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Juicy history in Brazilian bananas bid

Published:Wednesday | September 24, 2014 | 9:00 AM
FILE In this August 3, 2005 file photo, Chiquita bananas are on display at a grocery store in Bainbridge, Ohio. Chiquita Brands International Inc on Monday, September 8, 2014 said it is postponing its special shareholders meeting to vote on its proposed merger with Irish fruit company, Fyffes, and is seeking a new offer from competing bidders.
FILE In this August 3, 2005 file photo, Chiquita bananas are on display at a grocery store in Bainbridge, Ohio. Chiquita Brands International Inc on Monday, September 8, 2014 said it is postponing its special shareholders meeting to vote on its proposed merger with Irish fruit company, Fyffes, and is seeking a new offer from competing bidders.
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Samantha Pearson in Sao Paulo

At the onset of the Cold War the acclaimed Chilean writer Pablo Neruda dedicated a poem to the United Fruit Company, the US banana group now known as Chiquita that inspired hatred among many Latin Americans.

As an alleged ally of the region's dictators and the owner of large swaths of Central America, the company was seen for much of the 20th century as a symbol of US imperialism and repression.

"The United Fruit Company took for itself the juiciest piece [of Latin America], the central coast of my world, the delicate waist of America," he wrote. "It baptised these lands as Banana Republics."

This week, Latin American history may take a further bizarre twist. Investors expect two of Brazil's wealthiest families, the Safras and the Cutrales, to make their final bid for Chiquita, potentially handing control of the company over to Latin Americans for the first time in its 144-year existence.

Billionaire banker, Joseph Safra and his close friend Jose Luis Cutrale, head of one of the country's largest orange juice empires, shocked the banana world last month by launching a US$1.25b hostile takeover bid for the US company.

At the time, Chiquita was in the final stages of merging with Ireland's Fyffes - a deal announced in March this year that was set to create the world's largest banana group by sales and which now hangs in the balance.

After initially rejecting the Brazilians' proposal, Chiquita effectively put the Fyffes deal on hold this month, giving the Cutrale and Safra companies until October 3 to complete their due diligence and come up with a better offer.

"If you take into consideration the synergies that would be achieved by Fyffes and Chiquita and their combined value, Cutrale will need to come back with a much higher bid," says David Holohan, head of research at Merrion Capital.

As well as promising to take on the company's debt, the Brazilians are offering US$611m in cash, equivalent to US$13 a share.

"It will need to be north of US$16," says Mr Holohan, adding he expects the offer to come as early as this week. Other analysts say the magic number is US$15.

For the Brazilians, the acquisition is not just a chance to make history.

After moving into the soyabean trade, the Cutrales see the deal as another opportunity to diversify away from the slowing orange juice market. Banana is still the world's most traded fruit and generated US$7b in global export sales last year, according to the UK-based non-profit group Banana Link.

Buying its own consumer brand adds further appeal for Cutrale, which is currently only known to wholesalers as a supplier to brands such as Coca-Cola.

The US company also comes relatively cheap. After a long period of decline it lost its position as the world's largest banana company by sales to Dole in the 1990s, and has continued to struggle as a supermarket price war erodes margins.

Worth around US$30 in 2005, Chiquita shares had fallen to less than US$10 just before the Brazilians' takeover bid. They have been trading recently around US$14 on the expectation of a higher offer.

However, the Cutrale and Safra families, who have both gained reputations as conservative and guarded operators, have shown little sign of budging on the price so far, frustrating those in the Chiquita camp.

"I can see how they squeeze all the juice out of those oranges," says one person close to the deal.

Instead, the Brazilians, which are being advised by Bank of America's former co-head of global corporate and investment banking Michael Rubinoff, have focused their efforts on picking apart the proposed merger with Fyffes.

Last week, Fyffes made a presentation to investors estimating that Chiquita-Fyffes shares could be worth US$21 by 2016. They have also offered concessions to the European Commission to win regulatory support for the merger, which will involve a controversial tax inversion to Ireland.

Cutrale and Safra responded by equating Fyffes' forecast to a "mythical pot of gold at the end of the rainbow". Their own proposal represents an instant 11.8 times Chiquita's reported adjusted earnings before interest, tax, depreciation and amortisation, and faces no regulatory issues, they argue.

However, while Fyffes is not able to match the cash terms of the Brazilians' offer, its projections should not be underestimated, analysts say.

"If you look at Fyffes' history of providing guidance they typically exceed [the numbers] ... I think they are quite attainable," says Merrion's Mr Holohan.

Chiquita's future will ultimately come down to whether the Brazilians raise their offer, he says. On this question, those who deal with the Cutrale family say their determination to close a deal should also not be underestimated. "They're cautious but they move with aggression," says one business contact. "They study [a deal] like hell and then go for the kill."

Additional reporting by Vincent Boland in Dublin

(c) 2014 The Financial Times Ltd