Fyffes share price goes bananas as it extracts the better deal from $1 billion merger
Despite the Irish company’s smaller size, David McCann negotiated an impressive share of the spoils
The deal to create ChiquitaFyffes, according to Fyffes chairman David McCann, came from “tentative discussions over many, many years” between the Irish company and its larger US rival Chiquita.
Not a banana split, but rather, a banana merger.
The catalyst, however, was an approach by Ed Lonergan, Chiquita’s chief executive, to McCann last October.
Both Lonergan and McCann, scion of the Dublin fruit- importing family and soon-to- be boss of the merged entity, attended the Fresh Summit conference in New Orleans, an annual fruit sector jamboree.
“Ed suggested to me at the conference that they’d like to do something,” said McCann. The overture came less than a year after the death of Neil McCann, the driving force of Fyffes , who retired as chairman in 2005.
Negotiations began immediately, and they settled on the “precise notion” of what a merger might entail before Christmas, said McCann.
Chiquita, headquartered in North Carolina, is the larger of the companies with 20,000 staff versus Fyffes’s 12,000 and almost double Fyffes’s revenues of about €1.1 billion.
Fyffes does not operate any banana plantations, but rather acts as a buyer and distributor.
Lonergan described the marriage as “a true merger of equals”, but in reality, Fyffes got far more bang for its much smaller buck.
Despite having sales of half that of its rival and a market cap substantially lower before yesterday’s share price explosion, Fyffes managed to extract a 38 per cent premium to its closing price of last Friday, an almost equal share of equity , and the juiciest executive roles for its management.
McCann will be chief executive, while colleague Tom Murphy landed a board seat and the chief financial role. The Irish side also got the chief operating officer role, which goes to Coen Bos.
As a result, the real decision-making power will be on this side of the Atlantic. Chiquita had little choice but to swallow all of this because of its very high debt levels – $660 million – more than 10 times that of Fyffes.
“The real benefit of the deal is the effect on their balance sheets,” said Patrick Higgins, an analyst with Goodbody.
Chiquita’s high debt and meant its options to invest in growth were limited, while Fyffes was too conservative with its gearing, limiting returns.
Fyffes now stands reap the benefit of its half of the projected $40 million in cost savings. Fyffes yesterday reported sales growth of 6.3 per cent to almost €1.1 billion for 2013, while its earnings per share climbed about 3.2 per cent to 8.82 cents.
McCann said the was glad to see the share price explode yesterday following the announcement of the merger.
“I think we unlocked something,” he said. “I always felt our share price was being held back.”