Major US fruit firms ripe for bid by Fyffes as market awaits move

The full-year results from Fyffes were hardly earth-shattering, and it was more anticipation of the year ahead rather than the 1999 figures that was responsible for driving the shares ahead from €1.65 to €2.00 (£1.30-£1.58).

That's a pretty strong recovery in the shares, but it has to be said that it comes from a very low base.

Fyffes shares have fallen heavily from this year's high of €2.40 and last year's high of €2.69 despite a series of buybacks at prices all the way from €2.30 down to €1.70.

Mind you, the Fyffes share performance has been remarkably strong given the carnage suffered by its rivals. Market leader Dole has seen its shares more than halve from $34 to $14 (€33.58E13.83), Fresh Del Monte has plummeted from almost $22 to $7 while Chiquita's shares have collapsed from over $12 to $3 1/2.

The European banana regime, which US producers claim discriminates against them, has no doubt helped Fyffes. But the Irish group has also reduced its dependence on bananas and its link-up with the South African group Capespan means that Fyffes has become a bigger player. The €57 million paid for half of Capespan's business in Europe and a 10 per cent equity stake in Capespan itself is looking like a sound investment, reducing Fyffes' dependence on bananas from 30 per cent to 23 per cent, and making it a far broader-based fresh produce group.

For those reasons, Fyffes's deputy chairman, Mr Carl McCann, was uncharacteristically candid this week about consolidation in the industry and where Fyffes might fit into any shake-out in the fresh produce business.

There was a clear implication that Fyffes sees itself in a position of strength to take a leading role in a consolidation which could reduce costs for any merged business.

Certainly, Fyffes has the ammunition to bid for any of the big three US groups - Dole has a market value of $830 million while Del Monte is at $380 million and Chiquita at $226 million. With buckets of money in its balance sheet, strong cash flow and access to low-cost borrowings, Fyffes could comfortably buy any of these without straining its resources.

Of the three, the view in the markets is that Chiquita and Del Monte are most vulnerable and there is even a view that Dole and Fyffes could end up as a Big Two by taking out the two smaller groups.

Huge cost savings through rationalisation of shipping and distribution would be attractive while two large players would also be in a much stronger position to deal with the multiples than the current plethora of smaller players.

Add in Fyffes' Worldoffruit.com portal site for the industry, which is being launched next month with the backing of bundles of venture capital money and there is another solid attraction in the share.

Current Account has always has a healthy suspicion of the valuations put on even loss-making dot.com stocks, but if Fyffes makes a success of its own dot.com, gets the 5 per cent market share it has targeted and then floats it off on Nasdaq, then Worldoffruit.com has the potential to be a huge earner.

Even at the recent price of €2.00, Fyffes is on a p/e of not much more than 10 times. That sounds cheap given the possibilities that lie ahead.