Fyffes and Chiquita: the wedding’s still on

It is interesting that Fyffes and Chiquita have found another $20 million (€15 million) down the back of the couch in potential cost savings, to bolster their proposed $1 billion merger to create the world's biggest banana company. What does the announcement mean for the merger's prospects, and those of the rival cash bid for Chiquita by Brazilian billionaires Joseph Safra and José Luis Cutrale?

By announcing the potential extra savings, which are on top of the estimated $40 million in savings that were part of the rationale for the merger when it was announced in March, it appears that there are at least two messages being sent.

Firstly, it sends a clear message to the markets that the board of Chiquita is fully behind the Fyffes merger, as things stand.

In rejecting the Safra-Cutrale bid this month, Chiquita seemed to subtly leave the door open for the Brazilians with some less-than-hostile language about the bid not being right “at this time”. The subtext seemed to be that the time might become right if the bid were raised. Yesterday’s joint announcement with Fyffes is a strong statement that the wedding is still on and nobody is making eyes at the Brazilians.

Secondly, the message was clearly sent to Cutrale-Safra that there is no point in going hostile with their rejected $13 a share bid. If the extra savings can be achieved, then it should be enough to tempt Chiquita’s shareholders to back the merger next month, in the absence of a new cash bid. Some analysts predicted yesterday that the extra savings announcement may flush out Safra-Cutrale with a second cash bid, which would likely be fatal for the merger. It is something of a gamble for Fyffes in that regard.

But can the savings be achieved? If so, why weren’t they identified earlier when Fyffes and Chiquita were plotting the merger? Safra and Cutrale, it’s your move.