GM apple developers set to finally cash in after takeover deal

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GM apple developers set to finally cash in after takeover deal

A US$4.2 billion biotech company has bought into the fresh-cut and foodservice propositions of Canada-based Okanagan Specialty Fruit's (OSF) Arctic apples, in the form of a cash-and-stock takeover agreement.

OSF founder Neal Carter

OSF founder Neal Carter

Intrexon Corporation (NYSE: XON) has offered US$31 million worth of stock in its own company to OSF shareholders, who will also receive US$10 million in upfront cash.

The transaction is expected for completion in the first half of 2015, almost two decades after orchardists Neal and Louisa Carter first embarked on their project aiming to improve apple consumption with a non-browning product.

The deal announced on Friday came just weeks after the United States Department of Agriculture (USDA) gave commercial approval for OSF's Arctic Granny and Arctic Golden apples, which are set to be available in small, test-market quantities next year.

"Joining forces with Intrexon and applying our combined technical know-how is an important step to introducing beneficial products for consumers and growers," Neal Carter said in a joint release.

"We are committed to bringing better versions of consumers’ favourite fruits to their grocery stores and kitchens, while addressing additional novel traits in tree fruits that reduce waste and address supply chain challenges."

In the release, the companies highlighted Arctic apples as an alternative to browning control, which is often more costly and requires the application of chemical solutions or antioxidants.

"Okanagan is a world leader in the development of fruit-bearing plants to express enhanced, advantageous traits with tremendous potential to revolutionize the tree fruit industry," Intrexon senior vice president and food sector head Thomas R. Kasser said.

"Through this acquisition, we can deliver more accessible and affordable choices of high-quality foods for an ever-growing population.

"We are extremely pleased that Neal Carter will remain with the company providing both the creative spirit and deep understanding of the tree fruit business that will assure continued future success in this expanding business opportunity."

With proprietary DNA technologies and a focus on collaborating with sectors ranging from health to food to the environment, Intrexon has seen its market capitalization triple since its initial public offering (IPO) in August, 2013.

During a conference call yesterday, Intrexon CEO Randal J. Kirk said the company was very happy with the pending acquisition.

"It gives us the opportunity to have a market-leading position in a very high growth category; one that we can really enable to grow much faster," he said.

"I don’t know how many people in the call may have purchased the prepared sliced apples that are offered in the market today, but it’s an interesting experience.

"First of all, this is a business that grows quite well, we’ve studied these companies; they do use chemicals in order to inhibit their browning, and they use cold chain and a number of methods to try to make them marketable, but to me they do not seem the same as a freshly sliced apple, to be very blunt about it."

He said even "commodity" products like apples could be differentiated by adding features consumers value.

"When we look at the growth of prepared, sliced apples, for example in the segment and we recognize they’re not quite the same thing as a freshly sliced apple, we see a real opportunity to add value and to us that can translate to a margin."

One key contender for new sliced apple products would be foodservice chain McDonald's, but when asked whether it would consider purchasing the product now that it has been deemed safe by the USDA, the company said it was not in its short-term plans.

"McDonald’s USA does not source GMO apples nor do we have current plans to change our sourcing practice," the company said.

The word "current" is key however, and as an OSF representative said previously, it would not be able to adequately supply Arctic apples to a chain like McDonald's for a decade.

In addition to its apples, OSF is also using a similar process in other fruits, most notably the silencing of the polyphenol oxidase (PPO) gene that can lead to more bruising our appearance issues after post-harvest. Key products the company is working on or plans to work on include PPO-inhibited cherries and pears, fire blight-resistant pears and Plum pox virus-resistant stonefruit.

Related stories: USDA gives green light to GM apples

GM labeling would be 'as good as a ban', says critic

Opinion: Perception of biotech foods boosted by consumer benefits

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