Fyffes has reported full year results this morning covering 2013, but of more importance, the company has announced that is it to combine with Chiquita in a stock-for-stock transaction at a premium of 38% to the closing price on Friday, valuing Fyffes shares at €1.22. <p>

For 2013, revenue amounted to €1.082 billion (+6.3% YoY) was EBITDA was flat at €40 million. Diluted earnings per share increased to 8.82c (+3.2%). EBITA amounted to €32.7 million (+6.9% YoY), towards the upper end of the guided range while EBITA is forecast to amount to between €30 -€30.7 million in 2014. While the results and guidance for 2014 are solid, the news of the transaction with Chiquita will clear take precedence over other factors. <p>

The proposed combination of Fyffes and Chiquitta creates the global number one banana company with a significant presence in packaged salads, melons and pineapples. The combined company is to be listed on the NYSE and domiciled in Ireland with Fyffe’s current CEO serving as CEO of the combined company that is expected to have annual revenues of $4.6 billion while also targeting annualized cost savings of $40 million – very material in the context of the group when considering Fyffes EBITA levels (2013: €32.7 million, 2012: €30.5 million). <p>

On a pro-forma basis, the combined group would have EBITDA of $214 million, leading to a pro-forma net debt/EBITDA ratio of 2.7x for the combined entity. <p>

Overall, this is an excellent result for Fyffes with the deal serving as a bridge to close the inexplicable valuation gap that existed between the company and its peer group. We think that the deal is logical and will be a good fit going forward for both parties. Given the increased interest that will fall on Fyffes in the wake of the deal, we also believe that this morning’s news highlights the valuation gap that still exists with Total Produce and is one that we feel is unjustified and we continue to see Total Produce as being worth €1.20, representing over 20% upside from current levels.
<p><h5>David Holohan</h5>


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