Chiquita and Fyffes to create world's leading banana company
Consolidation continues between produce companies from North America and Europe. Just 15 months ago it was Irish company Total Produce announcing it would take a stake in Vancouver-based distributor Oppy, and now another Dublin-headquartered business, Fyffes, may take a minority holding in a new entity with produce multinational Chiquita.
Shares in Ireland-based Fyffes PLC (ESM: FFY) surged today on the announcement that it would combine with U.S. produce business Chiquita Brands International (NYSE: CQB) to create a new company, ChiquitaFyffes.
The stock-for-stock transaction is due for completion by the end of 2014 if approved by shareholders and the High Court of Ireland.
Under the arrangement, Chiquita shareholders would own around 50.7% of the new entity, with Fyffes shareholders owning the remaining 49.3%.
At the time of writing, Fyffes shares were up 28% at €1.14 per share, no doubt bolstered by expectations the merger would save US$40 million in cost synergies relating to logistics and procurement.
Part of these savings will likely come from sourcing efficiencies across ChiquitaFyffes' 24,000 hectares of owned or leased operations in Central America.
A joint release highlighted the two companies had a combined revenue of around US$4.6 billion, and the new company is expected to have a workforce of 32,000 people with operations in more than 70 countries.
With combined sales of more than 160 million boxes, ChiquitaFyffes will be the world's largest banana company, while maintaining a significant presence in the packaged salads and healthy snacks category.
To be listed on the New York Stock Exchange and based in Ireland, the company's positions in melons and pineapples are also expected to be strengthened, as the top importer in the U.S. and the third largest distributor internationally.
"This is a milestone transaction for Chiquita and Fyffes that brings together the best of both companies which, we believe, will create significant value for our shareholders and offer immediate benefits for customers and consumers worldwide," said Chiquita CEO Ed Lonergan, will serve as chairman of ChiquitaFyffes.
"We will maintain our brands, all of which are valued by both customers and consumers. The combined company will also be able to provide customers with a more diverse product mix and choice.
"We know Fyffes well and our shared heritage will help to ensure a smooth integration as we work to bring best practices across geographies and business units to achieve substantial operating efficiencies."
Fyffes CEO David McCann labeled the deal as "transformative", offering exciting opportunities for the new business.
"We are looking forward to working with the Chiquita team to build a combined company which is well positioned to succeed in our highly competitive marketp lace and which will create significant value for our shareholders," said McCann, who will continue as CEO of the new company.
"Our outstanding employees will benefit from working for a larger, more diverse business which offers opportunities for growth. We believe we will be able to use our joint expertise, complementary assets and geographic coverage to develop a business that can run smoothly and efficiently to better partner with our customers and suppliers."
The new board of ChiquitaFyffes will largely consist of key executives from the existing companies in similar positions. Fyffes' chief financial officer (COO) Tom Murphy will continue in that role. The new company will have two chief operating officers, with Fyffes' Coen Bos focusing on fresh fruit and Chiquita's Brian Kocher focusing on salads and healthy snacks.
Other slated positions on the board will go to Chiquita representatives, with Kevin Holland as chief administration officer, James E. Thompson as chief legal officer and Manuel Rodriguez as corporate responsibility officer. However, the release said board positions would reflect an equal combination of directors from both companies and one mutually agreed upon director.
The joint release said the two companies had a pro forma EBITDA of approximately US$214 million in 2013, combining Chiquita's recently announced results with Fyffes' 2013 preliminary figures released today.
Fyffes notched a 6.3% rise in revenue to hit €1.082 billion for the year, and a similar rise in EBITA to €32.7 million, which was in the upper end of the target range. For 2014, the company aims for an EBITA of between €30-35 million.
McCann attributed the revenue rise to organic growth in the banana and melon categories, but this combined the higher input costs associated with price inflation for bananas and pineapples.
The executive, on behalf of the board, described the company's banana category performance as "broadly satisfactory" for the year, with profits slightly down on 2012's "very strong result".
"The industry experienced further significant inflation in the cost of fruit during 2013, continuing a multi-year pattern. There was also an unfavourable movement in exchange rates year on year, due to the strength of the US Dollar particularly relative to Sterling," he said.
"The impact of these adverse factors was partly offset by lower logistics costs, as a result of the reduction in fuel costs and further shipping efficiencies. In addition, Fyffes achieved further successful organic growth in the banana category in 2013, with new and existing customers."
He said improved supply stability for pineapples meant market conditions were generally more positive throughout the year, while the ingoing integration of an acquired farm to adjoin existing operations meant 56% of sourced pineapples came from Fyffes' own plantations.
McCann described Fyffes' U.S. melon business as "satisfactory" for the year, with improved yields in the first half driven by favorable weather in producing regions during the key import season.
"This also contributed to a significant increase in import volumes, consolidating the Group’s position in this category in the US. Average selling prices were down on the very strong prices achieved in the previous year, mainly due to the increase in total import volumes."