Published in Globes on May 2, 2018
Delek Group Ltd. (TASE: DLEKG) is selling Gadot Biochemical Industries Ltd. (TASE: GDBC), which has caused it huge losses in recent years. Delek Group, controlled by Yitzhak Tshuva, announced that it had signed an agreement to sell Gadot Biochemicals to the Fortissimo fund, led by managing partner Yuval Cohen, for NIS 40 million ($11 million), subject to adjustments. The sale does not include the land in Haifa Bay near the Kishon River on which Gadot Biochemicals’ plant is located, which Delek Group bought before signing the agreement with Fortissimo. The land’s value is appraised at NIS 32 million ($9 million), which will be deduced from the capital note issued for Delek Group by Gadot Biochemicals.
Delek Group also announced that Fortissimo will pay the bulk of the proceeds, $8 million, in cash on the date on which the deal is closed. The remaining proceeds will be paid in six equal quarterly installments after the closure date. Completion of the deal is expected in two weeks, after all the contingent conditions are met, including the obtaining of regulatory approval.
Most of Delek Group’s business is in the energy sector in Israel and overseas. Gadot Biochemicals is one of its smaller holdings, which has cost the group heavy cumulative losses believed to be in the hundreds of millions of shekels.
Gadot Biochemicals produces and markets lemon citric acid and citric acid salts used in the food industry, drugs, and detergents, and also markets and sells fructose used as a sugar substitute and premium sweetener. The company’s lot contains production facilities, storage space and the company’s offices. Gadot Biochemicals’ CEO is Delek Israel CEO Esther Eldan.
Gadot Biochemicals’ revenue sank 15% to $45 million in 2017, but its gross profit climbed 26% to over $8 million. The company earned a $5 million net profit (NIS 17 million), after losing $6.5 million in 2016. At the end of 2017, Gadot Biochemicals signed an agreement to sell 15 dunam (3.75 acres) of its 54 dunam (13.5 acres) of land for $5.5 million. The company anticipates a profit of nearly $5 million on the sale.
Delek Group invested a total of $136 million in Gadot Biochemicals in 2010-2015 as part of its participation in various offerings and through loans converted into capital notes. Delek Group’s guarantees for Gadot Biochemicals amounted to NIS 32 million as of the end of 2017.
In previous years, Gadot Biochemicals suffered from negative trends in its business, a larger than expected investment in construction of its plant, and write-downs in value on business that it tried to develop in China, on which it lost a total of $120 million in 2010-2011. Delek Group delisted the company from the TASE in 2010, after Gadot Biochemicals’ share lost nearly 90% of its peak value and Delek Group bought the share in the company held by energy company Oil Refineries, Delek Group’s partner.
In 2012, Delek Group reached an agreement to sell Gadot Biochemicals to FIMI Opportunity Funds, controlled by Ishay Davidi, but the deal fell through, as did deals with other reported candidates for a possible acquisition. Two years ago, Gad Biochemicals made headlines with its plan to lay off 50 of its 110 employees as part of a large-scale cost cutting plan.
Fortissimo, one of the most prominent and successful equity funds in the local market, has raised $1 billion to date in four separate funds. The acquisition of Gadot Biochemicals makes Fortissimo the owner of another industrial company in difficulties, similar to its acquisitions in recent year of Phoenicia Flat Glass Industries and cable manufacturer Synergy Cables.