Chiquita Brands to Buy Fyffes - Analyst Blog

U.S. fruit firm Chiquita Brands International Inc CQB has signed a definitive agreement to buy Irish rival Fyffes Plc for about 379 million euros ($526 million). The combination of Chiquita and Fyffes will create the world's biggest supplier of bananas. The deal is expected to be complete before the end of 2014 subject to the approval of Fyffes and Chiquita shareholders and the High Court of Ireland.

Chiquita is a leading international marketer and distributor of nutritious and high-quality fresh food products, including bananas, packaged salads and healthy snacks and has operations in 70 countries, including the U.S. On the other hand, Fyffes is a leading international marketer and distributor of top quality, healthy tropical produce, with operations in Europe, the U.S., Central America, South America and Asia. The deal is thus a strategic fit for both the companies as it will bring together two of the world's highly renowned and oldest fruit importers to form the leading global banana and other fresh produce company.

The combined company will be named as ChiquitaFyffes Plc and will be listed on the New York Stock Exchange and domiciled in Ireland. The combined entity will be valued at about $1.07 billion and will generate approximately $4.6 billion in annual revenues. It will also provide substantial operational efficiencies and cost savings of at least $40 million by the end of 2016.

Fyffes shareholders will get 0.1567 a share in the new company for each Fyffes share, while Chiquita holders will receive one ChiquitaFyffes share for each Chiquita share they hold. Upon completion of the transaction, Chiquita shareholders will own approximately 50.7% of ChiquitaFyffes, while Fyffes shareholders will hold the remainder on a fully diluted basis. Post the deal, both the companies will continue to maintain their brands.

The combined entity will have greater access in the worldwide market and can more effectively utilize its geographical footprint, expand in the high growth emerging markets and expand its distribution channels. Along with bananas, ChiquitaFyffes will supply melons, pineapples and packaged salads to more than 70 countries. The combined company will have a workforce of approximately 32,000 globally.

Chiquita's chief executive officer CEO Ed Lonergan will become the chairman of ChiquitaFyffes, while Fyffes' chairman David McCann will become CEO of the combined company.

Of late, Chiquita has been struggling with the supply and pricing of its raw products. This Zacks Rank #5 (Strong Sell) company faced a large oversupply of bananas in fourth quarter 2013, which negatively impacted the trading markets globally. In the salad business too, Chiquita suffered from iceberg supply shortages in the early fourth quarter and experienced an oversupply of raw salad products later in the quarter as a result of harsh weather across the growing regions.

Despite the challenges, the company's sales volume increased in both the North American banana business and the retail packaged salad business. The company also exited non-core, unprofitable businesses in the year 2013 to remain profitable. We believe that this deal will help Chiquita to regain its position of a leading banana supplier.

Other better-ranked food companies include Diamond Foods, Inc. DMND, The Hain Celestial Group, Inc. HAIN and Post Holdings Inc POST, all of them holding a Zacks Rank #2 (Buy).