Sunday, March 23, 2003

Chiquita plans steps for 2003


Cut losses, trim costs and sell some assets

By Cliff Peale
The Cincinnati Enquirer

Cyrus Freidheim has seen it all as a consultant. But dealing with shareholders is something new.

Even a 35-year career that brought him to the top ranks at consulting giant Booz Allen Hamilton in Chicago, he acknowledges, didn't fully prepare him to run Chiquita Brands International Inc.

Cyrus Freidheim
Cyrus Freidheim
It's been a year since Cincinnati-based Chiquita emerged from bankruptcy and Freidheim took over as chairman and chief executive officer. He just finished a national tour to investors, he talks to shareholders about half a dozen times a week, and several have gone public with bitter criticisms.

"I guess the biggest surprise to me was the urgency of very near-term results on their part," the 67-year-old said in an interview last week. "We're going to have to reach some middle ground."

Freidheim is spending 2003 cutting costs and concentrating on the core banana business at Chiquita. After this year, he hopes to expand into other fresh-fruit lines, taking advantage of the company's most valuable asset, the Chiquita brand name.

But it's a different Chiquita than the one that defaulted on debt in 2001 and later entered bankruptcy. Nearly forgotten are the intense public battles with European countries that strangled Chiquita throughout the 1990s, piling up debt and chipping away at the stock price.

The company emerged March 19, 2002, with $700 million in debt erased from its balance sheet.

The next day, Freidheim replaced Steve Warshaw as CEO, and several months later, former chairman Carl Lindner retired from the board of directors.

That placed Freidheim squarely in charge, along with most of the previous management of the fresh-fruit business. The company's stock price has fluctuated heavily, hurt by a refusal to predict future earnings and falling banana prices in North America and Europe. That has made investors unhappy, but Freidheim has stuck to his plan.

"I'm hoping that as they see that everything we say we're going to do, we'll do, that will win the day," he said.

And he acknowledges the pressure is on in 2003.

"We have to demonstrate this year that we can meet our cost-reduction targets," he said.

So far, the plan includes:

• Cutting Chiquita's losses in the Armuelles division in Panama. After losing $90 million in the last six years, Chiquita has stopped investing and is working on a deal to sell the farms to worker co-operatives.

• Selling the canned vegetable division to Seneca Foods Corp. for more than $200 million, counting cash, stock and assumed debt.

• Selling interests in several distributors, including Wilder's Castellini Co.

• Slicing overhead costs at the Cincinnati headquarters, particularly the information technology unit. Chiquita still is considering a shared services center for the tropics in Costa Rica.

• Adding three new members with heavy international experience to the board of directors, including former Procter & Gamble Co. chairman Durk Jager and former Mexican trade and finance official Jaime Serra.

When briefing investors in New York in September, Freidheim said the plan could help reduce debt by more than one-third and lead to earnings of $2.85 a share by 2005.

New owners

Most of the bondholders that received Chiquita shares in the bankruptcy have cashed out, meaning that there's a new class of shareholders. Many have bought Chiquita because they specialize in "undervalued" assets, where they see growth possibilities and a company that isn't receiving its full value in the stock market.

"They're feeling their way right now," said Leon Cooperman of Omega Advisors, who has been bitterly critical of Freidheim, but just increased his position in the stock to 5.2 percent.

"He got off to a difficult start, but we think he's got a collection of undervalued assets. He's making the right moves to fix it, and we're supportive."

Now that Lindner has sold almost all of his investment in Chiquita, the largest shareholder is Shapiro Capital Management in Atlanta, which controls about 10 percent of the shares.

President Samuel Shapiro wrote a bitterly critical letter to Freidheim in February and made it public. In an interview then, he said Freidheim should either improve operations, sell the company or "get someone in there who knows how to run a fruit company."

Freidheim responded with a curt letter of his own. But he said last week that he understands that shareholders need to justify their investments, particularly in a down market.

"These guys are being evaluated on a quarterly basis, and they're being treated horribly by the market," he said. "They just want action now. They want to see results."

Energized

Freidheim said there is a new energy to Chiquita, with the bankruptcy behind it and the prospect of a better market in Europe long term.

Despite scattered rumors about potential takeovers of Chiquita, Freidheim said there have been no substantive takeover offers.

The main challenges include Europe, where expansion of the European Union and a scheduled 2006 conversion to a tariff-only import system are being negotiated.

And banana prices worldwide have declined an average of 1 percent a year for more than a decade, he said.

Project Spectrum, aimed at trimming administrative costs, is "moving well," Freidheim said. He acknowledged that any cuts might be painful at the Cincinnati headquarters, but said Chiquita had no choice.

"We know we have to be lowest cost," he said. "We've got this program, and it's aimed squarely at the banana business."

E-mail cpeale@enquirer.com




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