Dole Holders See Deja Vu in Push for Deal Bump: Real M&A

For investors in Dole Food Co., it’s here we go again.

The fresh fruit and vegetable seller has traded above the $12-a-share buyout offer from Chairman and Chief Executive Officer David Murdock since it was announced this week -- a sign traders expect a sweetened offer from the 90-year-old. That’s what Murdock had to do the first time he took Dole private 10 years ago, eventually boosting his bid 14 percent. He then took the pineapple producer public again in 2009 at $12.50 a share.

Murdock’s offer to buy the about 60 percent he doesn’t already own values Westlake Village, California-based Dole at 0.25 times this year’s sales, the cheapest in a similar-sized U.S. food deal since 2009, according to data compiled by Bloomberg. Barclays Plc said investors may raise concerns about whether the price is fair for the now $1.1 billion company. It could be valued at about $15 a share, said BB&T Corp. and shareholder Adirondack Research & Management Inc.

“It’s a good starting bid from Mr. Murdock,” Roy Behren, who holds Dole shares as part of the $4.7 billion Merger Fund he co-manages at Westchester Capital Management LLC in Valhalla, New York, said in a telephone interview. “In our view, it’s a little bit light. They have valuable land. They have a nice franchise. They have a well-known name. It certainly has value.”

Under Review

C. Michael Carter, Dole’s president and chief operating officer, declined to comment beyond the company’s June 11 statement that its board will meet soon to form a special independent committee to review Murdock’s proposal.

Murdock “feels this is a fair bid,” Scott A. Griswold, his spokesman, said in a phone interview. “Right now, he’s not considering any changes. We’ll have to wait and see.”

Murdock, who served as Dole’s CEO for 22 years through 2007, returned to the helm earlier this year. He replaced David A. DeLorenzo, who left to manage the packaged foods and Asian fresh-produce businesses that Dole sold to Japanese trading house Itochu Corp.

This week, Murdock offered $12 a share, or about $645 million, for the about 60 percent of Dole shares that the nonagenarian and his family don’t already own. Dole jumped 22 percent on the news of the buyout proposal, the most since the company’s IPO, immediately surging past the offer price. The stock closed yesterday at $12.59, 4.9 percent higher than Murdock’s bid.

Today, the shares rose 1 percent to $12.72.

Murdock said the deal values the total company at about $1.5 billion, including net debt.

Opportunistic Bid

The trading indicates investors are wagering Murdock’s offer won’t be his last, said Keith Moore, an event-driven strategist at Stamford, Connecticut-based MKM Partners LLC.

The bid was a 15 percent premium to Dole’s 20-day average stock price, compared with the average premium of more than 28 percent for U.S. food deals valued at more than $1 billion, according to data compiled by Bloomberg.

“This has been timed in an opportunistic way for him to try to buy it back cheaply, but I don’t think that will work,” Moore said of Murdock’s bid in a phone interview. “He’s going to have to pay up for it.”

In 2003, Murdock had to boost his bid to purchase the Dole stock he didn’t own to $2.5 billion, or $33.50 a share, up from an initial offer of $29.50 that was rejected as too low.

Bids from majority holders and founders tend to “receive a higher level of investor pushback,” and shareholders may raise concerns about the value of Murdock’s latest go-private offer, Hale Holden, a credit analyst at Barclays, wrote in a June 11 report. He still said there’s a “relatively high probability of completion.”

Depressed Price

Murdock made the bid after Dole lowered its earnings guidance and indefinitely suspended share repurchases, sparking a drop that sent the shares to as low as $9.27 on June 4.

“The bid came off of what I consider to be a fairly depressed price,” Lesa Anne Sroufe, chief investment officer at Seattle-based Lesa Sroufe & Co., which oversees about $250 million, including Dole shares, said in a phone interview. “Good businessmen like Mr. Murdock are always opportunistic. I absolutely don’t blame him for making an offer at this time.”

Murdock’s proposal values Dole’s equity at about $1.07 billion, or about 0.25 times this year’s projected sales of $4.24 billion, according to analysts’ estimates compiled by Bloomberg. That’s the lowest revenue multiple for a U.S. food deal of more than $1 billion since JBS SA bought 64 percent of Pilgrim’s Pride Corp. in 2009, according to data compiled by Bloomberg.

“Our gut feeling is that it’s slightly undervaluing the company,” Matt Reiner, a money manager at Adirondack Research, which oversees about $145 million, including Dole shares, said in a phone interview.

Offering More

Dole could be valued at $15 a share, based on the sum of its parts and accounting for real estate assets such as its properties in Hawaii and the company’s corporate headquarters, Reiner said.

Brett Hundley, a Richmond, Virginia-based analyst at BB&T who also gives Dole a potential value of about $15 a share, said Murdock could offer more if he faces pressure from shareholders.

Murdock “definitely prefers to own the business outright and prefers to have it private,” Hundley said in a phone interview. A sale of the company’s Hawaiian land assets -- which the company has said it is actively marketing -- “would soften the blow” of funding a higher bid.

Moore of MKM estimates Murdock may raise his bid by as much as 15 percent, to as high as $13.80 a share, based on the amount he increased his previous proposal to take the company private if a similar scenario occurs.

Other Bidders?

It’s also possible that Dole could attract interest from private-equity suitors, said Reiner of Adirondack Research.

“It’s a business that, over the long run, there’s always going to be demand for their products,” he said. “In a well-run private-equity firm, I’m sure they can improve the cash flows and maybe it makes sense.”

Without a better offer on the table, it may be difficult for shareholders to get much more money out of Murdock, according to Alfredo Scialabba, a New York-based special situations analyst at GFI Group Inc.

“If there’s a bump, we’re looking at a nano bump,” Scialabba said in a phone interview. “At best, I see like a minimum bump of about 5 percent” to the current offer, which would boost the price to $12.60 a share.

Murdock is well-positioned to close the deal given his cash bid, his status as a company insider and the premium to the unaffected share price, Jonathan Feeney, a Philadelphia-based analyst at Janney Montgomery Scott LLC, wrote in a June 11 note to clients.

Long View

Still, for shareholders who have a longer-term view of Dole’s potential value, the offer from Murdock falls short, Hundley of BB&T said. Dole is projected to post its highest earnings next year since 2009 after two years of losses, according to analysts’ estimates compiled by Bloomberg.

“The fundamentals should actually improve for the industry going forward,” Hundley said. The offer is “above where it was trading before the deal was announced, but we think in a normalized environment, the shares are worth closer to $15.”