Chiquita Brands International has just announced it has entered into a definitive agreement to acquire the Fresh Express unit of Performance Food Group for $855 million in cash. Fresh Express is the leading seller of packaged salads in the US with a 40 per cent retail market share and approximately $1 billion in revenues. With this acquisition, Chiquita will immediately become the leader in the fast-growing value-added
salads category in the US. In addition to its wide variety of salad products, Fresh Express is a leading supplier of fresh-cut fruit. The transaction is expected to close in the second quarter 2005, subject to satisfaction of customary closing conditions, including completion of the Fresh Express 2004 annual audit.
“I believe this is the most important strategic and transformational move the company has made in decades,” said Fernando Aguirre, chairman and chief executive officer of Chiquita Brands International. “Fresh Express fits seamlessly into our sustainable growth strategy to become a world-class, consumer-driven leader of branded produce by building a high-performance organization, strengthening our core business and, most importantly, pursuing profitable growth.
“We continue to focus on satisfying the primary consumer needs of health, taste, freshness and convenience, and Fresh Express' products are a perfect fit,” Aguirre said. “The acquisition announced today will combine two great
companies and allow us to leverage our complementary strengths and experience in selling value-added fresh produce.
“The Fresh Express acquisition, which we expect to be accretive to earnings in 2006, will help us diversify and improve the quality of our earnings,” said Aguirre. On a pro forma basis, the combined company will become much more balanced, as Europe and North America will generate 55 per cent and 44 per cent of total revenues, respectively. Today, 72 per cent of Chiquita's revenues come from Europe.
“With a more balanced mix of earnings between Europe and North America and less dependence on bananas, we will be less susceptible to the risks inherent in our European business, such as pending changes to the E.U. banana import regime and foreign exchange,” he said.
Aguirre continued: “In addition to diversifying earnings, this transaction should accelerate our path to profitable growth, creating a unique opportunity to cross-sell our existing products, leveraging the excellent retail customer relationships of both companies and the foodservice expertise of Fresh Express. By acquiring an established national infrastructure and state-of-the-art technology, we gain immediate scale and an effective platform to launch new products throughout North America, including the ability to accelerate national distribution of fresh-cut fruit."
The company expects to convert all fruit-based products to the Chiquita brand shortly and retain the Fresh Express brand for value-added salads.
“I’ve been extremely impressed with the experience and depth of the Fresh Express management team, including many who helped invent the value-added salad category,” said Aguirre. Chiquita expects the Fresh Express business to continue to be based in Salinas, Calif.
“I’m excited about the opportunity we have to learn from one another and build on each company’s strengths to deliver innovative, value-added products,” said Aguirre. “Successful acquisitions often hinge on complementary corporate cultures, and so I’m thrilled that we share the same values and the same commitment to quality and to meeting consumer needs. I’m confident that Fresh Express and Chiquita are a perfect fit and look forward to our combined company reaching the next level. We will be forming a joint integration team tasked with identifying and applying the best practices from
each company.”
“Importantly, this acquisition meets our financial criteria, including average EBITDA margins that exceed 10 per cent and a solid record of revenue growth, profitability and strong cash flows. There's also a great opportunity to realize cost synergies of at least $20m annually,” said Jay Braukman, Chiquita's senior vice president and chief financial officer.
The acquisition is based on expected adjusted 2004 EBITDA for Fresh Express of $91 million, including adjustments of $17 million for corporate overhead allocations, fresh-cut fruit start-up costs and nonrecurring items.
Braukman indicated that the target sources of permanent financing for the acquisition will include cash as well as debt and convertible preferred securities.
“We will have a prudent credit profile following the acquisition with net debt/adjusted EBITDA of approximately four times and adjusted EBITDA/interest coverage of about 3.5 times,” said Braukman. “Our strong cash flow will permit rapid de-leveraging and should facilitate the achievement of net debt/EBITDA of less than three times and EBITDA/interest coverage of more than five times by 2006.” Braukman also commented that Chiquita intends to maintain its current corporate credit rating.
Morgan Stanley has acted as financial advisor to the company in connection with the transaction and has rendered an opinion to the company's board of directors that the consideration to be paid by the company is fair from a financial point of view.
The Fresh Express brand has earned the No. 1 share at 40 percent in the $2.7 billion retail value-added salads market, a fast-growing food category for grocery retailers, foodservice providers and quick-service restaurants.
The company sells approximately $1 billion annually in value-added salads, all of which are marketed under the Fresh Express brand. In addition to its wide variety of salad products, the company is a leading supplier of fresh-cut fruit. The company operates a network of nine U.S. processing and distribution facilities.
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