Since we last wrote, the company sold its worldwide packaged food and Asia fresh business to ITOCHU for $1.685 Billion, using the proceeds to pay down debt. The business had represented 34% of revenues and 56% of operating income. The company is also marketing 20,600 acres of land it owns in Oahu but does not farm. A month after the sale, on May 2, the company’s President and COO, Michael Carter, was quite bullish on the company’s prospects:
“The new Dole is off to an extraordinary start in 2013, with the record-setting early approval from China’s Ministry of Commerce resulting in the timely completion of the sale of our worldwide packaged foods and Asia fresh businesses to ITOCHU Corporation, for $1.685 billion cash,” said Carter. “The timeliness of the cash proceeds from this large valuation transaction enabled us to take advantage of optimal credit market conditions, resulting in a more efficient, much lower-cost new capital structure. This new capital structure allows us to resolve long-standing legacy exposures discussed above, while also providing needed financial flexibility to enhance shareholder value. We are very excited and very optimistic about the long-term future of the new Dole and its prospects. Dole remains an industry leader in the sourcing, distribution and marketing of bananas, pineapples and other tropical and deciduous fruits, packaged salads, fresh-packed vegetables and fresh berries. With our now more flexible capital structure and the eventual lower cost structure from right-sizing our organization, Dole will be well positioned to pursue growth opportunities.”
The following week, on May 9, the company announced a share repurchase program
Dole Food Company, Inc. today announced that its Board of Directors has approved a share repurchase program for up to $200 million of Dole’s outstanding common stock. The share repurchase authorization, which is effective immediately, permits Dole to effect share repurchases from time to time through open market repurchases (including through Rule 10b5-1 plans to allow longer periods of repurchase opportunity), block trades, privately negotiated transactions, tender offers, and/or other transactions. The timing, method, and amount of any shares repurchased will be determined based on Dole’s evaluation of market conditions, the trading price of Dole’s common stock and other factors.
“This share repurchase program affords us an opportunity to return cash to our shareholders, while rebalancing our capital structure by reducing the number of outstanding shares of common stock and increasing earnings per share,” said C. Michael Carter, Dole’s President and Chief Operating Officer. “Our new capital structure was designed and implemented to provide needed flexibility to enhance shareholder value, as well as to meet future competitive challenges as we continue to launch the new Dole. We believe the share repurchase program will enhance shareholder value.
So fa, so good. Less than three weeks later, on May 28, however, the company buried some news in a press release innocuously titled “Dole Food Company, Inc. Announces Update of Owned Vessel Fleet”
Dole also announced the indefinite suspension of the previously announced share repurchase program for up to $200M of its outstanding common stock. “At this time we have decided to use our existing funding resources to take advantage of this opportune window in the shipping industry, when these specialty ships can be built at very competitive costs,” said Carter. “While Dole is also seeking to monetize its excess Hawaii land holdings by actively marketing the approximately 20,600 acres of land that it is not currently farming on the island of Oahu, we do not expect that this land will provide a near-term source of liquidity given the magnitude of farmland involved. With the approximate $165 million investment in ships and the drag on earnings due to significant losses in our strawberry business, the share repurchase program is being suspended indefinitely.”
Dole indicated that the volatility in its strawberry business has been especially pronounced during the first half of 2013 due to unusual weather conditions, at a time when the best prices are usually available for strawberries, especially in the first quarter. “Dole is the second largest strawberry supplier in the United States, and all of our 962 acres in the Oxnard, California growing region were affected, limiting our production to mostly freezer and juice outlets. We expect full-year losses in our strawberry business to be approximately $23 million below plan,” said Carter.
Shareholders were certainly caught by surprise by this sudden change in the company’s guidance and plans for its cash. There will undoubtedly be questions raised about the timing of all of these events in light of Mr. Murdock’s offer, which many shareholders will view as too low. We think it is likely that he will be forced to raise his offer to gain shareholder approval.
Disclosure: The author holds no position in any stock mentioned
Related articles
- A Profile of David Murdock (fightaging.org)
- When Reality Intrudes: When Is A Stock Buyback Not A Stock Buyback? (zerohedge.com)
- Dole Foods Suspends Share Buyback Program (fool.com)
- Dole buys new ships, suspends share buy-backs (staradvertiser.com)
- Murdock donates $50 million to research campus in Kannapolis (charlotteobserver.com)
