Nestle Makes $840m Offer to Buy Control of Israel's Biggest Food Firm

Israeli food maker Osem shares soar, but analysts say consumers might suffer: 'Osem will no longer be an Israeli company.'

David Bachar

The Swiss food giant Nestle said Thursday it wanted to buy the remaining shares it does not yet own in Osem, Israel’s biggest publicly traded food company and the maker of many of the country’s most popular food products.

Osem said it would pay 3.3 billion shekels ($840 million) for the 36.3% of the company now traded on the Tel Aviv Stock Exchange, Osem told the TASE. That valued the whole company at 9.13 billion shekels.

The news caused Osem shares to soar almost 22% to a closing of 81.10 shekels in heavy trading on the TASE as Nestle’s offering price of 82.50 shekels a share represented a 26% premium on its closing price on Wednesday

The acquisition would take Osem private and leave Strauss Group as one of the few major Israeli food manufacturers not controlled by foreign investors. China’s Bright Food bought dairy maker Tnuva, the largest food company, last year and Telma has been owned by the Anglo-Dutch company Unilever since the 1990s and is now called Unilever Israel.

But Osem CEO Itzik Saig said that Osem would retain its Israeli identity and would be expanding locally. The company, he said, planned to spend 300 million shekels this year alone on expanding manufacturing capacity in order to meet the strong demand for its prepared salads. Nestle said in a statement that it planned to “continue to partner with Osem management to develop the company.”

The offer will be presented to Osem shareholders at an extraordinary meeting on March 17, Osem said.

Industry executives and analysts said the sale of Osem would probably be bad for consumers. Once the company is delisted and under foreign ownership, they said, it would be less sensitive to the media and to public opinion, such as the social protests that shook Israel’s food industry in 2011.

“From now on, Osem can do whatever it wants,” said one senior executive in the food industry, who asked not to be named.

“What will stop Osem from raising the price of Bamba by a shekel tomorrow morning? Nothing, because it won’t affect its share price. In fact, Osem is no longer an Israeli company in any way.”

But for Osem and Nestle, analysts said, the timing was right for the deal, since Osem had been trading at historically low multiples, while Nestle typically seeks to hold 100% of its group companies. It also gives Nestle more flexibility in its operations, especially in today’s tough political and consumer market.

“Food pricing is a sensitive issue, so I am sure that a relatively conservative company like Nestle will be happy to have privacy afforded to it by having full ownership,” said Gil Dattner, an analyst who covers Osem for Leumi Capital Markets.

Still, he said, “There’s nothing particularly attractive about Israel’s food market. It’s not growing fast at the moment. The issue of pricing is very sensitive at the moment and regulation has become more difficult.”

In Switzerland, Vontobel analyst Jean-Philippe Bertschy saw Nestle’s move as “a logistical step,” noting that the Swiss company had been gradually increasing its stake in Osem.

Osem makes and markets a huge range of products, ranging from pasta and salad dressings to coffee and ice cream under Nestle and other brand names. Altogether it controls about 10% of Israel’s food market.

Its line includes iconic products like the Bisli and Bamba salty snacks beloved of Israel children and Tivall, a meat substitute eaten by vegetarians around the world. It also sells hummus overseas under the Sabra name in Europe and Tribe brand in the United States.

Nestle acquired its first stake in Osem in 1998, and as of Thursday controlled about 63.7% of the company. Delisting Osem, one of the biggest companies traded on the TASE and part of the TA-25 index, will be a big blow to the bourse, which has been fighting a losing battle to keep companies listed and encourage new ones to join.

Michal Alshech, an analyst at Excellence Brokerage, said other Israeli food companies were also candidates for acquisition. The next in line the flavors and fragrance maker Frutarom, which has become a global company over the past several years.

With reporting from Reuters.