American fruit firm Chiquita and Irish fruit distributor Fyffes have agreed to merge, creating the world's largest banana company. The all-stock deal, valued at $1.07 billion, will create a new company ChiquitaFyffes that will soon control about a third percent of the world's export banana market. Chiquita pretty much dominates North American while Fyffes rules in Europe.
Here are some major takeaways from the deal that makes ChiquitaFyffes the world's top, uh ... banana.
A heavily-concentrated banana industry
Four companies — Chiquita, Fyffes, Dole and Del Monto — control more than 80 percent of the world's banana sales, according to the UN. Once this merger deal goes through, that number will decrease by one.
This concentration is noticeable not just in the business ranks, but in the actual species of bananas grown. The banana industry largely relies on one single species called the Cavendish, the long yellow offering you know well from trips to the grocery store. While other fruits are diversified — apples, for example, come in granny smith, red delicious, fuji, and many more — the banana industry's reliance on one type leaves the industry vulnerable to certain shocks... like a banana-killing fungus moving to Latin America, where most of the world's banana exports are grown. "Panama Disease" has hurt Asian exports the past few years and is just now spreading to the top banana of Latin American exports. It's a risk for not just the corporation, but also their competitors.
Though the U.S.-based Chiquita is much larger than its merge partner Fyffes, the new ChiquitaFyffes will be based in Fyffes' home of Ireland. The reason, Quartz theorizes, is likely because of Ireland's lower corporate tax rates. That should be good for Chiquita, which has significant debt problems. The company will also save about $40 million annually by 2016 thanks to more efficient purchasing, according to Bloomberg.
Expect further banana consolidation
Dole and Del Monte likely won't sit idly by now that their market share has been eclipsed. "Now a firm number one has been created, there will be some impetus for further consolidation in the sector," David Holohan, an analyst at Merrion Stockbrokers, told Reuters. Dole is in charge of 26 percent of export market share and Del Monte holds 15 percent, The Wall Street Journal notes. Merging with a smaller company (or each other?) could keep those two competing on an equal plane with ChiquitaFyffes.
This article is from the archive of our partner The Wire.