Chiquita Brands International still appears set on its proposed merger with Fyffes – and the US produce giant is, at the moment, right to do so.
The US produce giant last week rejected the latest offer from Brazilian bidders Cutrale Group, the orange juice manufacturer, and Safra Group, the investment firm.
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On Wednesday (15 October), Cutrale and Safra upped their offer from the US$13 a share they tabled in August (which Chiquita turned down) to $14, valuing the company at around $717m.
A revised bid was expected. Chiquita opened its books to Cutrale and Safra last month amid public pressure from some in the investment community. However, the new bid from Cutrale and Safra was dismissed by Chiquita – and it was a decision backed by Wall Street analysts.
“In the current environment, we understand some investors questioning the decision to forgo a certain $14 value, but one must remember that this market will indeed turn better, and we believe that true shareholders would prefer a tie-up with Fyffes – along with the inherent value creation potential that it brings – instead of a stubbornly low bid from a Brazilian orange concentrate producer, whose real goal in our view is to steal an asset away in order to diversify its portfolio,” BB&T Capital Markets analyst Brett Hundley wrote last week.
Cutrale and Safra reacted angrily, claiming Chiquita’s board was “deceiving” shareholders and “continuing its track record of value destruction”. However, it appears the bidders will have to go much higher to win over Chiquita – and Wall Street.
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By GlobalData“We continue to see over $20 in potential value for the combined entity,” Athlos Research analyst Jonathan Feeney said last week, pointing to the synergies expected from the proposed merger with Fyffes and the positive impact on prices from tighter banana supplies.
Chiquita came under fire in investor circles when it turned down the first bid from Cutrale and Safra. However, by allowing the suitors to conduct due diligence, the company’s board demonstrated it was following its fiduciary duty, while it has won praise for, since the Brazilian interest emerged, being able to negotiate with Fyffes for a larger slice of the combined ChiquitaFyffes.
The enlarged business stands to benefit not just from a broader geographic presence and a wider product portfolio but is set to take a significant chunk of global banana sales. Chiquita and Fyffes are, with Dole Food Co. and Fresh Del Monte Produce, four suppliers that account for 80% of the banana market. The proposed merger has already secured EU approval and, while there may be issues to address in other markets, ChiquitaFyffes will have a strong position in the market, benefiting from synergies and, on paper, better able to deal with the volatility in the sector.
Cutrale and Safra will have to go some way to counter that.
