International Flavors & Fragrances Inc. and Frutarom announced that they have entered into a definitive agreement under which IFF will acquire Frutarom in a cash and stock transaction valued at approximately $7.1 billion, including the assumption of Frutarom’s net debt. Under the terms of the agreement, which has been unanimously approved by the Boards of Directors of both companies, Frutarom’s shareholders will receive for each Frutarom share $71.19 in cash and 0.249 of a share of IFF common stock, which, based on the 10-day volume weighted average price (VWAP) for IFF’s common stock for the period ending 4 May 2018, represents a total value of $106.25 per share.
By combining with Frutarom, IFF is accelerating its Vision 2020 strategy to create a global leader in taste, scent and nutrition. The combination unites two industry-leading, innovative companies with complementary customers, capabilities and geographic reach, resulting in more exposure to fast growing end markets and an enhanced platform to deliver sustainable, profitable growth. The combined company’s customers will have access to comprehensive and differentiated integrated solutions with increased focus on naturals and health and wellness.
‘This transaction is a big win and a fantastic outcome for shareholders, customers and employees of both companies,’ says IFF chairman and CEO, Andreas Fibig. ‘Frutarom has an extremely attractive product portfolio, including broad expertise in naturals and diverse adjacencies with capabilities beyond our core taste and scent businesses. It also has significant exposure to complementary and fast-growing small- and mid-sized customers. By combining our deep R&D expertise with Frutarom’s, we are offering our customers a broader range of solutions and accelerating our growth strategy. We believe this combination will lead to faster and more profitable growth, enhanced free cash flow and generate greater returns for our shareholders.’
Fibig adds, ‘We have long admired Frutarom and have a great deal of respect for its team and all of its dedicated and talented employees around the globe. We look forward to welcoming Frutarom to the IFF family.’
Ori Yehudai, president and CEO of Frutarom remarks, ‘Frutarom has had a fascinating journey of accelerated growth, far above our industry benchmarks through our investment in unique technologies and focus on natural products in the growing world of health and taste.’
Yehudai continus, ‘Today, we are extremely excited to combine Frutarom with IFF and together create global leadership in natural taste, scent and nutrition. The growth potential for the combined company is substantial and our shareholders will continue to enjoy this upside.
‘Today marks the culmination of a decades-long vision to become a global leader in taste and health. This combination provides great opportunities for both our dedicated employees and highly valued customers who will enjoy our combined technologies and global reach while maximizing value for our shareholders. Frutarom and IFF are committed to maintaining a presence in Israel, and I look forward to working with Andreas and the team to ensure a seamless integration of these two terrific companies. I would like to personally thank Dr. John Farber, our chairman, for his vision and tireless support together with the contribution of our devoted excellent employees in the transformation of Frutarom from a small, local company to a global leader in the fields of taste and health.’
‘This transaction represents a major milestone for Frutarom and opens the door to a new chapter of growth and shareholder value creation,’ says John Farber, Frutarom chairman of the board and chairman of ICC Industries Inc., Frutarom’s largest shareholder. ‘I am pleased to support this historic combination of two world-class companies and look forward to the next chapter of the IFF and Frutarom story.’
Frutarom is a flavours, savoury solutions and natural ingredients company, with production and development centres on six continents. It markets and sells over 70 000 products to more than 30 000 customers in over 150 countries. Frutarom is primarily focused on natural products, which drive more than 75 per cent of its sales. Frutarom’s product portfolio consists of innovative and integrated solutions combining taste and health, natural and clean label products. In addition, Frutarom mainly serves local and mid-size customers, and has a compelling presence in fast-growing adjacent and complementary categories such as natural colors, health and beauty ingredients, natural food protection and enzymes. Frutarom has a strong track record of growth, with expected sales of above $1.6 billion in 2018, and their previously announced target of $2.25 billion in sales by 2020.
Compelling strategic rationale
Establishes industry leadership in naturals: The transaction creates a global leader in natural taste, scent and nutrition, as 75 per cent of Frutarom’s sales are natural.
Creates differentiated portfolio and enhances capabilities: In addition to IFF’s and Frutarom’s highly complementary flavour capabilities, Frutarom’s portfolio creates opportunities to expand into attractive and fast-growing categories, such as natural colours, enzymes, antioxidants and health ingredients. The combined company’s customers will have access to a comprehensive portfolio with more integrated solutions.
Broadens complementary and growing customer base: Frutarom significantly enhances IFF’s exposure to the fast-growing small- and mid-sized customers, including private label. Approximately 70 per cent of Frutarom’s sales are to these two customer groups.
Driving enhanced financial performance
Accelerates profitable growth: On a pro forma basis, the combined company would be expected to have approximately $5.3 billion of revenue in 2018. Following the completion of the transaction, IFF is expected to benefit from enhanced top line growth rates and a strong EBITDA margin.
Provides significant synergy potential: IFF and Frutarom expect to realise approximately $145 million of run-rate cost synergies by the third full year after closing, with approximately 25 per cent achieved in the first full year. Synergies are expected to come from procurement, footprint optimisation and streamlining overhead expenses. In addition, cross-selling opportunities and integrated solutions are expected to provide revenue synergies, creating further value to shareholders over time.
Drives strong earnings and cash flow accretion: The transaction is expected to be neutral to adjusted cash earnings per share in the first full year and double-digit accretive to adjusted cash earnings per share in the second full year. The combined company is also expected to generate enhanced cash flow to meet operating, financing and strategic needs.
Maintains dividend: IFF expects to maintain its quarterly dividend consistent with prior guidance.
Management and headquarters
Following the close of the transaction, Ori Yehudai, president and CEO of Frutarom, will serve as a strategic advisor supporting Andreas Fibig, chairman and chief executive officer of IFF. IFF will remain headquartered in New York City and will maintain a presence in Israel. IFF’s stock at closing will be listed on the New York Stock Exchange (NYSE) and the Tel Aviv Stock Exchange (TASE).
Additional terms, financing and approvals
The purchase price represents a 13 per cent premium to Frutarom’s 30-day VWAP for the period ended 6 May 2018, and an 11 per cent premium based on the closing price on 6 May 2018, at current exchange rates. The transaction is valued at approximately $7.1 billion, including the assumption of Frutarom’s net debt, and reflects a multiple of Frutarom’s expected 2018 EBITDA of 20.3x, and 14.3x expected 2018 EBITDA inclusive of full run-rate cost synergies.
Frutarom shareholders will also receive a special dividend, on a per share basis, equal to 0.249 of the per share value of IFF dividends with a record date after the date hereof and prior to the closing.
IFF intends to finance the cash portion of the transaction consideration through a combination of existing cash on hand, new debt raised and approximately $2.2 billion in new equity. IFF has secured committed bridge financing from Morgan Stanley Senior Funding Inc. The transaction is not subject to a financing condition.
While IFF’s pro forma net debt to adjusted EBITDA ratio at the close of the transaction is expected to be approximately 3.7x, IFF is committed to maintaining an investment grade credit rating and will prioritize deleveraging through its anticipated strong cash flow generation. IFF expects to deleverage to 3.0x net debt to adjusted EBITDA or lower within 18-24 months after closing. To support this goal, IFF plans to suspend share repurchases until the target is met.
The transaction is expected to close in six to nine months and is subject to approval by Frutarom shareholders, clearance by the relevant regulatory authorities and other customary closing conditions.
IFF has entered into a voting agreement with affiliates of ICC Industries Inc., which hold in total approximately 36 per cent of Frutarom’s outstanding shares, pursuant to which they will vote their Frutarom shares in favour of the transaction.