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Summary

  • Chiquita received, on Aug. 11, an unsolicited buyout offer valuing the business at $13 per share, sending shares soaring.
  • Currently though, Mr. Market seems to be placing bets on a higher offer for the business coming out of the woodwork.
  • Given its own merger-in-progress, will Chiquita decide to stick on its own or will it go the Hillshire way?

One of the best performing stocks on Aug. 11 was Chiquita (NYSE:CQB), whose shares soared over 30% on news that it had received an unsolicited buyout offer from Cutrale Group and Safra Group valuing the business at $611 million, or $13 per share. Interestingly, shares of the banana and pineapple producer are trading just over the $13 per share buyout, which indicates that Mr. Market is expecting a higher bid from a rival food company. With this being said, is it likely that Chiquita is the next Hillshire Brands (NYSE:HSH), another food producer that got in the middle of a bidding war, or will management keep its operations solo?

Upside could be significant if Chiquita goes Hillshire on us

As of the market close on May 23, shares of Hillshire, one of the country's largest meat and frozen products companies, was valued at $37.02 ($4.56 billion). The following trading day, however, shares of the business soared 22% to $45.19 when the public was notified that Pilgrim's Pride (NASDAQ:PPC) had proposed to buy the business for $45 per share ($5.55 billion). Just as in the case of Chiquita, Hillshire's stock closed above its buyout offer.

Hillshire Bid History
DateClosing PriceActivity
May 23$37.02Pre-Bid Closing
May 27$45.19Pilgrim's Pride Offers $45
May 29$52.76Tyson Offers $50
June 3$58.65Pilgrim's Pride Counters with $55
June 9$62.06Tyson Offer $63. Pilgrim's Pride Withdraws

While this may be pure speculation by investors, what followed was a flurry of offers between Pilgrim's Pride and Tyson Foods (NYSE:TSN), each hoping to scoop up the business. By Jun. 9, Pilgrim's Pride had dropped out of the running and Tyson and Hillshire announced a definitive merger agreement valuing the latter at $63 per share ($7.77 billion) excluding debt.

The similarities continue

Another interesting similarity between Chiquita and Hillshire is that, for a deal to go through, another deal would have to be cancelled. Currently, Chiquita is slated to merge with Fyffes to become ChiquitaFyffes. The deal, which is expected to close before the end of 2014, will create a business that, combined, has sales of $4.6 billion. This will represent a nice uptick in sales compared to the $3.1 billion in revenue Chiquita recorded in 2013.

Chiquita Merger
 ChiquitaFyffesChiquitaFyffes
Revenue$3.06 billion$1.50 billion$4.56 billion

In addition to seeing higher revenue, Chiquita's merger with Fyffes is expected to create cost synergies of up to $40 million by the end of 2016. Certainly, this creates a nice incentive for shareholders to support such a plan, but an even better aspect is that, because Fyffes is headquartered in Ireland, Chiquita's statutory tax rate will decline from 35% to 25% or lower, making the combined business more profitable even without factoring in improved synergies.

From a tax standpoint, Hillshire's position was far different from Chiquita's, but it did involve a merger that fell through. In order to make a transaction possible with either Pilgrim's Pride or Tyson, Hillshire had to axe its plan to buy Pinnacle Foods (NYSE:PF) in a deal valued at $36.41 per share ($4.3 billion). In cancelling the transaction, Pinnacle received a $163 million breakup fee from Hillshire.

Takeaway

Right now, Mr. Market is very excited about a Chiquita buyout opportunity and for good reason. In many ways, the company, as well as the company's stock, mirrors the Hillshire buyout scenario that recently took place. Whether or not the situation will turn out the same way is something only time will tell, but given the fact that a tax inversion through its purchase of Fyffes is on the table, any sort of transaction will have to yield a higher return, in management's eyes, than said inversion.

Source: Is A Bidding War For Chiquita About To Break Out?