Professional Documents
Culture Documents
Master in Management
Thomas Diwo
Rick Geurten
Ma. Camila Gutirrez
Philipp Seifert
Armand Taher
Table of content
1.
Banana market ........................................................................................................... 3
1.1 Chiquita Brands ...................................................................................................... 3
1.2 Fyffes ...................................................................................................................... 3
1.3 The Cutrale Group .................................................................................................. 4
1.4 The Safra Group ..................................................................................................... 4
2.
Merger Chiquita and Fyffes ....................................................................................... 5
3.
Benefits of the merger Chiquita and Fyffes............................................................... 7
3.1
The perfect match ................................................................................................ 7
3.2
Vertical integration .............................................................................................. 8
3.3
Horizontal integration .......................................................................................... 8
4.
Future markets ......................................................................................................... 11
5.
Recommendations and conclusions ......................................................................... 12
5.1 Recommendations ................................................................................................ 12
5.2 Conclusions .......................................................................................................... 12
6.
References ............................................................................................................... 13
7.
Appendix ................................................................................................................. 16
1. Banana market
1.1 Chiquita Brands
Chiquita, incorporated 1899 and based in the United States of America, is an
international marketer and distributor of bananas and other fresh products, sold in 70
countries. It is the main banana distributor in the U.S. The company operates in three
business segments: Bananas, Salads and Healthy Snacks, and other fresh fruits and
vegetables. Bananas include the sourcing (purchase and production), transportation,
marketing and distribution of bananas. Salads and Healthy Snacks include ready-to-eat,
packaged salads, such as healthy snacking products, fresh vegetable and Chiquitabranded fruit smoothies in Europe. Banana sales amounted to 64% of its consolidated
net sales in 2011. In North America, it often sells bananas and related services under
one-year contracts to national and regional grocery retailers. In Europe and the
Mediterranean, its customers are grocery retailers, ripeners and wholesalers. Its other
international markets are primarily in Russia and the Middle East.1
Chiquita has followed a conservative market strategy by focusing on the brand element,
disregarding possible strategic alliances with highly influential operators in the EU, as
other transnational companies have done.2
1.2 Fyffes
Fyffes, founded in 1888 in Ireland, is one of the largest marketers and distributors of
tropical produces globally. The group is primarily involved in the production,
procurement, shipping, ripening, distribution and marketing of bananas, pineapples and
melons. It currently markets fruits in the United States and in Europe, where it is one of
the main suppliers of bananas. Apart from bananas the company is one of the main
1
2
suppliers of melons and pineapples to the US and European market.3 Fyffes started to
reduce their high dependence on bananas earlier than Chiquita did, and its product
portfolio is wider than Chiquitas. Furthermore, Fyffes moved to other producing areas
in order to benefit from the EU Banana Regime4 by getting access to the importing
licenses.5
Bananalink,
2013
BBC.com,
2014
11
Evans
and
Mock,
2014
12
Fortune,
2014
10
Chiquitas board of directors estimated that ChiquitaFyffes stock value would range
from US$15.46 to US$20.0113.
The Chiquita management is trying to lock in the Fyffes deal. The shareholders are
asked to vote for the merger with Fyffes on 24th of October. The Cutrales & Safras
offer will expire on the 26th of October. On the 28th of October, the shareholders of
Fyffes will meet to vote about the deal.14
13
Athavaley,
2014
Financial
Times,
2014
14
15
Global3Digital.com, 2014
The merger of these two companies will bring many benefits that will ultimately
translate in more value for the shareholders. In the following pages we will discuss the
aforementioned benefits.
BananaLink,
2014
BananaLink,
2014
18
Gelles
and
Strom,
2014
17
negotiation power towards the wholesalers and retailers. Because of their combined
firm size, they would be able to obtain better prices when selling bananas. Their fusion
leads to a fewer number of banana suppliers, which puts the buyers under pressure.
Additionally, ChiquitaFyffes will have fewer contracts with their customers, which can
lower transaction costs.
Another important benefit for the merger of Chiquita and Fyffes is their regional
diversification of the markets they are exporting to. Chiquita mainly operates in the US
and partly in Europe, whereas Fyffes focuses greatly on Europe and to a lower extent on
the US.19 Together, both companies would perfectly complement each other, serving the
both markets in equal terms20. The impact of lower demand in one region would be
lessened for a company that is as active as ChiquitaFyffes would be with strong market
positions in the US and Europe. What is more, both companies produce and sell more
types of tropical fruits than just the banana, enabling them to bypass a banana crisis
more effectively.
