2.8-billion IPO

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A Tnuva Dairy factory.
A Tnuva Dairy factory. Credit: Yaron Kaminsky

Tnuva, Israel’s biggest food maker, may be taken public at a reported 9 billion-shekel ($2.8 billion) by its two owners, the Chinese company Bright Food and the kibbutz purchasing organization.

The two shareholders haven’t made a final decision on the matter but are tending in the direction of an initial public offering following an improvement in Tnuva’s business and the strong growth of the Israeli food market. Sources said the IPO would take place in the next several months and include new shares and stock sold by the two partners.

Tnuva, whose products include Israel’s best-selling milk and cottage cheese as well as delicatessen products and fresh meat, had earnings before interest, taxes, decoration and amortization of 900 million shekels last year. The company earned a net profit of 300 million shekels, up from 285 million in 2019 and 215 million in 2018 as it cut energy and personnel costs and made other improvements.

Although turnover in the Israeli food market jumped 8.7% in 2020, Tnuva’s sales rose only slightly in the January-September period, according to the market-research company Storenext. That was because sales to hotels, caterers and other institutional buyers plunged due to coronavirus restrictions. Tnuva compensated for the drop by expanding into categories with higher margins, such as soy- and almond-based milk substitutes and imported Meatless Farm-brand meat substitutes.

Tnuva has been contending with the gradual opening of the market to imported competition in yellow cheese, once one of the company’s big money earners, and butter. More of its products have come under price supervision, although last year prices of controlled products rose 3.9% after Moshe Kahlon, with whom Tnuva was in continuous disputes, stepped down as finance minister.

Bright Food acquired its 77% stake in Tnuva in 2015 at what is now seen as an excessive valuation of 8.6 billion-shekel company amid hopes that it could employ Israeli technology in China. That never happened. Tnuva’s plans to enter the U.S. market in a big way failed, leaving it with $35 million in losses.

Two years after it had completed the purchase, Bright Food was forced to write down the value of Tnuva to just 5 billion shekels. Competition had intensified in the years after it bought the company and private label brands launched by the big supermarket chains ate into its market share.

Bright Food was able to partly claw back those losses by collecting some 860 million shekels in dividends and selling Tnuva’s large real estate holdings. Taking into account the dividends and the expected valuation of 9 billion, Bright Food will have earned a modest 3% annual return on its Tnuva investment.

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