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International Flavors & Fragrances: Frutarom Deal Not Well Received, But Appeal Lures


  • IFF announced a huge +$7 billion deal for Frutarom, a transaction not liked by its investors.
  • The negative reaction in response to the deal makes that appeal is on the increase, although I am not pulling the trigger yet.
  • Steady organic growth and realisation of synergies over time should continue to provide a nice road map for steady earnings growth going forward.

International Flavors & Fragrances (NYSE:IFF) has reached a multi-billion deal which is not well received at all by the market, as that same market has really liked the stock in recent years amidst steady growth and a world in which interest rates have continuously traded lower.

The company reached a +$7 billion deal to acquire Frutarom which indeed looks a bit pricey, although the consequent decline in the share price, and reduced expectations, have certainly boosted the appeal, as I am not pulling the buy trigger yet.

Buying Frutarom

IFF has reached an agreement to acquire Frutarom in a $7.1 billion deal, including the assumption of debt of course. Investors in Frutarom are seeing their shares being awarded a $106.25 per share valuation, consisting out of a $71.19 per share cash component and the remainder in shares as investors in Frutarom will obtain 0.249 shares of IFF for each share which they currently own.

IFF's CEO Andreas Fibig claims that the deal is consistent with the Vision 2020 strategy to be a global leader in scent, nutrition, and taste. The formation of a global leader and complementary qualities should create a stronger company, at least on paper.

Frutarom is especially strong in small- and medium-sized customers as it caters 30,000 customers across the globe with roughly 70,000 products. The company focuses heavily on natural products which make up 75% of sales allowing it to show very strong organic growth rates.

The focus on smaller customers and faster growing segments, such as natural colours and natural food protection, certainly boosts the growth profile of the business. For that reason, the company already outlined a $2.25 billion sales target for 2020, significantly higher than the expected $1.6 billion in sales this year, although deals would be necessary to achieve this revenue number, as Frutarom has been a real serial acquirer in

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This article was written by

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Finding value that gets unlocked in M&A, IPOs and other corporate events
The writer is a long term value investor and M.Sc graduate in Financial Markets with over 10 years experience. Value can be found in both long and short ideas and uses options to enhance the risk-return profile of investment ideas. Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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