Glenboden M & A Originations

Chiquita may be setting itself up for a significant M&A transaction

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Origination Status definitive agreement for sale of subsidiary announced in May 2008
Asset Atlanta AG (Germany), leading fresh produce trader in Germany and Austria
Buyer Univeg Fruit and Vegetables AG (Germany), international fresh produce distributor
Seller Chiquita Brands Inc (USA), leading international distributor of fresh and value-added produce
Buyer Rationale enhanced infrastructure, customer service and quality assurance capability
Seller Rationale part of profitable growth strategy, tidying up of balance sheet
NBs Only about 10% of Atlanta’s $ 1,2 bln sales are of Chiquita products, with the rest being under third-party brands
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Chiquita will be glad to get rid of Atlanta, which it acquired through a debt for equity swap in 2003 in order to save what was its biggest customer in Europe. Getting Atlanta off its balance sheet is another step in Chiquita’s recovery program which, alongside a return to profitability, debt refinancing and a value -added products strategy, all suggest that the group will be looking for a major acquisition soon. The obvious candidates are Bakkavor and Greencore, especially when both of them are threatening Chiquita in its home market, having recently made market entry acquisitions there.

Strategically, Chiquita is very well placed for a major chilled foods acquisition. Its strategy is to add value to its raw fruit and vegetables, principally in the direction of packaged salads, fruit salads and now bottled smoothies. So far, only 25% of total sales are from salads and healthy snacks, and the group will be keen to double this for sure. To this end, in 2005 it acquired Fresh Express, no. 1 seller of packaged salads in the US with 40% market share, as well as Verdelli Farms in 2007, a leading processor of salads and produce snacks on the east coast of the US.

There’s big potential to stretch the Chiquita brand even further, into new categories that could include fresh convenience foods. The brand is long established, and has very high recognition rates around the world. On top of that, Chiquita has that very fashionable asset, a good track record in environmental and fair-trade issues, stemming from its history of being back –integrated into the growing and ripening of bananas in South America. That might validate the brand even more in future.

In tandem runs the financial turnaround at Chiquita. A nadir was reached in 2001, when the group filed for a Chapter 11 restructuring plan. Since then, it’s sold off non –core businesses and assets, and has reduced costs. In 2008 the company can now be said to have recovered - in March it refinanced its senior debt, and in May it announced strong operating results and a return to profitability.

But who and where will Chiquita acquire ? Europe delivers 50% of the group’s sales, so one option would be to broaden its category mix and extract synergies in those markets - both Bakkavor and Greencore are very obvious candidates there, especially in the UK.

Bakkavor is the UK’s largest producer of fresh prepared foods and produce, with a significant international business also. It’s grown very quickly from nothing, through multiple acquisitions - sales revenue in 2007, at 1,5 bln GBP, was 10 times as big as three years earlier. Bakkavor is the owner of Geest in the UK, which would make a good fit for Chiquita in fresh produce.

Greencore, which is about half the size of Bakkavor, would be an easier acquisition and has a better footprint than Bakkavor in continental Europe. Originally an ingredients producer in Ireland, it has evolved into a leading chilled ready meals and snacks producer in the UK, with significant businesses also in Holland, Germany and Ireland. It claims to be the largest producer of packaged sandwiches in the world. Right now it’s looking vulnerable as a takeover candidate, after a tough year in 2007.

Unless, of course, Chiquita itself will be the subject of a takeover bid. Ominously, on the same day as the Atlanta divestment was announced, SAC Capital Management acquired a 5,4% stake in Chiquita.

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