DEALTALK-Safra takes banking prowess to the fruit stand with Chiquita bid

Tue Aug 12, 2014 4:31pm EDT

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By Guillermo Parra-Bernal

SAO PAULO Aug 12 (Reuters) - Brazilian-Lebanese financier Joseph Safra's push to diversify his $16 billion fortune out of banking and real estate is taking the world's richest banker to the fruit stand.

Safra, the youngest sibling in a family whose roots in banking go back five generations, is teaming up with orange juice baron Jose Luis Cutrale in a $611 million bid for Chiquita, a U.S.-based banana producer that could fit well into Cutrale's orange, apple, peach, lemon and soybean business.

If the unsolicited bid is successful, it would turn Safra and Cutrale, the son of Italian immigrants to Brazil, into the "global kings of breakfast," as one source with knowledge of the offer put it. That would give them more negotiating power over supermarkets.

Chiquita, which agreed in March to merge with Ireland's Fyffes Plc to create the world's biggest banana supplier, said it is reviewing the surprise bid from Safra and Cutrale, which was announced on Monday.

Known as a tough negotiator for the banking and real estate assets he buys, Safra may find it hard to convince Chiquita's board to accept the offer by the time it expires on Friday, analysts said. That is partly because potential cost savings from the deal are not immediately clear for investors.

Shares of Chiquita, which jumped 30 percent on Monday, are trading slightly above the $13-per-share bid offered by Safra and Cutrale - a sign that investors expect the price to go up.

"It's a good bid but I think Chiquita will try to get more," said the source with knowledge of the offer, who spoke on condition of anonymity. "While the synergies aren't visible, Cutrale and Safra could go beyond a simple plan to diversify if they execute this deal well."

A New York-based spokesman for Safra declined to comment, as did representatives for Cutrale and Chiquita.

MIDAS TOUCH

A deal could bring some shine back to Chiquita, whose stock price has shed almost two-thirds of its value over the past decade as the company grappled with geopolitical instability in Latin America, price volatility and uneven demand for fresh produce around the world.

"Within a volatile industry, we are happy to see the buyout offer, as we believe that it sets a new near-term base" for Chiquita shares, said Brett Hundley, an agribusiness and consumer foods analysts with BB&T Capital Markets.

Chiquita's stock rose 2.2 percent to close at $13.39 on the New York Stock Exchange on Tuesday, giving the company a market value of about $629 million.

Safra's presence could give the Cutrale Group the "Midas touch" it needs to outbid Fyffes, the source said, adding that Safra's extensive banking relationships and knowledge of global securities, currency and commodities trading could help take Chiquita to a new level.

One aspect that could play in Safra and Cutrale's favor is the U.S. government's unease with the so-called tax inversion structure that is at the core of the Chiquita-Fyffes merger - the combined company was expected to be listed in New York but domiciled in Ireland to cut its tax bills. Inversions have drawn heavy criticism from President Barack Obama's administration.

While the inversion controversy is not a key rationale for the Safra-Cutrale bid, they were clever to imply that the issue could pose significant risk for Chiquita, the banker said.

In a letter to Chiquita, Safra and Cutrale pointed out that they are in a position to close a deal "without the execution risk and uncertainty inherent in" the Fyffes deal.

Fyffes shares fell 14 percent on Monday on news of the bid.

If Chiquita were to accept the Safra-Cutrale bid, the break-up fee with Fyffes would not be prohibitive, BB&T's Hundley noted, adding that he sees more value in the Chiquita-Fyffes deal "for now."

DIVERSIFYING

Faced with declining orange juice consumption globally, the Cutrale Group is expanding into new regions and products after venturing into grain trading in recent years.

The Cutrales rose to prominence in the 1960s when they began to export orange juice concentrate to the United States after frost destroyed most of Florida's citrus crop. Their group is estimated to control about one-third of the world's shrinking $5 billion orange juice market.

Chiquita is also facing a squeeze. In the second quarter, it weathered tough growing conditions in Panama, Costa Rica, Guatemala and Honduras, which led to the company missing productivity expectations. Banana sales rose 3.8 percent on an annual basis, while banana-related earnings before interest and tax fell 18 percent to $43 million.

For Safra, diversification is a strategic choice. Ranked the world's 60th richest man by Forbes Magazine, Safra has made banking the axis of his activities, expanding the franchise he founded with his father Jacob and late siblings Edmond and Moise across Europe, the United States and Latin America.

His ancestors banked the Ottoman Empire's caravan trade between the Syrian city of Aleppo, Alexandria in Egypt and Constantinople in what is now Turkey. The Safra Group's banking arm, which comprises Banco Safra SA in Brazil, Bank Safra Sarasin in Switzerland and other shops, oversees more than $200 billion in assets globally.

Recent efforts to diversify his fortune have led Safra to invest in paper and pulp, Manhattan real estate and farming. While the results have largely been successful, Safra faced headwinds with his investment in pulp producer Aracruz Celulose SA, which almost went bankrupt during the onset of the global financial crisis of 2008.

Safra sold his 28 percent stake for about 2.7 billion reais ($1.2 billion) to facilitate the takeover of Aracruz by rival VCP. The combination resulted in Fibria SA, the world's top wood pulp producer.

($1 = 2.27 Brazilian reais) (Editing by Todd Benson and Tiffany Wu)

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