David Murdock, the
90-year-old CEO of
Dole Food, took a page from his own playbook when he
recently offered to buy the 60% of Dole's stock he doesn't already
own. If successful, it would be the second time in 10 years that he
bought out the fruit and vegetable producer and took it private.
Julia Ewan/Getty Images
The market expects
CEO David Murdock to raise his bid for Dole Food. It's likely,
but not by a lot.
Murdock offered $12
a share for Dole (ticker: DOLE), an 18% premium to the closing price
on June 10, the day before the announcement. His bid values the
company at $1.5 billion.
The offer has
prompted a wave of shareholder discontent, with many calling the
price too low. Most investors believe that Murdock will need to
raise his price. On Friday, Dole's stock closed at $12.75, 6.3%
above the deal price, reflecting this sentiment.
Investors have a
precedent to follow in this case. In 2003, under shareholder
pressure, Murdock raised his initial bid 13% to complete the deal.
It's reasonable to think something similar will happen this time.
That will drive the stock higher, but not a lot higher. A second bid
from Murdock could come in at as much as $13.50 to $14 a share,
which is still likely to undervalue the company. A strategic bidder
isn't expected to emerge.
We wrote a positive
story about Dole this year ("A
Sweet Opportunity," Jan. 28), noting that the famed banana and
pineapple grower could be worth double its market value. The shares,
then trading at $10.15, have gained 26% since. We think it would be
wisest for an investor to hold on to the shares, in the hope of
getting a bit more for them. An active trader might take a small
profit and keep his or her core stake.
A LONG history with Dole, having controlled the company
since 1985. After taking it private in 2003, he brought it public
again in 2009, selling 40% of the stock in a $446 million offering
priced at $12.50 a share. He became Dole's chairman and largest
shareholder with 60% of the stock, which he reduced to 40% last
November to pay off a personal loan.
Last September, Dole
announced a transformational deal with
Itochu (8001.Japan), a Japanese conglomerate, to which it
agreed to sell its packaged foods and Asian fruit operation for $1.7
billion. The divestiture, which was completed in April, leaves Dole
with its European and American fresh fruit and vegetables
businesses, where it has dominant market positions. Dole is the
largest banana brand in North America and Japan, and No. 2 in
The proceeds from
the sale were used to pay down debt. Net debt stands at about $440
million, down from $1.5 billion at the end of the March quarter.
Murdock became CEO, and Michael Carter, formerly the company's top
lawyer, was promoted to president and chief operating officer.
LATEST OFFER comes at a time when business has been
struggling. In North America, banana pricing has been weak, due to
abundant supplies. Dole's strawberry business has also been hurt by
poor weather in California.
The conditions have
depressed earnings. Last year operating profit from continuing
operations fell 25% to $128 million. For the full year, analysts
estimate Dole will earn $39 million, or 44 cents a share, on revenue
of $4.2 billion.
Dole has provided
guidance for 2013 earnings before interest, taxes, depreciation and
amortization at the low end of its $150 million to $170 million
range. Brett Hundley, who covers the company for BB&T Capital
Markets, estimates normalized Ebitda at closer to $200 million.
2013 Net Income
Bloomberg; company reports
In May, Dole's stock
came under pressure, after the company said it would suspend its
$200 million share buyback program, instead opting to spend $165
million on three new container ships. Management also conceded that
its strawberry business was worse off than previously reported. The
stock fell 10% over two days to close at $9.99 on May 29.
values Dole at 10.2 times estimated 2013 Ebitda of $150 million,
which appears attractive compared with 8.4 times for peers
Chiquita Brands (CQB) and
Fresh Del Monte Produce (FDP), but based on normalized
Ebitda, it doesn't look so generous.
Dole also owns
108,000 acres of land, including 25,000 acres on the island of Oahu
in Hawaii. The company has said its total Hawaiian landholdings are
worth $400 million.
thinks the company could be worth as much as $15 a share, but
doesn't think Murdock will pay that much. At $15, he believes
Murdock would likely walk away from the deal. That could send the
shares falling. Murdock's spokesman did not return a call for
president of Boyer Asset Management, which owns Dole in its funds,
believes Murdock will offer a higher bid, but nothing materially
higher. Boyar values Dole at $19 a share. If that's the case,
investors would fare best if Murdock's offer was rejected and the
company was allowed to let its value ripen over time.