Via Financial Times

A plant-based burger piled high with fixings is pictured in the investor slides for International Flavors & Fragrances’ $26.2bn deal to buy DuPont’s nutrition and biosciences business.

The two companies would combine knowhow to serve the fast-growing meatless meat market, the presentation said. IFF offers features such as grill marks and antioxidants, while DuPont’s capabilities include the texturants that impart a beef-like mouth feel and the plant-based protein itself.

The merger announced on Sunday reflects attempts across the food technology sector to follow consumers as they try out products they perceive to be more healthful, have fresher ingredients or leave a smaller environmental footprint. The rise of plant-based burgers epitomises the trend.

“This is not about scale,” Andreas Fibig, IFF chief executive, told analysts on Monday. “This is about first-mover advantage to redefine our industry and deliver what our customers demand.”

DuPont is a leading vendor of the cultures, enzymes, soya proteins and probiotics that underpin consumer food trends, according to Mr Fibig, while IFF’s edible offerings have been focused on taste, colour and food protection.

The merged businesses would extend their wares beyond food vendors to also supply the pharmaceuticals and consumer products industries. Mr Fibig pointed to laundry detergent that could contain both DuPont’s enzymes for removing stains and IFF’s scents.

Lauren Lieberman of Barclays said the DuPont business would give IFF access to more value-added, “tech-forward categories, in which it has little to no presence”.

DuPont turned down bids from Kerry, the Irish food company, and Dutch chemicals company DSM, as it “ultimately believed that expanding their product offering was preferential to deepening their product offering,” said Jonas Oxgaard of Bernstein.

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The combined company would have an enterprise value of $45.4bn and annual revenues of about $11bn. DuPont shareholders would own 55.4 per cent and IFF shareholders 44.6 per cent of the new company, which will be led by Mr Fibig.

The tax-free deal will also include a $7.3bn cash payment to DuPont, which broke off from DowDuPont earlier this year. The nutrition and biosciences division to be sold has provided about 8 per cent of DuPont’s revenue.

The tie-up marks the largest-ever acquisition in an industry that is increasingly consolidating.

IFF last year bought Israel’s Frutarom Industries for $7.1bn including debt, elevating it into the world’s second-largest flavours and fragrances group. The addition of Frutarom expanded IFF’s footprint in high-growth markets such as natural colouring and health ingredients, according to Citigroup.

Likewise, Geneva-based Givaudan pursued demand for organic ingredients when it acquired Naturex, a French maker of natural food and personal care components, for $1.6bn. Archer Daniels Midland, a US-based wholesale grain and oilseed processor, has ventured into the value-added flavour and ingredients markets with acquisitions including UK-based Probiotics International in 2018.

IFF investors gave the deal a chilly reception, driving New York-based company’s shares down 7.8 per cent to $123.57 at midday. DuPont rose 0.5 per cent to $65.12.

Analysts acknowledged the strategic rationale behind the deal but noted IFF investors’ concerns following the Frutarom takeover, which has not grown as investors had hoped.

Had Kerry won the bidding it would have become the largest company on Dublin’s stock market.

Jason Molins, head of food and beverage at Goodbody stockbrokers, said the failure to land the DuPont unit was a blow to Kerry, which now faces the prospect of two rivals merging to become the clear industry leader. Mr Molins, who said he believes Kerry had the financial firepower to buy the DuPont unit, said other potential deals of equivalent scale are unlikely to emerge soon.

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Kerry declined to discuss the DuPont bid, saying the company does not comment on speculation about deals. “As we have said previously, M&A plays an important part in our strategy and we will continue to investigate opportunities that can accelerate our growth and deliver significant shareholder value.”