Frutarom Open to Merger as Dealmaking Gathers Pace, CEO Says

Frutarom Industries Ltd. is considering a merger as the maker of flavors for Coca-Cola Co. and Nestle SA pursues at least 20 acquisition targets around the world, Chief Executive Officer Ori Yehudai said.

“We are open to discuss opportunities, which we are doing, to merge with larger companies,” Yehudai said in a March 6 interview at Bloomberg’s Tel Aviv office. “There is more than one target that is interesting where we believe that putting the two companies together will create a nice value to Frutarom shareholders.”

Shares of the Haifa, Israel-based company, have more than tripled from their three-year low of 26.98 shekels in September 2011 and Beni Dekel, analyst at Tel Aviv-based Union Bank of Israel, expects them to rise another 14 percent this year as the company continues its buying spree.

Frutarom, the world’s seventh-largest maker of flavors, bought 29 companies since 2001, according to company data. There are about 700 businesses in the $23 billion flavors and perfume market, with the top 10 controlling more than 75 percent, according to Leffingwell & Associates, which provides data to the industry.

“We will do more acquisitions this year with a focus on small and mid-sized targets.” Yehudai said. “We will also look at much bigger potentials, which could even be the size of Frutarom itself,” with a deal expected in the next year or two, he said.

‘Hundreds of Millions’

The company is actively speaking with at least 20 targets and is weighing possible acquisitions in Asia, South Africa, Central America and Latin America, Yehudai said. Frutarom, which competes with Vernier, Switzerland-based Givaudan SA, fell 1.8 percent to 89.35 shekels at the close in Tel Aviv, giving the company a market value of 5.2 billion shekels ($1.5 billion).

“Frutarom can be expected to buy a significant company for hundreds of millions of dollars soon,” Union Bank’s Dekel said. He last month raised Frutarom’s rating to buy from market perform with a price estimate of 104 shekels.

Frutarom in February bought Florida-based Citrasource for $7.5 million, its first purchase this year. It made four acquisitions in 2013 and three in 2012, according to a company presentation published last month. The purchases were mainly made in emerging markets and the U.S., which account for 46 percent and 11 percent of sales respectively.

Competitors seeking acquisitions in a rapidly consolidating industry have approached Frutarom, according to Yehudai. The company has no plans to sell, he said.

Frutarom had equity of $496 million as of the end of September and debt of about $164 million, according to data compiled by Bloomberg. The flavor maker is on track to reach its $1 billion revenue target within the next two years, Yehudai said. Sales for 2013 are expected to increase 27 percent to 784 million shekels, according to the presentation.

“The company is in a position where it can allow itself to continue on the acquisition path and fend off acquisition offers,” Guil Bashan, analyst at IBI-Israel Brokerage & Investments Ltd., said by phone March 9.