Less than two years after Chiquita moved its headquarters to Charlotte, the company said Monday it will merge with Irish fruit company Fyffes, throwing its $22 million worth of incentives into question.
If approved, the deal will strip Charlotte of a prominent corporate headquarters that leaders worked hard to lure away from Cincinnati with the promise of state and local money.
City and county officials said one of the requirements was keeping Chiquita Brands International’s headquarters in Charlotte for 10 years.
After the merger, senior executives will be split between Charlotte and Dublin. But the company, known as ChiquitaFyffes, will be based in Ireland, which has a substantially lower corporate tax rate.
The deal is slated to close later this year, pending approval from shareholders and regulators on both sides of the Atlantic.
Much of the decision-making power in the combined company will be in Dublin. Fyffes CEO David McCann has been named chief executive of ChiquitaFyffes.
Mecklenburg County Economic Development Director John Allen said Chiquita’s headquarter move would violate the incentives agreement.
“The agreement between the city, the county and Chiquita calls for them to maintain their headquarters in Charlotte for 10 years. If they don’t, they have to pay back the money,” Allen said. “The agreement’s very specific. As to whether or not we could choose not to enforce the agreement, that’s up to the city and county attorneys.”
He said his department hadn’t talked with Chiquita, but would discuss the incentives over the coming weeks.
But other officials said the company may be able to continue getting the incentives.
N.C. Commerce Department spokesman Dan Spuller wrote in an email that Chiquita can still receive the payments, which are spread out over more than a decade, as long as it retains its local presence. He did not elaborate, and commerce officials didn’t make anyone available for follow-up questions Monday.
Chiquita has about 320 workers uptown, which is more than the number it was required to have in the second year after its move in order to claim the incentive money.
Ed Lonergan, the chief executive hired to turn Chiquita around after the company struggled with losses and falling sales, told the Observer he doesn’t think the deal would have a major impact on employment in Charlotte.
“We have a substantial group in Charlotte,” Lonergan said. “We don’t anticipate that’s going to change dramatically.”
Charlotte Mayor Patrick Cannon said the deal likely won’t affect Chiquita’s incentive package, though he didn’t say why. But he said the city is examining the terms as more information becomes available.
“Based on the most current information, it is not anticipated that this merger will affect the status of the local grants,” Cannon said.
City Council member Kenny Smith, elected last year, said the Chiquita situation shows the city needs to re-evaluate its business incentives policies. He wasn’t on the council to vote for the 2011 Chiquita deal but said he has long opposed such incentives.
“A lot of people in the city of Charlotte are probably scratching their heads right now,” said Smith, a Republican representing District 6. “There are a lot of people who didn’t favor the original subsidy package who feel vindicated.”
Chiquita and Fyffes plan to combine in an all-stock deal. The firm will generate $4.6 billion worth of annual sales and become the world’s No. 1 banana company, elbowing past competitor Dole Food Co.
The chief financial officer and the head of the biggest business segment for the company will be from Fyffes: Tom Murphy was named CFO and Coen Bos was named chief operating officer, fresh fruit.
“The appointment of McCann and Bos to ChiquitaFyffes’ two most crucial commercial roles suggests the balance of operational power will be very much on the European side of the Atlantic,” wrote America Fruit, a trade magazine covering the fresh fruit industry.
Lonergan will become nonexecutive chairman of the combined company.
The promise of jobs uptown
When Chiquita moved to Charlotte, the company promised to bring more than 400 jobs paying an average wage of at least $100,000. The company said about half of those would be local hires and half would be brought in from Cincinnati.
Lonergan said the company is on track to meet its incentive goals and has already exceeded its second-year hiring targets.
“We’re well aware of our commitments to the community,” Lonergan said. “We over-delivered in the first couple of years. We need to maintain that employment going forward.”
McCann, the CEO who will lead ChiquitaFyffes, said decision-making will be spread widely across the far-flung company.
“We’re able to communicate over phone and video,” McCann said. “It’s going to be hard to define exactly where decisions will be made.”
The board of directors at the combined company will be made up of directors from both companies, and stockholders will split the equity in the combined company about 50-50.
A Chiquita employee said the rank-and-file workers hadn’t been aware of any pending deal until they got a message early Monday.
Some senior executives from Chiquita will stay. Brian Kocher will be chief operating officer of salads and healthy snacks for the combined company, Kevin Holland will be chief administrative officer, James Thompson will be chief legal officer and Manuel Rodriguez will be corporate responsibility officer.
Charlotte Chamber CEO Bob Morgan said his understanding is that Charlotte will remain a major part of the new company’s global operations. Chiquita needed a partner that could help it add scale, he said, and the merger does that.
“Anything that strengthens Chiquita is good for Charlotte,” he said.
The chamber and other boosters helped build public excitement with an unusually public campaign before the move was announced, bombarding Chiquita with a “#bananasforCLT” Twitter campaign.
Mecklenburg Board of County Commissioners Chairman Trevor Fuller, a Democrat, said he was surprised when he saw news of the Chiquita merger.
“Staff tells me that, basically, we don’t know enough now to know that (incentives) will be implicated,” Fuller said.
The biggest chunk of incentive money for Chiquita, more than $16 million, is from a 75 percent state rebate on payroll taxes for the Charlotte employees. The company also received a $2.5 million state grant and $2.5 million worth of incentives from Charlotte and Mecklenburg County.
Chiquita had been weighed down by debt and falling sales for years. In 2012, the company replaced CEO Fernando Aguirre, known for his “Undercover Boss” television appearances and prolific Twitter postings. Lonergan ditched Aguirre’s strategy of diversification and new products, instead emphasizing the core business of bananas and bagged salads.
The move to combine Chiquita and Fyffes started last year when Lonergan and McCann met at a produce conference in New Orleans, McCann said Monday. They discussed the deal in neutral locations, mostly New York City, to avoid arousing suspicion over the coming months.
By Christmas, McCann said, the “bones of the deal” were worked out.
The combined company will be stronger than either is alone, executives said.
“We are used to thinking bananas, talking bananas,” McCann said. “I don’t think culture’s going to be a problem here, I think, because we both will talk the same language.”
The companies told investors they will save an estimated $40 million annually. Of that, $20 million is expected to come from operational efficiencies, such as shipping and buying fruit together, while the other $20 million is expected to come from savings in overhead and combining senior management and administration.
ChiquitaFyffes will have a lower debt ratio on its balance sheet, because while Chiquita is weighed down by $660 million worth of debt, Fyffes has only $50 million.
Chiquita’s stock rose $1.16 Monday, or 11 percent, to $12 a share.
Lonergan said the company’s logo will stay on the NASCAR Plaza building.
“The Chiquita logo is still going to shine on the horizon,” he said.
Portillo: 704-358-5041; Twitter: @ESPortillo