Gad Dairies and Shomron Cheese – two of Israel’s makers of premium cheeses – are in the early stages of a merger as Gad embarks on expansion plans that include the U.S. and European markets.
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TheMarker has learned that the two companies have signed a memorandum of understanding but that no valuations have been reached in the tie-up, nor have the two sides approached the antitrust authorities about their plans.
Gad CEO Ezra Cohen declined to comment on the merger plans and Shomron didn’t respond to queries.
It doesn’t seem likely, however, that regulators will block the merger. Gad, by far the bigger of the two, has annual sales of 370 million shekels ($11.1 million), which amounts to just 4% of the Israeli cheese market. Shomron’s annual turnover is just 40 million shekels and it accounts for just 0.7% of Israeli cheese sales, according to estimates.
The Israeli market is dominated by Tnuva, which accounts for 51% of all cheese sales. Strauss Group in no. 2 with a 21% share, and Tara third with 12.5%. The reminder is shared by micro-dairies like Shomron.
Both Gad and Shomron specialize in higher-quality cheeses, many of their products based on goat’s and sheep’s milk, that avoid direct competition with the giants and are not subject to price controls. Shomron was founded in 1953 and has 80 employees.
Studies have shown that the big three dairies avoid competing with each other on price and that each has maintained its market share for a last decade. To spur competition, the Economy and Industry Ministry has since 2015 sought to strengthen the smaller dairies and encourage imports by removing duties.
A merger between Gad and Shomron would fit into that strategy.
Gad has ambitious plans. The Green Lantern Fund, a private equity investor led by Richard Hunter, Josef Elias and Danny Ben-Rei, bought a 49% stake in the dairy in June last year for 300 million shekels and since then the company has begun expansion plans.
At home, it has a pilot collaboration agreement with the giant food maker Osem to distribute its products and give it entry into more stores and supermarkets in exchange for a share of sales revenues. It’s also eyeing smaller dairies to buy in addition to Shomron.
Abroad, Gad is looking to expand into the U.S. and European markets.
If the merger is completed, it will save Shomron a big headache: Source say it is at risk of losing its plant in Binyamina, near Haifa, because of land-use issues. The merged company would consolidate all its operations in Gad’s plant in the Tel Aviv suburb of Bat Yam.