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Fyffes and Chiquita are getting hitched

Article By: ,  Financial Analyst
March 10, 2014 4:18 PM

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.

 

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