Is Eurofresh Underpriced at $51.18 Million?

Euro FreshOn March 27, 2013, substantially all of Eurofresh’s assets will go to auction and, as it stands right now, NatureSweet has emerged as the stalking horse bidder (through Zona Acquisition) with an opening bid of $51.18 million dollars.

Eurofresh, which filed its Chapter 11 petition January 27, 2013, claims it is America’s largest greenhouse grower, spanning 318 acres of facilities. Its products include tomatoes on the vine, as well as roma, campari, beefsteak and grape tomatoes and long English and “mini” cucumbers. Eurofresh markets its products directly to major U.S. food retailers under the label “Eurofresh Farms” and “Sweet Star.” The debtor also claims its flagship facility in Wilcox, AZ is the largest single-site commercial greenhouse operation in the world with six of its greenhouses covering 274 acres. Eurofresh also operates a small wholesale business under the label Garden Fresh Selections out of a facility in Nogales, AZ that imports various types of produce from Mexico, packages that produce and then sells that produce through brokers in various wholesale channels and operates a small maquiladora facility in Agua Prieta, Mexico where some of its products are packaged.

In documents provided to the Court, Eurofresh emerged from a Chapter 11 bankruptcy in November of 2009 that resulted from a highly leveraged balance sheet, high interest rates, high energy prices and various operating issues.  Importantly, Eurofresh stated that it also faced widespread pricing declines in the industry resulting from increased competitor greenhouse acreage and “shade” tomatoes crossing the border from Mexico.

To a savvy purchaser (like NatureSweet), Eurofresh is a smart acquisition!  Operating issues can be resolved and the U.S. Department of Commerce is set to remedy (or at least significantly lessen) the tomato pricing decline issue as it relates to Mexico.  Specifically, the new Tomato Suspension Agreement was set to take effect on March 4, 2013 and that agreement carries a 42.9% increase in the minimum price for Mexican tomatoes sold into the United States’ fresh tomato market.

When this agreement becomes effective, Eurofresh and other domestic tomato companies in the fresh produce industry will be able to increase their prices without fear of losing business to Mexican growers.  As it applies to the sale of Eurofresh, the company seems to be positioned to benefit from this new agreement by gaining the ability to increase its prices without any corresponding increase in capital investments.

As I see it, this means one of two things:

(1) There should be no real reason Eurofresh cannot successfully reorganize and pay all of its creditors as it emerges from its newly filed Chapter 11 bankruptcy.

(2) NatureSweet should be applauded for positioning itself to purchase substantially all of Eurofresh’s assets (Sec. 363 Sale) in time to reap the benefits that come with the ability to increase its fresh tomato prices by about 42.9% when the new suspension agreement becomes effective, which the U.S. Department of Commerce planned on announcing March 4, 2013.

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