Chiquita Brands (CQB) Shares Go Bananas on Buyout Offer - Analyst Blog

The banana producer, Chiquita Brands International Inc. ( CQB ) seems to have become the center of attention in the agribusiness industry with another fruit company expressing interest in merging with the company. Countering Chiquita's already agreed deal to buy Irish rival Fyffes Plc, a partnership of Brazilian juice maker Cutrale Group and investment firm Safra Group have proposed to buy the former in an all cash transaction.

The Cutrale Group and the Safra Group have proposed to buy all of Chiquita's shares for $13 per share, or about $611 million excluding debt. This offer represents a 29% premium to Chiquita's closing share price of $10.06 as of Aug 8, 2014.

Further, the private Brazilian companies displayed aggressive buyout intent proposing to close the deal by end of the year, following due diligence, almost maintaining the same time frame when Chiquita is expected to complete its deal with Fyffes.

Following the news, we saw the markets acknowledging the Brazilian partnership's proposal, sighting more value in it compared with the company's previous tie-up with Fyffes. The shares of Chiquita shot up over 30% to close above the offered bid at $13.10 per share.

While the Fyffes deal will help the company gain greater access to the worldwide market becoming a leading distributor of banana and other fresh produce, the new offer from the Brazilian firms will provide Chiquita extensive industry expertise along with access to significant financial resources.

Chiquita will cash from the Cutrale Group's global exposure in the distribution of oranges, apples, peaches, lemons and soybeans along with its extensive experience in fruit and juice value chain. Moreover, the company will have access to significant financial resources via Safra Group's over $200 billion assets under management and a presence across North and South America, Europe, the Middle East and Asia.

In the letter sent to Chiquita's management, Cutrale and Safra stated two reasons for this being the right time to put forward its bid. The first one being the recent dismissal of criminal charges against Chiquita by a U.S. appeals court. Chiquita was sued by thousands of Colombians who believed that the company financed the paramilitary group who killed thousands of Colombians during the conflict with guerrillas from the Revolutionary Armed Forces of Colombia, or FARC. The second reason sighted the significant fall in the company's share price since it signed the deal with Fyffes.

The Brazilian companies also indicated that backing out from the Fyffes deal will be relatively inexpensive for Chiquita as it only attracts payment of a $5 million breakup fee. Cutrale and Safra have urged Chiquita to engage in talks by Friday, Aug 15, regarding the deal.

Chiquita responded to the buyout proposal by saying that it is reviewing all aspects of the offer with its financial advisors to determine an alternative in the best interest of its shareholders.

In Mar 2014, U.S. fruit firm Chiquita Brands had signed a definitive agreement to buy Irish rival Fyffes Plc for about 379 million euros ($526 million). The combination of Chiquita and Fyffes is expected to create the world's biggest supplier of bananas. The deal is expected to close before the end of 2014 subject to the approval of Fyffes and Chiquita shareholders and the High Court of Ireland. The combined company will be named as ChiquitaFyffes Plc and will be listed on the New York Stock Exchange and domiciled in Ireland.

Of late, Chiquita has been struggling with the supply and pricing of its raw products. This Zacks Rank #5 (Strong Sell) company faced a large oversupply of bananas in fourth-quarter 2013, which negatively impacted the trading markets globally. In the salad business too, Chiquita suffered from iceberg supply shortages in the early fourth quarter and experienced an oversupply of raw salad products later in the quarter as a result of harsh weather across the growing regions.

Despite the challenges, the company's sales volume increased in both the North American banana business and the retail packaged salad business. The company also exited non-core, unprofitable businesses in the year 2013 to remain profitable.

Other better-ranked food companies include Treehouse Foods Inc. ( THS ), Boulder Brands Inc. ( BDBD ) and Pinnacle Foods Inc. ( PF ). While Treehouse Foods carries a Zacks Rank #1 (Strong Buy), Boulder Brands and Pinnacle Foods hold a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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