G. Willi-Food: Da or Nyet?

Willi-Food (WILC), one of Israel’s fastest growing food companies and an IsraelNewsletter favorite, announced a non-binding memorandum of understanding to buy 51% of the Russian eggs and slaughterhouse company owned by Arcadi Gaydamak (also majority owner of G.Willi), for an estimated $32.6 million. Many believe that Gaydamak wants to merge his egg and poultry business in Russia with Willi-Food, and then Willi-Food will manage the entire business.

Gaydamak is the largest supplier of eggs in Moscow, and this deal will give Willi-Food a significant market share in the Russian market. Willi-Food also intends to begin marketing kosher food products to Moscow’s Jewish community.

Since last week when I wrote that the stock had dropped to attractive levels and was a good trade, the stock has moved up about 12%. In analyzing the company most analyst focus, including my own, was always focused on its kosher food business in the U.S. This news of breaking into the Russian market, makes for an intriguing long-term investment. Now it plans on growing the business on two separate tracks, something that should propel revenues sharply higher, and change the company from a niche food company into a truly global food play.

I think that all this news adds up to the fact we can say “Dos V’danya” to these low stock prices.

Disclosure: The author’s fund is long WILC as of October 3, 2007.

Comments

[Amit Chokshi]

Just to clarify, I posted this on the author's website directly:

I manage a fund that is long WILC but I’m pretty certain your analysis is wrong. Unless the news has changed since the past few hours you’re not identifying the buyer of the Russian poultry business accurately. Willi Food INVESTMENTS, which trades as WLFD on the TASE is buying the Russian business. AG, through WLFD owns 62% of Willi Food INTERNATIONAL, which is WILC and what US shareholders own.

The acquisition will have no material benefit to WILC shareholders other than to show AG and Willi mgmt are working on the deal front. WLFD is the holding co, the Russian business will be held alongside WILC and the real estate and other WLFD holdings but don’t look to factor any of the egg business into WILC’s financials. Check the TASE, WLFD stock is rocking because WLFD shareholders receive the benefits of that deal, WILC shareholders do not.
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I am in the author's camp obviously by having WILC in my fund (and a significant position in my fund) and believe this is a great investment but the news reports have been somewhat confusing as far as what the implications for WILC shareholders are. This deal by AG and Willi mgmt won't impact WILC shareholders like me but it portends hopefully good M&A deals down the road. Skeptical WILC longs should keep in mind Gil was hired as an M&A guy specifically for WILC so there will be deals done for the WILC operating co as well.