IFF acquires Frutarom in biggest flavor deal worth US$7.1b

[STOCKHOLM] International Flavors & Fragrances Inc. agreed to acquire Israeli flavor maker Frutarom Industries Ltd. in a deal valued at US$7.1 billion including debt in what's set to be the largest transaction in the rapidly-consolidating food flavoring industry.

Under the cash and stock combination, shareholders of Haifa, Israel-based Frutarom will receive the equivalent of US$106.25 per share, according to a joint statement on Monday. The purchase price represents an 11 per cent premium to Frutarom's closing price on May 6 and the deal has been unanimously approved by the boards of both companies. Frutarom shares jumped as much as 6.7 per cent, the most in a month.

The deal will cap a spree of transactions for Frutarom Chief Executive Officer Ori Yehudai, who has has been a veritable mergers and acquisitions machine overseeing the purchase of more than 25 companies since 2015. Frutarom said last month it was considering a potential sale, and a person with direct knowledge of the matter said more than three firms had expressed interest in buying the creator of food flavors from alfalfa and wild cherry bark. For IFF, buying Frutarom is a way of tapping into the faster-growing middle-market segment that the Israeli company focuses on.

Deals have increased in recent years as top flavor and fragrance players gobble up smaller firms to fuel growth, which has made transactions more expensive. Industry leader Givaudan SA paid US$1.6 billion for natural flavor maker Naturex this year, a price tag valued as much as 22 times earnings, which analysts deemed steep.

Frutarom is mainly focused on natural products, one of the fastest-growing segments in the personal-care and food industries, as consumers increasingly look to avoid artificial coloring and flavors. IFF, based in New York, said the deal would help its strategy to create a global leader in "natural taste, scent and nutrition." Frutarom shareholders will receive US$71.19 in cash and 0.249 of a share of IFF for every share in the company. The shares gained as much as 6.7 per cent, the most in almost a month, and were up 6.2 per cent up 359 shekels in Tel Aviv. That values the stock at 21 billion shekels.

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