Israeli Company Frutarom Sold for Whopping $7b to U.S. Flavor and Fragrance Company

The flavorings, chemicals and aromatics maker went public in Tel Aviv in 1996 at a market value of $13m; today the company is worth $5.6 billion, an increase of over 42,600%

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Frutarom's R&D center in Zurich, Switzerland
Frutarom's R&D center in Zurich, Switzerland

The chemicals and flavorings maker Frutarom is being sold to International Flavors & Fragrances for $6.4 billion in a cash and stock deal that sets the value of the veteran Israeli company at about $7.1 billion.

The difference in the two figures is the result of the buyer’s assumption of $700 million in net debt of Frutarom. 

Both companies have been around quite a while. Frutarom is older than the State of Israel, having been founded in 1933 by Yehuda Araten and Maurice Gerzon. IFF was founded 129 years ago. IFF has more than 7,000 employees. It had sales over the past 12 months of $3.5 billion.

Frutarom had 2017 sales of more than $1.5 billion. The company reportedly expects 2018 sales of $1.6 billion, and by 2020, it has aimed to achieve sales of $2.2 billion. 

IFF has committed to maintain Frutarom’s presence in Israel at its current levels for at least the next three years. IFF itself will remain headquartered in New York. Its shares will be listed on the New York Stock Exchange and the Tel Aviv Stock Exchange. Frutarom CEO Ori Yehudai will be a strategic adviser to IFF CEO Andreas Fibig. 

The dual listing of IFF’s shares on the Tel Aviv exchange is good news for the stock exchange as the company will be the second-largest on the TASE after Teva Pharmaceutical Industries, but IFF’s commitment in that regard is not assured for a specific time period. 

Back in 1996, when Frutarom made its debut on the Tel Aviv Stock Exchange, it was worth $13 million. Today the company is trading at $5.8 billion, an increase of over 44,600%. For purposes of comparison, during that period, the benchmark Tel Aviv-35 index rose 590%.

For each Frutarom share, the Israeli company’s shareholders will get $71.19 cash and 0.249 of a share of IFF common stock. The total value based on present market valuations amounts to $106.25 per share, Frutarom stated. It represents a 13.1% premium over Frutarom’s average share price over the past 30 trading days.

For IFF, the acquisition is expected to have a neutral effect on adjusted profits per share in the first full year, but following that, the company expects it to boost profit. 

Yehudai told Haaretz that he believes the flavorings industry will continue to consolidate. He is the largest Israeli investor in Frutarom, with a 0.8% stake, which is worth $53 million. The largest Israeli institutional investor is the Yelin Lapidot investment firm, with a 0.56% stake. Overall, 39.7% of Frutarom shares are currently owned by ICC, a company controlled by U.S. investor John Farber, who is also the chairman of Frutarom’s board. 

The sale of Frutarom is the second-largest of an Israeli company, surpassed only by the sale of Mobileye, the Jerusalem-based autonomous driving and collision avoidance technology company, which was sold to Intel for $15.3 billion. When it comes to the tax take by the Israeli treasury in connection with the two transactions, the Mobileye sale is of far greater importance, generating 4 billion shekels ($1.1 billion). The Frutarom sale is expected to boost the state’s coffers by 500 million shekels at most, and not only because the purchase price for the company is around half that for Mobileye. 

More than 40% of Frutarom’s shares are held by foreign nationals, notably Farber, who are exempt from paying Israeli tax on the transaction due to Israeli regulations for the encouragement of foreign investment. Shares of stock held by members of Israeli provident funds are also exempt from tax. However, Yehudai and members of the Israeli public at large will pay capital gains tax.