Lost dividend a sting in the tail for Fyffes merger

When Fyffes announced its $1 billion (€729 million) proposed merger with Chiquita in March, the general consensus was that the Irish company got more bang for its buck. Fyffes is substantially smaller than the US company, but Fyffes chairman David McCann managed to negotiate an almost equal share of the spoils for it: 49.3 per cent of the merged entity's equity. It will also get de-facto operational control of the enlarged business.

A sting in tail for Fyffes’s shareholders emerged at yesterday’s annual general meeting. It should not require too much ointment, but even the smallest stings are irritants.

The Fyffes dividend, although modest these days, is one of the most reliable in town. The company has paid a dividend every year, even in the bad times, for at least the best part of two decades. This is as far back as you can go on the financial results section of its website, so it may be even longer since it skipped the payout.

McCann announced to shareholders yesterday that the merged ChiquitaFyffes would not pay a dividend “for a few years” at least, because the enlarged company would concentrate on paying down debt. He was unable to say when it might resume the annual payment.

Chiquita’s debt is 10 times that of the far more conservative Fyffes. Indeed, it was the US firm’s eye-watering leverage that allowed Fyffes to steal in and demand a bigger slice of the pie than its size would suggest it deserved.

The Fyffes dividend this year is about €6.5 million – small, but welcome. If the merger did not go ahead, it would be fair to assume it would have paid out something similar next year.

From now on that cash will go towards reducing ChiquitaFyffes’s net debt pile of $576 million: debt that the Irish company, in the main, did not rack up.

There are plenty of positives in this merger for Fyffes’s shareholders. But the suspension of their beloved dividend to pay someone else’s debt isn’t one of them.