Fyffes and Chiquita are getting hitched
City Index March 10, 2014 8:18 PM
<p>Irish fruit distributor Fyffes and US rival Chiquita have agreed to merge in an all-stock deal, which is expected to be completed before the end […]</p>
Irish fruit distributor Fyffes and US rival Chiquita have agreed to merge in an all-stock deal, which is expected to be completed before the end of the year.
According to the companies, the combined entity – named ChiquitaFyffes – would have revenue of around $4.6bn and will be listed on the New York Stock Exchange.
On completion, Chiquita’s shareholders will own around 50.7% of ChiquitaFyffes, with Fyffes’ shareholders owning around 49.3%. Additionally, the companies expect to achieve around $40m in pre-tax cost savings by the end of 2016.
The move seems sensible enough
With a market capitalisation of around €260m, Fyffes distributes bananas (its largest product category), pineapples and melons.
With revenue predominantly from Europe, Fyffes lags competitors in terms of scale – reporting revenue of around €1.1bn and earnings before interest, tax, depreciation and amortisation (EBITDA) of €40m in fiscal 2013.
Being part of a much larger entity with broader reach and products makes sense for Fyffes.
As for Chiquita, which has a market capitalisation of some $500m, its product base consists of bananas (also its largest product category) as well as salads and healthy snacks (that includes Chiquita bites).
Although with a broad geographic reach, a large proportion of the company’s revenue – which came in at some $3bn in 2013, EBITDA of $117m – is derived from North America.
But Chiquita, whose turnaround efforts have just started to bear fruit, has been faced with declining revenue over recent years. That’s aside from a stretched balance sheet (as at December 2013, net debt was $576m), which has weighed on the company.
The merger should create a more financially flexible company, the companies reckon the combined entity’s pro-forma net debt to EBITDA would be 2.7x – Chiquita was 4.9x as at December 2013.
The combined entity looks set to be positioned well, competitively
The larger combo would be better positioned to face off against other global players in the sector, Fresh Del Monte for example, which boasts a relatively decent balance sheet and made EBITDA of $185m on revenue of around $3.7bn last year.
The move certainly bodes well for both companies, although expectations here are that rivals are unlikely to sit idly by.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.