Creating the world’s biggest banana company

US fruit firm Chiquita Brands and Irish rival Fyffes, Europe’s largest distributor, have struck an all-stock deal to create the world’s biggest banana supplier.

With the $526-million tie-up, the new firm will grab some 14 percent of the global banana market, and considerable negotiating power at a time when supermarkets are cutting prices for their product owing to an economic downturn.

“Two big fruit companies have felt the downward pressure of the big retail buyers on their margins and consolidation appears to them to be a strategy for survival,” said Bananalink, a British-based group which works for more sustainable trade in bananas and pineapples.

The global banana market, worth $7-billion, is currently controlled by four multinationals, according to the United Nations: Chiquita, Fresh Del Monte, Hawaii-founded Dole Food Company and Fyffes.

Chiquita and Fyffes sell 180 million boxes of bananas a year between them, versus 117 million for Del Monte and 110 for Dole. The combined ChiquitaFyffes will have $4.6-billion in annual revenues and expects to make operational pre-tax savings of at least $40-million by the end of 2016.

“The first three (companies) on a global scale are not too far away from each other, whereas Fyffes was a good deal smaller. Now a firm number one has been created, there will be some impetus for further consolidation in the sector,” said David Holohan, an analyst at Merrion Stockbrokers in Dublin.

The new firm will be listed in New York – though domiciled in Ireland for tax purposes – and have a market value of $1.1-billion. Chiquita shareholders will own about 50.7 percent of the combined company and Fyffes shareholders the remaining 49.3 percent, the companies said.

The deal will be subject to review by competition authorities but, Holohan added, is unlikely to prompt burdensome regulatory demands because the two companies operate mainly in separate North American and European markets…..

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Fyffes to merge with Chiquita and create world’s biggest banana company

Two of the world’s best-known banana brands – Fyffes and Chiquita – are to merge in a deal that will create the world’s largest producer, shipping 16 billion bananas a year and generating $4.6bn (£2.75bn) in sales.

But the deal, which would leave 80% of the world banana market in the hands of only three companies, comes in the face of deep cuts on retail prices that have left workers in the banana trade facing poverty around the world.

Both firms trace their history to the late 1800s – Fyffes, now based in Dublin, began shipping bananas to Bristol in the 1880s and adopted its famous blue label in 1929; US-based Chiquita goes back to 1870, when Lorenzo Dow Baker bought 160 bunches of bananas in Jamaica and sailed them back to Jersey City, New Jersey.

Shareholders in the bigger Chiquita, which persuaded Americans of the health benefits of eating bananas after the second world war, would have 50.7% of the combined company. To be called ChiquitaFyffes, it would employ 32,000 people and have a global market share of 14%, outstripping its rivals, Florida-based Fresh Del Monte and Dole Food, founded in Hawaii.

But the deal, which faces regulatory scrutiny in the US, EU and Dublin, comes as profits for the industry have been squeezed by the pricing power of the major supermarkets on one hand and higher production costs on the other as growers contend with worrying levels of disease. Black sigatoka and a virulent strain of Panama disease known as Tropical Race 4 can both decimate yields.

In the UK, fierce supermarket price wars have forced down the price of loose bananas, making them cheaper now than 20 years ago – down from roughly £1 per kg to 90p, according to financial information service Timetric. While shoppers have benefited from this race to the bottom, cheap bananas have spelled disaster for the four million families in the developing world who depend on the banana trade for their livelihood.

The Fairtrade Foundation, which aims to protect farmers in developing countries, said the “vicious” price war in UK supermarkets had been “progressively stripping value from the entire banana supply chain”. The foundation said it was “watching very closely the impact that the merger of Fyffes and Chiquita … will have on banana farmers and workers”. Fyffes works closely with Fairtrade and just under a third of its bananas in the UK now meet Fairtrade’s criteria….

The Guardian: Read the full article