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October 27, 2014

Editor’s viewpoint: Short-termism decides Chiquita’s future

The imminent sale of Chiquita Brands International, the US produce giant, shows how different investment horizons can manifest on a company's share roster - and decide a business's future.

By Dean Best

The imminent sale of Chiquita Brands International, the US produce giant, shows how different investment horizons can manifest on a company’s share roster – and decide a business’s future.

Seven months after setting out a deal that looked set to create a sector leader, the board of Chiquita Brands International today (27 October) accepted an offer to sell the company.

On Friday, Chiquita’s shareholders voted against the group’s plans to merge with Ireland-based peer Fyffes. Less than 72 hours later, the company’s directors this afternoon revealed they had entered into an agreement with suitors Cutrale Group, the Brazilian juice maker, and Safra Group, the investment firm.

At the start of March, Chiquita and Fyffes announced plans to combine the world’s largest banana supplier. However, in August, Cutrale and Safra tabled a takeover bid for Chiquita, an offer the US group promptly turned down but one which caused questions to be asked in some investor circles about the potential benefits of the merger with Fyffes.

During what has been at times an acrimonious battle for the ownership of Chiquita, the company’s board rejected not one but two bids from Cutrale and Safra in favour of pursuing the combination with Fyffes.

Chiquita fought hard to try to convince its shareholders to back its move to merge with Fyffes, even securing better terms from the Irish group, which included a deal for a larger chunk of the proposed ChiquitaFyffes than had originally been agreed.

However, Friday’s vote left Chiquita’s board with little choice but to enter into talks with Cutrale and Safra, which, just 24 hours before the vote, upped their second bid from US$14 a share to $14.50. Including debt, the offer valued Chiquita at $1.3bn.

To many industry watchers, the result was a surprise. The combined ChiquitaFyffes stood to become the world’s largest banana supplier, better able to withstand price volatility and benefiting from a wider product portfolio and a broader geographic presence. Many analysts believed these benefits would sway Chqiuita shareholders despite the takeover interest in the business.

BB&T Capital Markets analyst Brett Hundley said the last-minute fresh offer from Cutrale and Safra likely tipped the balance. “At a bid of $14 a share, we believed that Chiquita had the votes to go through with the Fyffes deal; however we think that the revised $14.50/sh bid pushed a number of holders over the line,” he said.

With the new bid on the table, Hundley said he could understand why some investors rejected the chance to merge with Fyffes – he said the $14.50-a-share bid was “a win for Chiquita shareholders given the share performance over the past two years” – but argued the result was a setback for Chiquita and the broader banana sector.

“The multinational banana space is in need of a leader. ChiquitaFyffes would have been that leader, in our opinion, run by strong, engaged management from Fyffes. Instead, we see the continuation of slim margins for the group overall, amidst volatile operating conditions,” he wrote.

Chiquita and Fyffes are, with Dole Food Co. and Fresh Del Monte Produce, four suppliers that account for 80% of the banana market. The management of Chiquita and Fyffes expected few issues with regulators and their merger looked set to create a business that could more effectively deal with the challenges in the sector.

However, seven months after Chiquita announced its “compelling” plan to merge with Fyffes, the US group looks set to be taken over, with more investors on the US group’s roster wanting an immediate cash return than believing in the longer-term rationale to build a larger business.

Chiquita Bananas

9/2014 – Image by Mike Mozart of TheToyChannel and JeepersMedia on YouTube.

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