(Reuters) - Shares of International Flavors & Fragrances Inc (N:IFF) sank on Monday after the company agreed to an expensive multi-billion dollar merger with a division of Dupont Inc (N:DD), raising concerns about IFF's already high debt pile.
The merger combines the nutrition and biosciences business of DuPont, which makes the protein used in plant-based patties produced by firms like Impossible Foods and Beyond Meat (O:BYND), and IFF that makes flavorings, seasonings and natural colors.
Shares in Dupont were unchanged, and those of IFF fell almost 8% to $123.35.
While the deal gives the combined company heft in the global plant-based meat market, which is expected to explode to an estimated $140 billion in annual sales over the next decade, Stephens analyst Mark Connelly said the price tag was higher-than-expected.
"We had the Nutrition and Bio business at ~$21.9 billion, versus the nominal ~$26.2 billion in this deal. The new IFF shares will represent a substantial overhang for investors," Connelly said.
As part of the deal, IFF will pay DuPont shareholders $7.3 billion in a special cash payment and handover 55.4% of the combined business.
Added to that, IFF, which has roughly $4 billion in long-term debt, will pile on more debt to fund the deal.
"We also think deal complexity and time from announcement to closing, at least a year, is likely to increase risk of share loss," Stifel analysts said.
Dupont, hived off from the chemical giant of the same name earlier this year, has got the best of the deal, which creates a new consumer player valued at more than $45 billion.
"In our food and beverage segment, we have one of the broadest portfolios of natural and plant-based specialty food ingredients. This is where consumers are headed, and we are leading the way," Matthias Heinzel, DuPont's president of nutrition & health said on a call with analysts.
The fast-growing plant-based market is being fueled by increasingly health-conscious consumers who want to cut down on eating meat and worry about the environmental impact of industrial animal farming.
U.S. plant-based protein maker Beyond Meat's stock has tripled since it went public in May even though it is yet to turn a profit.
The "beyond-meat" category would be among the expected top-line synergies from the deal, Fermium Research analyst Frank Mitsch said.