Two influential shareholder-advisory groups are recommending Chiquita Brands International shareholders vote against the banana giant’s proposed merger with Irish produce company Fyffes.
The recommendations to shareholders by Institutional Shareholder Services and Glass Lewis & Co., are a potential setback to the deal – and a possible boost for a rival group from Brazil that’s pursuing a cash buyout of Chiquita.
Shareholders gathering Sept. 17 in Charlotte could vote to approve the merger with Fyffes or allow Chiquita to begin negotiating with the two Brazilian companies.
Chiquita employs more than 300 people uptown. Chiquita and Fyffes have previously said their merger would result in most of Chiquita’s corporate jobs remaining in Charlotte. The Brazilian companies haven’t said what would happen to Charlotte jobs under their proposed deal.
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In reports released late Thursday, both advisers cite a decline in Chiquita’s share price since the Fyffes merger was announced in March as evidence that investors have soured on the deal.
There is potential for “greater economic value” from an alternative deal, ISS wrote, pointing to the “higher cash offer” from the Brazilian companies. Those and other reasons “suggest support for the (Fyffes) transaction as currently structured is not warranted.”
Glass Lewis wrote that Chiquita’s board “has failed to credibly establish” that the Fyffes deal is so superior that shareholders shouldn’t look for alternatives.
In a statement Friday, Chiquita said it was disappointed by the recommendations. The company also reiterated its stance that the Brazilian companies’ offer to buy Chiquita for $13 a share, or $611 million, is inadequate.
Chiquita’s board rejected the Brazilian companies’ offer three weeks ago. Chiquita has said the offer is based on “flawed” calculations and undervalues the company.
Under the all-stock merger with Fyffes, Chiquita shareholders would receive just over 50 percent of the combined company’s stock.
Advisers can have big influence
The recommendation from Maryland-based ISS and California-based Glass Lewis could help sway the Sept. 17 shareholder vote.
Institutional investors often seek the recommendations of influential proxy advisers on a variety of shareholder issues, from mergers and acquisitions to executive compensation.
Anil Shivdasani, a finance professor at UNC Chapel Hill, said the recommendations of proxy advisers can play a large role in the outcome of a shareholder vote. In particular, he said, the recommendations can swing the outcome of a close vote.
But, he said, shareholders don’t always vote in line with recommendations of proxy advisers.
He pointed to JPMorgan Chase & Co. shareholders, who last year voted in favor of Jamie Dimon retaining his dual role as CEO and chairman. ISS and Glass Lewis had backed a shareholder resolution to split the roles.
Cutrale, an orange-juice maker, and Safra Group, a banking conglomerate, have proposed an adjournment of the shareholder meeting so that they can enter into negotiations with Chiquita’s board. The proxy advisers recommend shareholders vote for the adjournment.
If the shareholder meeting is adjourned and Chiquita negotiates with the Brazilian companies, it could produce “a superior transaction,” ISS wrote.
But, the adviser wrote: “There remains the open question whether supporting the Cutrale/Safra adjournment proposal ... would give the bidder too much leverage in any subsequent negotiations.”
Both advisers point out the drop in Chiquita’s share price since the deal was announced in March.
Chiquita shares closed at $12 the day the merger was announced, up 10.7 percent from its prior closing price. By Aug. 8, the last trading day before the offer from Cutrale was announced, Chiquita shares had fallen to $10.06.
While a merger of Chiquita and Fyffes “might, on its own merits, still be advisable ... it is also the case that the market apparently had lost significant enthusiasm for the deal,” ISS wrote.
Chiquita has said the merger is the better option for shareholders.
Among other things, the combined company would have increased geographic diversification and could save $60 million a year by merging, Chiquita has said.
The proposed merger comes as Chiquita is struggling to improve its financial performance. The company’s $18 million in profits in the second quarter represented a 42 percent decrease from the same quarter last year.
Chiquita and Fyffes have said they expect to save money by merging through, among other things, cutting corporate overhead and sourcing fruit more cheaply.
The combined company would base its headquarters in Dublin, where the corporate tax rate is lower than the U.S. rate. Chiquita CEO Ed Lonergan has said the merger is not being motivated by tax savings.
Shares of Chiquita closed at $13.75 Friday, up less than 1 percent.