January 20, 2007 / 7:00 AM / 12 years ago

Givaudan buys Quest from ICI

ZURICH (Reuters) - Swiss flavours and fragrances maker Givaudan GIVN.VX agreed to acquire rival Quest International from ICI ICI.L for 2.8 billion Swiss francs (1.18 billion pounds), sending shares in both firms soaring.

An employee of Swiss flavours and fragrances maker Givaudan in a photo courtesy of the company. Givaudan said on Wednesday it had signed an agreement to acquire Quest International from ICI Plc for around 1.19 billion pounds. REUTERS/Handout

Givaudan, the world’s largest maker of scents for fine fragrances and consumer products and supplier to Calvin Klein and Burberry, will extend its lead in the high-margin business, while ICI will pay off debt and pension liabilities, and seek to expand its remaining paints and adhesives businesses.

The deal will increase Givaudan’s firepower in research and development and accelerate expansion in emerging markets, but it will compress the company’s margins over the next three years as it absorbs the less-profitable Quest.

“It is a big deal and gives the company a number-one position in fragrances, a strategic goal. It is also strong in fine fragrances, the fastest-growing part of the business,” Jon Cox, analyst at Kepler Equities in Zurich said on Wednesday.

Quest, with headquarters in the Netherlands, is the fifth- largest player in the global flavour and fragrances market, with turnover of about 1.3 billion francs in 2005, Givaudan said.

“By adding both companies, by definition you dilute the profitability,” Givaudan Chief Executive Officer Gilles Andrier told Reuters in a telephone interview.

The acquisition will be financed by debt and the issuing of up to 1 billion francs in equity, Givaudan said. Payment to ICI will be all in cash.


Investors welcomed the deal, pushing ICI shares up more than 10 percent to a near six-year high of 428 pence, and Givaudan up 6.7 percent to 1,097 francs, an all-time high.

“It leaves ICI with a group of businesses where it is basically a top-three player in everything. In flavours and fragrances it always lacked critical mass. So to get out of the weaker business with such a good exit multiple is an excellent result for ICI,” said Deutsche Bank analyst Jonathan Jayarajan.

ICI Chief Financial Officer Alan Brown said the British firm would now look to make acquisitions in its paints and adhesives businesses, which are number one or two in most of their markets but have global market shares of only around 9-10 percent.

“The areas of focus for us in both paints and adhesives markets is primarily developing markets,” he told Reuters in a telephone interview. “Eastern Europe in particular, perhaps also Asia and maybe some in Latin America.”

Analysts at CA Chevreux said the deal would help extend Givaudan’s lead in a dynamic sector.

“The price is expensive but if you believe in the synergies — and they’ve got an excellent track record of executing those kind of cost savings in the past — the dilution should be short term,” said an analyst who declined to be named.

“On the strategic view it makes a lot of sense, it will give them the clear number one in fine fragrances they were looking for,” the analyst said.


Givaudan CEO Andrier said the deal had sated the company’s appetite for acquisitions for now.

“Is there going to be another big acquisition like this one in the next three or four years? Well that’s not necessarily realistic,” he said.

Givaudan said it expected to achieve annual synergies of 150 million francs from the acquisition, with full benefits to be realised after three years.

The company expects costs from the acquisition to total 230 million francs annually for the next three years.

Givaudan said the deal would add to earnings one year after closing and strengthen its position in Asia Pacific, Latin America, Eastern Europe, Africa and the Middle East.

It will also strengthen Givaudan’s technology portfolio by expanding its range and adding flavour delivery systems.

The deal is subject to regulatory approval and Givaudan hopes it will be completed in the first quarter 2007.

ICI said the disposal would allow it to cut 900 million pounds in debt and 230 million pounds in pension obligations.

Additional reporting by Peter Maushagen and Mark Potter in London

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