Both companies are cultivating in Central and South America. This geographical
proximity at an agricultural level offers several benefits. First, both are cultivating in
many countries across America and distribute its products to America and Europe. Crop
failures and the impact of local wars21 can be cushioned because of the many
comprehensive production locations. Second, it facilitates the allocation of resources,
such as inventories, use of plantation and capital. There may be a lot of optimizing
potential. This could result in more efficiency in all the corresponding activities and
eventually in lower operating costs. Third, it enables them to join their distribution
19
Global3digital.com,
2014
Global3digital.com,
2014
21
In
2007,
a
guerilla
war
in
Colombia
threatened
one
of
Chiquitas
most
profitable
subsidiaries.
For
more
information
see:
Evans
and
Mock,
2014
20
network. If they do so, they eliminate, for example, the duplication of shipping efforts.
As a result, costs of distribution can be lowered. It would be impossible to benefit from
all these options if one company cultivates and exports in America and the other one in
Africa. In the latter case, horizontal integration cannot be exploited. Since this is not the
case, huge cost savings are likely to be achieved. Chiquita estimated combined cost
savings of US$40 million by the year 2016.
Another aspect that offers great benefits is the moving of Chiquitas headquarters to
Ireland, where Fyffes is already resident. The merger would benefit from this
reallocation in three ways. First, ChiquitaFyffes would save taxes in the long run
because Irelands taxation is friendlier than the US. At first sight, this argument is not
very compelling because Chiquita didnt pay taxes in recent year due to their losses. But
as soon as ChiquitaFyffes will make profits, the tax savings in Ireland will take effect
though. This possibility provides significant potential for reducing costs on a long term
perspective. Second, one extensive headquarter (instead of two) generates scales of
scope, because administration costs of the combined company can be lowered by
centralizing activities. Third, the senior managers of both companies are highly
experienced and share common goals of cost efficiency. Working together will
influence the industry dynamics thanks to the synergies of highly developed
management skills in combination with ChiquitaFyffes as the market share leader.
In conclusion, a merger of Chiquita and Fyffes brings many benefits in the form of
vertical and horizontal integration, which will lead to a better bargaining power,
diversification of risks, cost saving, a better allocation of resources, a greater efficiency
tax saving and a synergy of management skills.
4. Future markets
The banana market in the future provides a good outlook. The ending of the European
tariff war, which reduces the import tariff imposed on bananas imported from nonAfrican-Pacific-Caribbean countries, provides a favorable opportunity for higher profits
in the big European banana market. The merger with Fyffes, one of the main suppliers
of bananas in the EU, puts Chiquita in the best possible position to exploit these
benefits.
Overall banana consumption, especially in emerging countries is growing slowly but
steadily. For example Russia had a 34% and China a 21% growth of banana
consumption from 2009 to 201122. Forming the worlds biggest banana distributor
provides ChiquitaFyffes with the necessary capital and market position to be able to
move into these growing markets.
The European market itself provides further possibilities for substantial growth, because
some countries have considerable low banana consumption per capita. On average 8kg
of bananas per capita were consumed in the EU in 2009. On the low end of the
consumption are Poland with 2.1kg, the Netherlands with 3.9kg and France with
4.2kg23, leaving plenty of room for further growth.
22
HelgiLibary,
2014
WolframAlpha,
2014
23
5.2 Conclusions
This merger will affect both companies on big scale. The combined forces will create a
US$4,2 Billion in annual revenues and will be the number one global banana and other
fresh produce company.24
Financially, we expect ChiquitaFyffes to make profits from the first year on, and these
profits only will grow when import taxes in Europe start to decline significantly over
the next few years. We strongly believe that the merger will create superior value to
Chiquita and will ensure a future stock price between US$15.46 to US$20.01 as
forecasted by Chiquitas board of directors.
24
sec.gov, 2014
6. References
Osiris Database (2014). Publicly listed companies. [Online] Available from:
https://osiris.bvdinfo.com/version2014107/home.serv?product=osirisneo
21st October 2014]
[Accessed:
United Nations Conference on Trade and Development (2011). The Banana Market.
[Online] Available from:
http://www.unctad.info/en/Infocomm/Agricultural_Products/Banana/Companies/
[Accessed: 21st October 2014]
Market Watch (2014). Cutrale-Safra Says Chiquita Board Continues its Track Record of
Value Destruction. [Online] Available from:
http://www.marketwatch.com/story/cutrale-safra-says-chiquita-board-continues-itstrack-record-of-value-destruction-2014-10-17 [Accessed: 20th October 2014]
Evans, A. and Gordon, R. (2011). Analysis of U.S. Market for Organic and Fair-trade
Bananas
from
the
Dominican
Republic.
