Merge Of Chiquita Brands International (NYSE:CQB) and Fyffes (DB:FFY)

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By Mark Michaels on September 2, 2014 Company, Consumer Staples

Chiquita Brands International (NYSE:CQB) has announced plans to merge with Fyffes PLC. This merger would effectively make Chiquita the largest banana company in the entire world, shooting the company past Dole Food Co.

Fyffes is a tropical food company based in Ireland.

The purchase terms include a payment of$1.07 billion for Fyffes. The payments consist of all stocks.

The combined company will be named ChiquitaFyffes, and would employ 32,000 workers and bring in roughly $4.6 billion in revenue each year through sales of the predicted 160 million units of crates of bananas.

This deal brings back together two companies that were merged before – Chiquita’s parent company, United Brands, was the owner of Fyffes until it let go of the fruit company in 1986.

Chiquita, which is based in Charlotte, North Carolina, and its shareholders will retain control of 50.7 percent of the company’s stock. The company’s shares will be listed on the New York Stock Exchange, but the operations will be based in Dublin.

Chiquita emphasized that the transaction is not driven by tax reasons. The combined activities in the future will not expect or include any cut in taxes. Even though the company will be based in Dublin, its business will still answer to the taxes in the United States. However, if the company’s net operating losses from previous periods, it can use that to bring down the tax charges.

The planned acquisition could bring about issues with competition further ahead of its expected completion later this year. Four key companies – Chiquita, Fyffes, Dole, and Fresh Del Monte Produce Inc – control more than 80 percent of the banana trade around the globe. This information was provided by the United Nations.

Ed Lonergan, the chief executive officer of Chiquita, stated that both companies are willing to discuss the concerns over anti trust with the European Union and the United States. However, he said, that the geographic locations of the two companies do not overlap and does not expect any concerns regarding competition to affect the deal.

Mr. Lonergan said that the company has gone into this deal being advised from the perspective of regulators. Thus, the company is confident that they will not come across any regulatory issues.

Mr. Lonergan will serve as the head chairman of the combined companies. Fyffe’s current executive chairman, David McCann, will become chief executive officer.

The European Commission, who regulates the antitrust issues of the European Union, stated that it had not yet received notification of the proposed acquisition, and refused to make a comment about it.

According to competition specialists in Europe, the issue is stems beyond than a simple question of market share. It involves infrastructure, transport, as well as the contracts that the two companies have with their suppliers and buyers, including the leading supermarket chains.

There are also questions regarding competition around ripening plants. At these plants, bananas are placed in a chamber where they ripen from green to yellow. Including these types of facilities, the merged business could have too high a concentration in the market.

The deal was first conceived in October of 2013, when Mr. Lonergan brought up the possibility about the potential deal with Mr. McCann. The two executives were at a fruit conference in New Orleans.

The combined business has plans to look into expanding in parts of the Middle East and Asia where consumption of bananas is relatively low, said Mr. McCann.

Mr. Logergan said that as a combined company, they would do better if placed in a highly competitive space.

After the deal was announced, the shares of Fyffes rose to 1.30 euros roughly $1.80, by 41 European cents, or by 46 percent.

The shares of Chiquita grew by 11 percent, by $1.16 to $12.

The new merged company is in position to use the growing demand all over the world for bananas. According to data from the United Nation, exports of bananas have grown by 7.3 percent in 2012 to an all time high record of 16.5 million tons.

Advancements in shipping are also helping to push upwards the growth in demand for bananas. The fruit is typically transported via container ships in specially made refrigerators.

In the past, bananas were able to stay fresh for up to 20 days. However, recent improvements in technology means that the life span of the fruit has more than doubled. This new technology means that the banana trade is expanding very rapidly.

According to Erik Hogh-Sorensen, who is a spokesperson for Maersk Container Industry, the banana business is groing. Maesrk is a branch of A.P Moller Maersk, the world’s largest container shipping company.

Chiquita and Fyffe grow a lot of their own bananas. The two companies also sign contracts with smaller growers, who have expressed a cautious reaction to the news.

The maanger of El Guabo, Lianne Zoeteweij, stated that all contracts for 2014 hav ebeen signed, but the growers should see how things play out. El Guabo is a cooperative of small fruit growers insouthern Ecuador.

Zoeteqeij stated that the negotiating power that the merged company will have in Central America will be enormous. While the producers of banana in Ecuador still have many exporters to choose from, farmers in Colombia and Panama and other countries have much fewer options.

A spokesperson for Chiquita said that the merged business would not exercise unnecessary influence over the banana farmers. Both Fyffes and Chiquita have long standing relationships with small farmers all around the world, and this merger gives the companies an even greater capacity to boost the industry.

Going back to 1870, Chiquita started when Lorenzo Dow Baker purchased and shipping 160 bunches of bananas from Jamaica back to Jersey City, New Jersey. The company’s shipping vessels were seized by the United States government during World War II, nearly causing the business to fail and shut down.

After the war, Chiquita took advantage of an opportunity to sell to customers with growing incomes who were willing to taste exotic fruits, including bananas and pineapples.

Chiquita then introduced in 1944 “Miss Chiquita” – an animated cartoon banana who sang about the various benefits of bananas, as a tasty and healthy treat. The cartoon character and jingle stayed on television screens for the next 50 years.

The company is also not completely free of controversy. In 2007, Chiquita was forced to pay a fine of $25 million to the United States Justice Department in order to resolve a case where the company was charged with pay protection money to armies engaged in a guerrilla war in Colombia. The country is one of the most profitable locations that Chiquita has subsidiaries open. These payments were illegal because the groups that Chiquita sent the payments to were terrorist groups that were listed under the United States State Departments list of terrorists.

Another debacle was more than 20 years ago, when a heated argument broke out between Chiquita and Fyffes. A major supplier of bananas in Honduras defected to Fyffes. Chiquita got a court order that allowed officials to confiscate approximately 300,000 crates of bananas headed to Fyffes.

Fyffes, based in Dublin, also has a long history. The company was first brought to life in 1888 when Edward Wathen Fyffee shipping his first order of the fruit from the Canary Islands, and sold them all over London.

The company began to put blue label on all its product in 1929, marking its own claim in the market as the oldest fruit brand in the world.

Both companies stated that the merger would mean an annual cost savings of more than $40 million by 2016. ChiquitaFyffes will also have strong position in trading beyond bananas, including pineapples and packaged salads.