In a blockbuster deal that establishes “the world leading independent company of natural specialty ingredients,” Naturex, Avignon, France, and Natraceutical Group, Valencia Spain, have formalized a memorandum of understanding to merge their ingredient activities, which is expected to take effect before the end of the year.

The transaction will be structured by means of the integration of Natraceutical’s ingredients division into Naturex, where Natraceutical will become board member and a relevant minority shareholder alongside SGD, the family controlled holding company of Jacques Dikansky, Naturex’s chairman and CEO.

“This operation represents a unique opportunity for Naturex to become the number one natural specialty ingredients company worldwide through the integration of the well-known and highly reputable companies forming Natraceutical’s ingredients division,” said Mr. Dikansky.

With a fully complementary product portfolio that includes nutraceutical ingredients, flavoring, preservative and extracts on Naturex’s side, and natural colors, fruit and vegetable powders, pectins, functional ingredients, yeasts and caffeine by Natraceutical’s ingredients division, the new company will combine the strengths of Naturex, strongly positioned in the U.S., and those of Natraceutical, strongly positioned in Europe.

The resulting company will have production sites in Europe (France, Italy, Spain, Switzerland and the UK), the U.S., Morocco, Australia and Brazil, and sales offices in the U.S., Europe and Asia, thus positioning itself to profit from ongoing growth and consolidation of this sector.

The company will operate under Naturex management, headed by Mr. Dikansky. After this operation, Naturex proforma sales in 2009 will reach approximately €200 million and proforma EBITDA will represent around €30 million, with a debt ratio close to 3.5 times EBITDA. After closing of this deal, and from an operational point of view, Natraceutical Group will focus its efforts in the full development of their nutritional supplements division in Europe, which the company markets exclusively in pharmacies under the brand name Forté Pharma.

“Under the current financial circumstances that are requiring companies to adapt their growth strategies to the new environment, we believe that uniting our strengths to Naturex’s will be highly value-creating for our businesses and shareholders,” said Xavier Adserà, Natraceutical Group’s chairman.

The companies will initiate the due diligence process prior to the formalization of a binding contract to be approved by the respective boards of directors and Naturex’s shareholders meeting, and subject to the financial feasibility of the project and the authorization by the French financial market authority (Autorité des marches financiers).