Shareholders in legal threat to Chiquita-Fyffes merger

Lawsuit by Alabama firemen’s pension fund seeks to injunct deal

The proposed $1 billion banana company merger between Fyffes and its US rival Chiquita Brands faces a new threat, after shareholders in the US company this week lodged a class-action lawsuit attempting to scupper the merger.

A pension fund for firefighters in Birmingham, Alabama, which is a shareholder in Chiquita, is suing the US company's directors for alleged breaches of fiduciary duty by accepting the terms of the merger, which would result in the bulk of management control of the enlarged entity going to Fyffes, led by Dublin businessman David McCann.

The pension fund alleges that the merger, which is due to be voted on by Fyffes and Chiquita shareholders later this month, is unenforceable because it favours Fyffes and it also wants an injunction to prevent the Chiquita vote that is scheduled for October 24th.

Irish corporate law inferior

The pension fund is also claiming that Irish corporate law is inferior to US law in terms of the protections afforded to shareholders, and that the merger should be blocked on this basis. The merged entity that has been proposed, ChiquitaFyffes, would be domiciled in Ireland.

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The proposed deal is already under threat from a rival all-cash bid for Chiquita from two Brazillian billionaires. Companies linked to the two men are preparing a final offer for the US company before the scheduled votes.

To head off the Brazillian bid, Fyffes and Chiquita, whose board prefers the merger with the Irish company, recently revised the terms of the deal to give Chiquita shareholders a bigger slice of ChiquitaFyffes, close to 60 per cent.

The termination fee payable to Fyffes in the event of the merger being ditched was also more than trebled to 3.5 per cent of Chiquita’s value, about €18.5 million. The firefighters’ fund says the Cutrale-Safra proposal is “clearly superior”. Fyffes said the lawsuit was a matter for Chiquita, which did not respond to a request for comment.

Mark Paul

Mark Paul

Mark Paul is Business Affairs Correspondent of The Irish Times. He also writes the Caveat column