The strategic alliance between Fyffes and the South African fresh fruit distributor, Capespan, announced before Christmas, is a dream deal, according to Fyffes founding director, Mr Neil McCann. The Irish group would be interested in a full merger with Capespan, he said.
Stressing that the relationship between the parties was "very good" he said the deal for now was a 50 per cent stake in Capespan Europe and 10 per cent of Capespan South Africa. Payment is a maximum of £41 million (#52 million), including earn-outs, with some £33.2 million (#42.2 million) to be paid in Fyffes shares because the vendor wanted a significant part of the payment in shares. Fyffes expects the regulatory procedures required to complete the deal to be finalised within two to three months when the acquisition will immediately become earnings enhancing for Fyffes.
It is a "top quality deal" and "purely positive" for Fyffes, Mr McCann enthused. Among the advantages to Fyffes are two new brand names - Outspan and Cape - a broadening of its product range from the problematic banana market, an extension of its fruit season throughout the year and an increase in its overall share of the fresh produce market in Europe from about 5 per cent to about 7 per cent.
The deal will put Fyffes in a stronger position to continue its acquisition strategy in Europe. "It means we will be seen as a more serious player," vice-chairman Mr Carl McCann explained. With a strong net cash position, Fyffes is now well positioned to take advantage of acquisition opportunities in the fragmented European market where it is one of the largest players with significant shares of specific product sectors, such as bananas, in a number of countries. Acquisitions are likely to be focused in Germany and France where it is relatively weaker.
The destruction of the banana crop in the Carribean by hurricane Mitch late last year is expected to push up the price of bananas in Europe, helping to underpin strengthening prices in that market. With the latest results ahead of forecasts, analysts are increasing their forecasts for the current year. Mr Joe Gill of ABN AMRO has increased his earnings per share forecast from 16.6 cents to 18 cents.
(# signifies the euro)
