The day before a vote on its $1 billion merger deal with Fyffes Plc., officials with Chiquita Brands International Inc. notified sharehold-ers that two Brazilian companies had upped their unsolicited bid for a second time, offering $14.50 per share.
A week earlier the Chiquita board unanimously rejected a bid of $14 per share from the Cutrale Group and the Safra Group. The Brazilian orange juice company and investment bank initially offered $13 per share Aug. 11 and increased that to $14 in early October.
The stockholder vote set for Oct. 24 was expected to take place as scheduled, said Chiquita corporate communications director Ed Loyd on Oct. 23.
The Charlotte, N.C.-based banana giant urged shareholders “to review the proxy and other materials previously circulated,” according to an Oct. 23 news release. Fyffes stockholders are scheduled to vote on the deal Oct. 28. The latest Cutrale/Safra bid expires after Oct. 26.
“Chiquita’s board of directors, in consultation with its financial and legal advisors, will carefully review and consider the revised Cutrale/Safra offer in light of the best interests of the company and its shareholders,” according to the Chiquita release.
In response to the initial bid from the Brazilians, Dublin-based Fyffes sweetened its offer to Chiquita.
Fyffes is now offering $13 per share and Chiquita shareholders of the new ChiquitaFyffes company would own 59.6% of the new entity, compared to the 50.7% previously offered.
If the Chiquita-Fyffes deal is OK’d, the new company would be the top banana firm in the world. Currently the world’s $7 billion banana market is controlled by the two companies plus Dole Food Co. and Del Monte Fresh Produce.
When Chiquita rejected the $14 per share bid from the Brazilians, board president Kerri Anderson and CEO Ed Lonergan sent a letter to stockholders describing the offer as “inadequate.” The letter said projections show the Fyffes deal would provide a “low end” estimate of $15.59 pro forma share price.
“The Cutrale/Safra offer, in our judgment, is not a compelling alternative to ChiquitaFyffes as it limits the ability of Chiquita shareholders to realize the long-term value,” according to the letter.
Officials with the Brazilian companies said the Chiquita letter “blatantly misleads Chiquita shareholders,” according to a news release. The Chiquita board is “inflating the value of the Fyffes transaction by almost 20%,” the release said.
“Chiquita’s projected sales and earnings for its fourth quarter are highly questionable,…” according to the release. “Having missed Wall Street estimates by an average of 37% over the past three years, Chiquita now has little to no credibility in this regard.”
The Cutrale Group is a family-owned juice company controlled by Jose Luis Cutrale, who has partnered with banks controlled by Joseph Safra, Brazil’s second-richest man, to challenge the Fyffes deal, according to reports in the financial press.
Cutrale controls more than one-third of the $5 billion orange-juice market and has global operations in apples, peaches, lemons and soybeans, according to the company’s news release.
Financial firms are split on recommendations about situation.
Institutional Shareholder Services (ISS) initially said Chiquita shareholders should vote against the Fyffes deal, but the firm reversed that position Oct. 20. In its recommendation, ISS said the $14 Cutrale/Safra offer “… does not provide sufficient compensation to Chiquita shareholders to warrant giving up on the potential upside of the revised Fyffes transaction.”
Another proxy advisor, Glass Lewis & Co., says Chiquita shareholders should turn down the Fyffes deal. In an Oct. 20 report to clients, the advisor said “Chiquita’s board relied on questionable methodologies an attempt to undermine the value of a rival bid from Brazilian firms Cutrale-Safra.”
Also warning against the Fyffes deal is investment firm Wynnefield Capital, which owns 3.5% of Chiquita, according to The Wall Street Journal. In an Oct. 21 warning Wynnefield questioned the rationale of the Fyffes deal.
“…contrary to the purported rationale for the Chiquita-Fyffes scheme, Chiquita Brands competes in a commodity agricultural business in which projections are difficult to make and in which valuations — both for public and private companies — remain constrained,” the Wynnefield statement said.
Shareholder court challenge
Another Chiquita shareholder, the city of Birmingham (Ala.) Firemen’s and Policemen’s Supplemental Pension Fund, has switched gears in a federal court case it filed related to the Fyffes deal. Originally the pension officials wanted a federal judge to halt the merger, saying the offer from the Brazilian companies was better.
However, in a letter to U.S. District Court Judge Noel Hillman on Oct. 21, the pension fund attorney said the group will instead pursue a “damages action.” The judge set a new schedule for the case in an Oct. 23 order, giving the pension fund officials until Nov. 21 to amend their case.
Chiquita has until Jan. 5, 2015, to respond to the pension fund case or ask for it to be dismissed, according to the judge’s order. The case is in federal court in New Jersey, which is where Chiquita is incorporated.