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By Guillermo Parra-Bernal
SAO PAULO Aug 12 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
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.
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."
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)