[Online]
August
2011.
http://www.mdgfund.org/sites/default/files/PS_STUDY_RDominican_Analysis%20of
%20US%20Market%20for%20Organic%20and%20Fair-trade%20Bananas.pdf
[Accessed: 23rd October 2014]
BBC.com (2014). Fyffes and Chiquita to create biggest banana firm. [Online] Available
from: http://www.bbc.com/news/business-26511507 [Accessed: 20th October 2014]
Evans, P. and Mock, V. (2014). Chiquita and Fyffes to Merge, Creating New Global
Top Banana. The Wallstreet Journal. [Online] 10th March 2014.
http://online.wsj.com/news/articles/SB100014240527023047045045794304901672679
28?mg=reno64-wsj [Accessed: 22nd October 2014]
Fortune (2014), Cutrale, Safra go bananas with Chiquita takeover offer. [Online]
Available from: http://fortune.com/2014/08/11/bid-unveiled-for-chiquita/ [Accessed:
20nd October 2014]
Athavaley, A. (2014) Cutrale-Safra ups Chiquita offer ahead of Fyffes vote. [Online] 23
October 2014. Available from: http://www.reuters.com/article/2014/10/23/us-chiquitabrands-m-a-cutrale-safra-idUSKCN0IC1Q020141023 [Accessed: 23rd October 2014]
Financial Times (2014) Banana group Fyffes offers Chiquita bigger slice of merger
deal. [Online] Available from http://www.ft.com/cms/s/0/32bdc97a-4546-11e4-ab8600144feabdc0.html#ixzz3GaSVpNCv [Accessed: 20th October 2014]
Sec.gov (2014) Chiquita mails letter to shareholders. [Online] 27th August 2014.
Available
from:
http://www.sec.gov/Archives/edgar/data/101063/000114420414052620/v387832_425.h
tm [Accessed: 23rd October 2014]
7. Appendix
Appendix 1 Development of EBIT for Chiquita and Fyffes 2010 2013
FYFFES PUBLIC
LIMITED COMPANY
2013
EBIT margin
2012
EBIT margin
2011
EBIT margin
2010
EBIT margin
CHIQUITA BRANDS
INTERNATIONAL INC
2013
2013
3.61
2012
1.47
2012
3.39
2011
-7.14
2011
1.94
2010
0.95
2010
1.39
3.43
CHIQUITA BRANDS
INTERNATIONAL INC
2013
2013
17.21
2012
-4.22
2012
17.43
2011
-109.35
2011
8.36
2010
7.10
2010
5.20
7.75
0,00
Sep. 14
Aug. 14
Juli 14
Juni 14
Mai 14
Apr. 14
Mrz 14
Feb. 14
Jan. 14
Dez. 13
Nov. 13
Okt. 13
Sep. 13
Aug. 13
Juli 13
Juni 13
Mai 13
Apr. 13
Mrz 13
Feb. 13
Jan. 13
1,40
1,20
1,00
0,80
0,60
0,40
0,20
Sep. 14
Aug. 14
Juli 14
Juni 14
Mai 14
Apr. 14
Mrz 14
Feb. 14
Jan. 14
Dez. 13
Nov. 13
Okt. 13
Sep. 13
Aug. 13
Juli 13
Juni 13
Mai 13
Apr. 13
Mrz 13
Feb. 13
0,00
Jan. 13
2,00
40,0%&
30,0%&
20,0%&
10,0%&
0,0%&
Jan.&13& Feb.&13& Mrz&13& Apr.&13& Mai&13& Juni&13& Juli&13& Aug.&13& Sep.&13& Okt.&13& Nov.&13& Dez.&13& Jan.&14& Feb.&14& Mrz&14& Apr.&14& Mai&14& Juni&14& Juli&14& Aug.&14& Sep.&14&
!10,0%&
!20,0%&
Fyers&
Chiquita&
Bargaining
Power
of
Customers
Large
Number
of
customers
Low
cost
of
switching
Big
order
sizes
5
big
supplying
firms
Customers
(Supermarkets)
are
sensible
to
price
Rivalry
Oligopoly
between
few
big
competitors
Difficult
product
differentiation
(commodities)
Price
War
Demand
unpredictable
danger
of
oversupply
Threat
of
substitutes
Fairtrade
or
Organic
Bananas
Banana
is
the
most
eaten
fruit
Source: Self-made