Russian Willi? Da or Nyet

Written by: Aaron Katsman | October 3, 2007

By Aaron Katsman
www.IsraelNewsletter.com

G. Willi-Food(WILC), one of Israel’s fastest growing food companies and IsraelNewsletter favorite,  has announced a non-binding memorandum of understanding to buy 51% of the Russian eggs and slaughterhouse company owned by Arcadi Gaydamak(also majority owner of G.Willi) for an estimated $32.6 million. Many believe that Gaydamak wants to merge his egg and poultry business in Russia with Willi-Food, and then Willi-Food will manage the entire business. Gaydamak is the largest supplier of eggs in Moscow and this deal will give Willi-Food a significant market share in the Russian market. Willi-Food also intends to begin marketing kosher food products to Moscow’s Jewish community.

Since last week when I wrote that the stock had dropped to attractive levels and was a good trade, the stock has moved up about 12%. In analyzing the company most analyst focus, including my own, was always focused on their kosher food business in the U.S. This news of breaking into the Russian market, makes for an intriguing long-term investment. Now they plan on growing the business on two seperate tracks, something that should propel revenues sharply higher, and change the company from a niche food company into a truly global food play.

I think that all this news adds up to the fact we can say “Dos V’danya” to these low stock prices.

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Disclosure: Author’s fund is long WILC as of 10/03/07.

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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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2 Comments »

Comment by Amit Chokshi on October 4, 2007

I manage a fund that is long WILC but I’m pretty certain your analysis is wrong. Unless the news has changed since the past few hours you’re not identifying the buyer of the Russian poultry business accurately. Willi Food INVESTMENTS, which trades as WLFD on the TASE is buying the Russian business. AG, through WLFD owns 62% of Willi Food INTERNATIONAL, which is WILC and what US shareholders own.

The acquisition will have no material benefit to WILC shareholders other than to show AG and Willi mgmt are working on the deal front. WLFD is the holding co, the Russian business will be held alongside WILC and the real estate and other WLFD holdings but don’t look to factor any of the egg business into WILC’s financials. Check the TASE, WLFD stock is rocking because WLFD shareholders receive the benefits of that deal, WILC shareholders do not.

Comment by Bouroubarbour on October 4, 2007

Hi Aaron, could you help clear up confusion about this Russian egg deal. There has been some discussion about it on bulletin boards.
Here is what is generally understood (quoted from the BB):
Willi Food INVESTMENTS (WLFD) is buying the Russian egg co not Willi Food INTERNATIONAL (WILC) which is what we own. Gaydamak bought shares of Willi Food INVESTMENTS not INTERNATIONAL. WF Investments is a holding co (which owns WILC and some real estate) and trades under WLFD on the TASE. WILC shareholders DO NOT BENEFIT from the financials from this deal. WLFD is buying the co and not WILC which has no direct line into WLFD.

Others are mentioning that WILC will greatly benefit from this deal. What is your understanding?

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