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Is Dole Worth a Fierce Food Fight?


On the evening of Sunday, Sept. 22, Dole Food (DOL) revealed that someone had proposed to take over the world's No. 1 producer of fresh fruit and vegetables. That someone, Dole said, was its very own chief executive, David Murdock. A 79-year-old billionaire who made his fortune in California real estate, Murdock already owns 24% of Dole's common stock. Now, he was proposing to pay $29.50 apiece for the remaining shares, which closed the prior week on the New York Stock Exchange at $24.49.

Events since have traced a familiar pattern. The next morning, Dole's stock leaped 20% (chart). A day later, a bunch of shareholders filed lawsuits, claiming that Murdock, who has controlled Dole since 1985, had made a low-ball bid in order to snatch away value that still hasn't been properly credited by the stock market. Are they right?

Not from what I can see. This surprises me, if only because on their face, takeover bids from insiders such as Murdock are suspicious. It's possible, for example, that Murdock sees some hidden value in Dole's real estate. In 1995, however, Dole spun off most of its prime California and Hawaii acreage. Also, Dole this year took on noticeably more debt, a move skeptics might attribute to an effort to undermine Dole's stock price and make a buyout cheaper. Dole's general counsel, C. Michael Carter, told me "it would be inappropriate or misleading to tie" the higher debt, which paid for eight ships, to Murdock's offer. Yet common sense says that insiders are like the rest of us: They want to pay as little as possible for what they buy. If Murdock proposes to pay $29.50 for Dole, it's a snap to suspect it must be worth more.

Making that case, though, is no cinch. One reason Murdock's bid is not lower may just be that insiders today stand in a brighter, harsher spotlight. In any case, look at Dole's financials. From sales of bananas, pineapple, lettuce, spinach, and much other produce, plus packaged goods and a struggling fresh-cut-flower unit, Dole posted revenue of $4.5 billion in its past four quarters. On that, it saw earnings before interest, taxes, depreciation, and amortization (EBITDA) of $241 million. Its net debt--total debt minus cash--stood on June 30 at $594 million, or 62% of total capital. Add Dole's net debt to its stock market capitalization, and you'll find that the company now commands what Wall Streeters call "enterprise value" of $2.3 billion (table).

Calculating enterprise values can be helpful when evaluating companies with different levels of debt. And comparing Dole in this way with its leading public-company rivals--Chiquita Brands International (CQB) and Fresh Del Monte Produce--reveals some startling differences. Chiquita, which emerged from a bankruptcy reorganization in March, has a somewhat wider operating profit margin and is less leveraged. Its enterprise value is 7.3 times EBITDA. Fresh Del Monte (FDP), much more profitable and far less leveraged than either Chiquita or Dole, has a current enterprise value that's just 6.3 times EBITDA.

As for Dole, if Murdock ultimately gets his terms--$29.50 a share in cash--he will be paying 9.4 times its EBITDA. That looks to be in the ballpark. True, just last May the stock nearly reached $34. But at that, it traded at 10.5 times EBITDA. It's now up to Dole's five indepen-dent directors, led by Richard Ferry, founder of the Korn/Ferry International executive search firm, to see how much more they can get from Murdock or, if one were to pop up, another bidder.

More intriguing to me is what Murdock's bid suggests about Chiquita and Fresh Del Monte. Having run Dole since 1985, Murdock is a well-informed bidder offering a premium price. Were Chiquita valued at a similar multiple, its shares, now near $15, would go for $23; Fresh Del Monte's, now near $26, would fetch $40.

Each of these companies has other aspects that might give investors pause. Chiquita's CEO has been on the job only since March, while Fresh Del Monte is run by its 66% owners, the Abu-Ghazaleh family of the United Arab Emirates. Majority owners don't always leave the minority happy, something wary investors keep in mind. That said, if I had stock in Dole, I'd take the cash and replant it in another banana field. By Robert Barker


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