Geest sells banana business for pounds 147m

Fruit deal: Food group's shares soar as takeover speculation mounts 8 Chief executive leaves with pay-off thought to be pounds 420,

TOM STEVENSON

Deputy City Editor

Takeover speculation swirled around Geest last night after it sold its banana business for an unexpectedly high pounds 147.5m and severed ties with its chief executive of six years, David Sugden. The group, whose sole interest is now a convenience food business, saw its shares close 26 per cent higher at 192p as attention focused on who might be tempted by its profitable core and pounds 60m of net cash.

Eyebrows are certain to be raised among many of the company's shareholders by Mr Sugden's bumper pay-off, understood to be worth pounds 420,000, or two years' salary. Having brought the company to market in 1986, he has overseen a slump in the share price from a high of 479p only two years ago.

The successful bidders for Geest's banana operations are Fyffes, the Irish food group, and the Windward Islands Banana Development and Exporting Company (Wibdeco). A spokesman for the consortium's advisers, Samuel Montagu, said the price paid, although much higher than recent press speculation, was deceptive. It included pounds 55m to cover leasing obligations on two ships and represented only seven times profits in a normal year's trading.

Trading in recent years has been anything but normal, with Geest hit hard by disease and tropical storms. Black Sigatoka, a fungal disease, hit the Costa Rican crop in 1994 soon after that plantation had been set up and two hurricanes, Debbie and Louis, struck the Windward Islands. Oversupply of so-called dollar bananas from central America has also sent the price of bananas to its lowest level for 20 years, squeezing margins.

Fyffes and Wibdeco are putting pounds 20m each into the joint venture with the remaining cash coming from bank debt. The banana business is expected to be operated on an arm's length basis from the two partners' other businesses.

Wibdeco is owned by the governments and banana growers of the Windward Islands, which comprise Saint Lucia, Saint Vincent and Grenadines, Grenada and Dominica. It is responsible for co-ordinating banana production and distribution.

The organisation is the sole exporter of bananas from the islands and acts as the umbrella for 20,000 small growers for whom bananas are the principal source of revenue. Banana- growing began in the islands in 1953, when Geest became directly involved in a programme to set up the industry.

The deal is expected to give Fyffes about a fifth of the European market. Geest will book a profit of pounds 21.5m on the deal and use the cash proceeds to invest in its convenience foods, where it has strong market positions.

Given the similarity of the Fyffes and Geest operations, analysts believe there is huge scope for cost savings in a combined operation, which is thought to explain the successful bidders' willingness to pay top dollar for the operation. A rival bid from Ecuadorean producer Noboa is believed to have been slightly lower.