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Skin in the game

27 October 2014 By Jeffrey Goldfarb

Chiquita shareholders got yellow and chose green. They voted down a stock deal to acquire Irish produce distributor Fyffes, a decision that led the U.S. banana company on Monday to agree to sell to Brazilian buyers for about $680 million in cash instead. Ailing arbitrageurs, a revolt against tax-driven mergers and global economic ructions all led to the path of least uncertainty.

The fruity saga reached its denouement on Friday, seven months after Chiquita Brands International first announced plans to combine with Fyffes and create a banana, melon and pineapple empire with almost $5 billion in revenue. That was back in the days when an inversion, at least in financial circles, was a term reserved for discussion of interest rate yield curves. Since then, it has come to refer to an exit visa for would-be U.S. corporate emigrants seeking to lower their tax bills by way of M&A.

The Obama administration’s crackdown on tax-driven inversions bruised the perception of Chiquita’s overseas ambitions. Amid the backlash, orange juice wholesaler Cutrale and investment firm Safra turned up in August offering to buy Chiquita. The company rejected the Brazilian interlopers and renegotiated its favored deal in September to give its shareholders a bigger chunk of the combined ChiquitaFyffes. But then fear started seeping into the markets.

Concerns over shrinking global growth and tumbling oil prices were exacerbated by what might be called arbitragedy. A series of mooted deals, including the purchases of Time Warner, T-Mobile US and most recently Shire, blew up and hammered the specialty investors who try to take advantage of gaps between merger offer prices and where the stocks of the companies involved are trading. These forces conspired to make a sale for cash – tactically sweetened again on the eve of the Chiquita shareholder vote on the Fyffes deal – more tempting than a bet on expansion.

It may be the safer option, but some $60 million of anticipated annual cost savings from ChiquitaFyffes, revised up from an initial $40 million, should have made the decision a bit harder. Time, however, can work against mergers just as it does perishable produce. For Chiquita’s owners, the overripe deal preferred by the board lost its appeal.


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