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Behind IFF’s $26 Billion Wellness Bet

As a combined business, the company expects to have an expanded product portfolio.

International Flavors & Fragrances Inc.’s merger with DuPont’s Nutrition and Biosciences business — valued at $26.2 billion — might just be the largest wellness-oriented transaction, ever.

The deal creates an ingredient supplier expected to have $11 billion in annual revenues, valued at $45.4 billion, that will work across the food and beverage, cosmetics and personal-care, and health and wellness industries.

In ingredients, it is certainly the largest deal of its kind, IFF chief executive officer Andreas Fibig told WWD in an interview. But it also underscores an increasing shift in multiple categories — food, beauty and supplements — towards better-for-you options.

“[Wellness] is a very important part of it,” Fibig told WWD. “We [will] have biotech capabilities we never had before, which is fantastic to come up with good molecules. We have capabilities to bring things together. Also a trend recently is beauty from within, and health, so the probiotic space plays an important role here as well.”

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Once the deal closes, which is expected in early 2021, IFF expects about 20 percent of the business to be in scent,  Fibig said. He gave the example of where IFF’s capabilities will be expanded with cold water laundry detergent, noting that while “legacy IFF” can encapsulate ingredients, it will now also have enzymes for stain removal, microbial control and shelf-life extension. “These are things we never had before,” Fibig said.

He added that combined, the business will spend twice as much on research and development as its nearest competitors. “That gives us enough leverage to come up with really innovative solutions,” Fibig said. “At the end of the day, we can do almost the whole product, with the exception of the packaging.

“What is so important…it’s more about the first-mover advantage,” Fibig said. “If anybody wants to replicate what we can offer right now, they need multiple steps to get there, so for us, it’s very, very good, because we are very independent and very well-positioned for the next couple of years.”

IFF has been buying its way further into naturals for years. Its biggest deal, before DuPont, was Frutarom, which the company agreed to buy for $7.1 billion in 2018. That deal not only gave IFF more access to natural ingredients, but also to smaller customers — a growing and important segment in the age of indie brands.

The ability to serve smaller customers remains a priority, Fibig said.

After the DuPont merger closes, the combined company expects to have more than 40,000 customers. “We want to make sure we are agile, that we are fast getting them their solutions,” Fibig said. “One of the reasons from the DuPont [perspective] was we have access to this customer base and we can now offer these customers even more categories we never had before.” 

Asked if IFF would make further acquisitions to cover any white spaces, Fibig said no. “For now, we are done…we have many more years to come to just capitalize on what we have on our hands.”

The merger will be made through a Reverse Morris Trust transaction. DuPont shareholders will own 55.4 percent of the new company, and IFF shareholders will own 44.6 percent. The combined companies have $11 billion in pro forma 2019 revenue, with $2.6 billion in earnings before interest, taxes, depreciation and amortization, excluding synergies.

The combined company is expected to generate cost savings of about $300 million three years after the deal closes.

Fibig will be chairman and ceo, and Ed Breen, the executive chairman of DuPont, will become lead independent director.

IFF’s stock dipped on Monday, after executives held a call with Wall Street analysts.

Mark Astrachan, an analyst with Stifel, wrote that while the merger gives the combined company a leg up on competition in terms of product solutions, “investors are likely to rightly question whether IFF management has ‘earned’ the right to make a very sizable acquisition post Frutarom…” which has “far underperformed expectations.”

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