Are Irish multinationals selling up too quickly?
The four are Smurfit Kappa Group, Kingspan, Ryanair and Fyffes. Last week came news that Fyffes is to merge with its international rival Chiquita in an all-share deal. Fyffes chief executive David McCann will be CEO of the joint business but, significantly, Fyffes shareholders will hold 49.3pc of the enlarged business, with 50.7pc going to Chiquita shareholders.
On paper it looks like a good deal, which prompted the Fyffes share price to shoot up by over 40pc when it was announced – always a good sign. In the negotiations of recent months, Fyffes executives must have done well, given that Chiquita had the upper hand.
But that wasn't always the case. Looking back, Fyffes had a great opportunity to take a big punt and bid for Chiquita in late 2005 or early 2006. Chiquita had a market capitalisation of around €500m.
The EU was set to double the tariff on banana imports from Latin America, which spooked Chiquita. Its shares were trading at just $13. Fyffes on the other hand had €170m in net cash on the balance sheet, net assets of €551m and a market capitalisation of around €800m. Management didn't go for it. They got caught up in extracting the most value from what they had, which included property assets in Ireland and Britain. So instead of having a crack at Chiquita, they opted for a spin-out of Fyffes into three plcs – Fyffes, Total Produce and Blackrock Land International.
Perhaps they would have pulled it off, as Fruit Importers of Ireland founder Neil McCann pulled off his coup by acquiring Fyffes itself back in 1986. Or maybe it would have been a massive mistake. We will never know.
The Fyffes deal will see a second generation of the founder at the helm of a much larger international entity. The McCann family own around 12pc of Fyffes, and this will translate into around 6pc of the enlarged group.
This is the kind of road the Jefferson Smurfit Group went down back in 2002. Having listed on the stock market 16 years ahead of Neil McCann's Fyffes, Smurfit group was bought out by a private equity consortium 12 years ago. This saw a big €200m payday for Michael Smurfit and family, and reduced his stake in the firm to about 7pc.
Five years later, Michael Smurfit retired and the stake has been largely, if not completely, sold down after the business merged with Kappa Group and refloated in 2007. Michael's son, Tony Smurfit, is chief operating officer, and should be in the running for the top job when chief executive Gary McGann retires, as should chief finance officer Ian Curley. Tony Smurfit has around €38m worth of shares in the group, which remains headquartered in Ireland and still carries the family name.
Ireland is busy trying to create the next generation of Irish multi-nationals. There are some real success stories out there, and others in the making. But perhaps there is a tendency among the newer crop of entrepreneurs to sell up too quickly.
Source: independent.ie