Brazilians appeal to Chiquita shareholders to stymie merger

Brazilian billionaires Joseph Safra and Jose Luis Cutrale have launched an intensive last-ditch lobbying campaign to wreck the proposed $1 billion merger between the banana company Fyffes and Chiquita Brands International.

Cutrale Group and Safra Group last month tabled a rival all-cash bid for Chiquita, but the proposed Chiquita-Fyffes combination will be put before shareholders of both banana companies later this month to rubber-stamp the merger.

Cutrale-Safra in recent days have gone over the heads of the board members of Chiquita, who have rejected the Brazilians’ bid and are sticking with the proposed merger with Fyffes, and appealed directly to Chiquita shareholders.

The Brazilians are intensively soliciting proxy votes from Chiquita shareholders for a meeting scheduled on September 17th, in an attempt to block the merger. A meeting of Fyffes shareholders is also scheduled on the same day in Dublin, at which approval will be sought by the Irish company to complete the deal.

Consider alternatives

The Brazilians have written directly to Chiquita shareholders asking them to vote against the merger and to vote instead for a Cutrale-Safra motion that would force the Chiquita board to consider alternatives.

They have asked shareholders of the US company to put pressure on its board to step back from the deal with Fyffes.

They have also made presentations in recent days to groups such as Institutional Shareholder Services (ISI), an influential US advisory group that often recommends to listed company shareholders how to vote at company meetings.

In documents filed with the US Securities and Exchange Commission (SEC), Cutrale-Safra say the Chiquita-Fyffes merger “favours” the Irish company at the expense of its proposed US tie-up partner.

Although it is significantly smaller than Chiquita, Fyffes executives, led by executive chairman David McCann, would have effective operational control of the enlarged entity.

“Chiquita paid Fyffes shareholders a significant economic premium [under the merger proposals],” the Brazilians complain to shareholders.

They allege the merger offers no premium to shareholders of the US company, but “values Fyffes shares at a premium of up to 45-67 per cent”. They claim that the share price performance of Fyffes and Chiquita since the merger was announced show that shareholders “seem to recognise that Fyffes got the better bargain”.

They referred to a joint statement last week by Chiquita- Fyffes in which a further $20 million of cost savings from the merger were announced, on top of the $40 million in savings that were originally part of the rationale for the deal.

New savings

They say it is “curious” that the new additional savings were only identified after Cutrale-Safra entered the fray and question whether the enlarged company, which would be under the leadership of Mr McCann, is capable of implementing the savings.

The Brazilians’ aim is to get the September 17th meeting of Chiquita adjourned and a motion passed that would force its board to engage directly with Cutrale-Safra. If successful, it could leave Fyffes in limbo, as its shareholders are due to vote on the same day.

David Holohan, an analyst with Merrion stockbrokers, says that although he believes the Brazilians are likely to raise their $13 a share bid for Chiquita, the odds on the merger going through are "increasing".

To tempt Chiquita shareholders, Mr Holohan says Cutrale- Safra “ would need to be willing to increase their current bid to a new level of $16-$16.40, above the price we believed that they would be willing to come back to Chiquita”.