Is Eurofresh Underpriced at $51.18 Million?

On 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.

Eurofresh Seeks an Expedited Section 363 Sale

On January 28, 2013, Eurofresh, Inc. appeared before the U.S. Bankruptcy Court in Arizona and pushed for an expedited section 363 sale.  Importantly, a section 363 sale under the Bankruptcy Code occurs when the debtor seeks to sell substantially all of its assets.  This type of asset sale is often the path a debtor elects when they want “opt out” of the process for obtaining a Chapter 11 plan of reorganization in favor of what is often perceived as a quicker and more efficient process.  A section 363 sale may also be a sign that the debtor’s estate cannot afford the administrative expense of a prolonged reorganization.

In the Eurofresh bankruptcy case, the debtor intends to sell substantially all of its assets “free and clear of any liens or other interests” under section 363(f).  Section 363 will also allow Eurofresh to assign any favorable unexpired leases and executory contracts to the buyer.  This adds value to the purchase and effectuate, at least in part, the purpose of a Chapter 11 proceeding without the debtor actually complying with all of the Chapter 11 reorganization requirements.  This is not always a successful move…  Ample case-law exists where courts have refused to approve a 363 sale because the transaction appeared to be a back-door reorganization effort that significantly restructured the rights of the creditors.  When a court denies a 363 sale the debtor is forced to continue to satisfy all of the Chapter 11 requirements.

Right now, it appears that Nature Sweet is going to be the stalking horse bidder, which means they will set the price for the purchase of Eurofresh’s assets.  This does not guarantee that the stalking horse bidder will win or that the terms of the sale are not objectionable to the creditors.  These are all issues that will need to be addressed.

One such issue will be the payment of all PACA trust claims.  At this time the Court is entertaining a motion to set up a procedure for handling PACA claims, but a proposed PACA claims procedure order has not been filed.  A proper order will be critical to both the success of the section 363 sale and the debtor’s proper use of its cash collateral.  As usual, a PACA claims bar date will be set and notice will be issued.

 

Eurofresh, Inc. Files for Chapter 11 Bankruptcy Protection

On January 27, 2013, Eurofresh, Inc. filed for Chapter 11 Bankruptcy Protection in the District of Arizona.  Eurofresh is America’s largest greenhouse grower and markets its products directly to major U.S. food retailers under the label “Eurofresh Farms” and “Sweet Star.”

Pleadings filed along with Eurofresh’s bankruptcy pleadings indicate that the Debtor owes in excess of approximately $49 Million to its First Lienholders, approximately $36 Million to Second Lienholders and approximately $11 Million to Unsecured Creditors.

Eurofresh’s bankruptcy pleadings also disclosed an estimated $600,000.00 in PACA Trust liability.  At this time, a motion is pending to install a procedure for addressing PACA claims.  There is also a motion pending for Eurofresh to utilize is cash…  As with any produce industry bankruptcy, it is important for PACA trust beneficiaries to assert their claims quickly before the Court authorizes the Debtor’s use of funds that may be needed to ensure the PACA Trust beneficiaries receive full payment.