Symrise Drops on Potential Capital Hike for Diana Deal

Symrise AG shares dropped the most in six months in Frankfurt trading after the German maker of flavors and fragrances said it is considering a capital increase to finance the planned 1.3 billion-euro ($1.8 billion) purchase of French competitor Diana Group.

Symrise, based in Holzminden, Germany, is considering a 10 percent capital increase, Chief Financial Officer Bernd Hirsch told journalists on a conference call today.

The acquisition of Diana will enable Symrise to close the gap on larger rivals Givaudan SA and International Flavors & Fragrances Inc. The deal, announced on April 12, gives Symrise Chief Executive Officer Heinz-Juergen Bertram one of a limited number of larger targets in the flavors and fragrance industry to accelerate growth and access natural raw materials.

“The deal increases their portion of natural-based products and that is what developed-market customers want to see,” Evgenia Molotova, an analyst at Berenberg, said today by phone. While the stock price is down because of the planned capital increase, it’s didn’t fall the full 10 percent, she said. Molotova rates Symrise shares buy.

The stock dropped as much as 5.7 percent, the steepest intraday fall since Oct. 11., and was down 2.5 percent to 34.97 euros as of 1:26 p.m. in Frankfurt.

The purchase of Vannes, France-based Diana, predicted to close in the third quarter, also adds a pet-food additives business whose earnings are more resilient to the ups and downs of consumer spending.

Pet Food

Asked whether the capital increase may raise about 400 million euros, given Symrise’s market valuation of 4.1 billion euros, Hirsch said that it wouldn’t be “too far away.” The German company sees integration costs of about 20 million euros and synergies of 15 million euros to 20 million euros, he said.

Diana’s offering spans food additives based on natural vegetable and animal-based products and colorings used in beverages, sweets and sauces. It’s expanded into the nutraceutical market, where nutrition and ingredients are formulated to try to prevent and combat diseases. Last month, Diana agreed to collaborate on cancer research with the Oregon Translational Research and Development Institute, providing expertise on plant cell cultures.

The deal values Diana at about 14 times its earnings before interest, taxes, depreciation and amortization, which totaled about 425 million euros in 2013, with a profit margin of about 21 percent, Symrise said today.

Earnings Boost

The combined business will have pro-forma sales of nearly 2.3 billion euros, Symrise said. Market leader Givaudan of Switzerland generated the equivalent of 3.6 billion euros in sales last year, according to data compiled by Bloomberg.

Diana’s earnings and sales can be added to Symrise’s 2020 earnings and sales targets, the CFO said today. The German company had set itself the goal to boost Ebitda to more than 500 million euros and increase sales by 1 billion euros by the end of the decade.

The flavors and fragrance industry is dominated by four leaders, a group that includes closely-held Firmenich International SA of Switzerland.

Another forthcoming opportunity for flavors and fragrance companies may be Wild Flavors GmbH. Owner Hans-Peter Wild and buyout firm KKR & Co. are exploring strategic options including a sale of the maker of flavorings for food and beverages, people with knowledge of the matter said in January.

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