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Chiquita Snubs Cutrale, Safra Bid In Favor Of Tax Inversion

Chiquita Snubs Cutrale, Safra Bid In Favor Of Tax Inversion
By: George Zack
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Chiquita Brands International Inc. (CQB) has declined an all-cash buyout offer worth $610.5 million proposed earlier this week by the world’s largest orange juice producer, Cutrale Group, and a group of financial companies controlled by Joseph Safra family under Safra Group.

Chiquita’s rejection was reported today after the management of the North Carolina-based banana producer considered the offered bid to be “inadequate” and not in the best interest of its shareholders. The company further reaffirmed its shareholders’ approval for its definitive merger with the largest European fruit producer, Fyffes Plc. (FFY).

Earlier this week, Chiquita received a cash bid offer from the two Brazilian groups for $610.5 million, translating to $13 per share and a premium of 29% over Friday’s close price of $10.6. Chiquita shares surged 30% on Monday to $13.1, following the announcement of the acquisition proposal. The stock is currently at $13.54, which is 4% higher than the bid price, signaling that inveestors have preempted a higher offer from Cutrale and Safra.

Merger Plans with Fyffes

The takeover interest shown by Safra and Cutrale came in as the company moved on with its merger with Fyffes. Chiquita gained shareholders’ approval in March this year for a stock-for-stock merger with Fyffes.

The merger will enable the new entity to become the world’s largest banana supplier, and generate annual revenues of $4.6 billion. The merger is also part of a tax inversion scheme, as the new company plans relocate its headquarters in Dublin, Ireland to benefit from lower corporate tax rates and lower pre-tax costs by up to $40 million.

Interests Aligned

Chiquita’s move may be a manoeuvre to obtain higher bid offer from Safra and Cutrale. The merger plans with Fyffes hinge on long-term benefits in terms of increased revenues and lower taxes. However, if the company manages to receive a higher bid from the two Brazilian companies and accepts it, it can settle for huge cash gains for shareholders right away.

If the company plans to move on with the merger with Fyffes, shareholders will have to wait a long enough to see the financial benefits. The completion of merger is already under clouds because of uncertainty due to the Obama’s Administration stance on tax inversion deals.

According to Brett M. Hundley, an analyst at BB&T Capital Markets, the merged entity is worth $14-17 per share, and those companies interested in bidding for the company should bid in this range in order to get into dialogue with Chiquita’s board.

Following the denial of bid offer by the company, Safra and Cutrale said that they will be looking for alternatives to get into talks with the management regarding their takeover proposal. Cutrale, which has an insight of the fruit industry’s workings, and Safra Group of Companies, which has assets worth more than $200 billion, will likely raise their offer price to ink a buyout deal with Chiquita. The acquisition will allow Cutrale to expands its product portfolio and enter the banana industry.

Furthermore, Edward Lonergan became the CEO of Chiquita in October 2002, when the company’s shares were priced at $7.68. If Lonergan approves of the acquisition following a higher offer from the two Brazilian companies, he might get a hefty compensation from the deal, since he managed to increase the net worth of the banana company by over 75% in the last two years.

The interests of major stakeholders associated with the acquisition seem to be aligned. It will be a win-win situation for all if the Brazilian duo bids higher for Chiquita. It seems to be just a matter of time before a deal is struck between Chiquita and the two Brazilian groups.

Chiquita closed 0.67% higher in regular trading yesterday at $13.51 but subsequently edged down 0.44% in afterhours trading.

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