Itochu Corp. (8001) agreed to pay $1.69 billion in cash for two units of Dole Food Co. (DOLE:US), the world’s biggest supplier of fresh fruit and vegetables, in its biggest acquisition outside industrial commodities.
Itochu, Japan’s third-largest trading house, will take over Dole’s packaged food and Asia fresh produce businesses, which earned $2.5 billion in revenue last year, Dole said today in a statement. The Tokyo-based company also gets exclusive rights to the Dole trademark on packaged foods worldwide and on fresh produce in Asia, Australia and New Zealand, Westlake Village, California-based Dole said.
As Dole uses the sale to pare debts, Itochu is following a list of Japan’s major trading houses buying food assets abroad to help supply Asia’s growing population and wealth. Marubeni Corp. (8002) offered to buy U.S. grain merchandiser Gavilon Group LLC for $5.6 billion in May, while Mitsui & Co. (8031) took control of Brazil’s Multigrain SA in 2011.
“Japan’s trading houses are positioning themselves for the next round of growth in China and the broader Asia region, which will be in consumer products,” Penn Bowers, an analyst at CLSA Asia-Pacific Markets in Tokyo, said by phone. “Itochu is looking decades ahead, and they clearly have synergies with existing businesses.”
Itochu plans to disclose more information on the deal after the “completion of required procedures,” it said in a statement on its website today.
Itochu, which was started off as a linen trader in 1858 by founder Chubei Itoh, aims to almost double profit to 40 billion yen in three years from food businesses that include Japan’s third-largest convenience-store chain FamilyMart Co. (8028), according to the company’s annual report.
The food division had net income of 22.4 billion yen ($285 million) in the 12 months ended March 31, contributing 7.5 percent to the company’s 300.5 billion yen record profit for the fiscal year. Itochu sells wheat, vegetable oils, soybean, sugar and beverages and co-owns a Chinese beer business with Asahi Group Holdings Ltd. (2502)
The agreement with Dole would make the acquisition Itochu’s biggest outside resource commodities on record and the most it has paid by itself for an asset, according to data compiled by Bloomberg. Itochu, which earns more than half its profit from the sourcing and sale of metal and energy commodities, was part of a group of investors including KKR & Co. LP (KKR:US) that bought oil producer Samson Investment Co. for $7.2 billion in December, the data show.
Del Monte Food
The two businesses Dole is selling had earnings before interest, tax, depreciation and amortization of $190 million last year, the U.S. company said. That shows Itochu paid about 8.9 times Ebitda, which is more than the 8.3 times multiple that investors including KKR paid to take Del Monte Food Co. private in March last year, according to Bloomberg data.
“The price is a little more expensive than we’ve seen recently, but versus the market caps of food companies out there I don’t think it’s unattractive,” CLSA’s Bowers said. “Dole is a name you look to on the shelf and Itochu’s certainly a company that recognizes the value of brands.”
Itochu climbed 0.4 percent to 833 yen as of the 12:59 p.m. in Tokyo, a fourth day of gains. Dole fell 0.7 percent to $13.70 yesterday in New York.
Outside food, Itochu owns 40.4 percent of Paul Smith Group Holdings, a maker of high-end apparel, 20 percent of the Dean & Deluca Inc. cafeteria chain business in Japan, and last July paid 637 million pounds ($1 billion) to takeover U.K. tire retailer Kwik-Fit Group Ltd.
Chief Executive Officer Masahiro Okafuji said in May that while resources have helped the company forge ahead of rivals, it will need to find more balanced growth to keep the momentum. Itochu last year overtook Sumitomo Corp. (8053) as Japan’s third- largest trader after Mitsubishi Corp. (8058) and Mitsui.
The Asian operations of Dole, controlled by 89-year-old Chairman David Murdock, include pineapple and banana farms in the Philippines as well as ripening and distribution centers in Japan, South Korea, China, Australia, Taiwan and Thailand, according to a 2009 document on the company’s website.
Dole said July 19 it was considering a potential sale or spinoff of the packaged-foods unit and hired Deutsche Bank AG and Wells Fargo & Co. as advisers. It said at the time that options under consideration included the separation of the packaged-foods unit in combination with its Asian operations and creating a stand-alone company either via a joint venture with third parties or an initial public offering in Asia.
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