Capping a dramatic recovery from near bankruptcy barely two years ago, Castle & Cooke said Wednesday that it has agreed to buy most of the California farming operations of Houston-based Tenneco for $220 million cash and $16 million in assumed debt.
Securities analysts welcomed the news as beneficial for both companies. The addition of prime San Joaquin Valley farmland will strengthen Castle & Cooke's flagship Dole brand, while Tenneco pulls out of farming, an area that soured in the 1980s after rapid expansion in the 1970s, to focus more on its original energy business, analysts said.
The purchase, which is expected to close by the end of the year, covers nearly all operations of Tenneco West, a Tenneco subsidiary based in Bakersfield. Included are 20,000 acres of farmland producing citrus, nuts and table grapes; the House of Almonds and Morrow Nuts retailing chains, and packing, processing and marketing operations for nuts and perishable fruits.
The acquisition would add table grapes, strawberries, dates, raisins, plums, cherries, pistachios and almonds to Dole's current product line, while significantly increasing its citrus supplies. It also would provide major new residential and commercial developments in the Bakersfield area and in Arizona for Oceanic Properties, Castle & Cooke's real estate arm.
"Castle & Cooke is interested in further expansion and acquisitions in agriculture in California and throughout the world," David H. Murdock, chairman and chief executive, said at the company's Los Angeles headquarters. "Our emphasis is on our international sales--including the export of U.S. products."
Dole is the largest U.S. grower, processor and marketer of fruits and vegetables and accounts for about 96% of Castle & Cooke's business. In 1986, Dole accounted for $1.68 billion of Castle & Cooke's $1.8 billion in revenue. Castle & Cooke said the Tenneco deal would increase revenue of its Dole segment by about $600 million a year.
"It's probably a very sensible deal for both companies," said Charles R. Bureker, who follows the company for the Sutro & Co. brokerage. "Tenneco can use the cash infusion, and I'm not about to second guess Castle & C's expertise in real estate."
Tenneco would retain about 270,000 acres of land in California and Arizona now being farmed under leases, and would keep oil, gas and other mineral rights on the sale properties. Its chief executive, James L. Ketelsen, said the company retains a "strong belief" in diversified operations but intends to sell off assets that "do not offer Tenneco the opportunity for broad industry leadership."
Castle & Cooke was flirting with bankruptcy in 1985, when Murdock offered a merger with Flexi-Van, a New York-based container leasing firm that he controlled. Murdock's main interest in that investment was to tap Castle & Cooke's extensive and largely undeveloped land holdings in Hawaii and elsewhere. Meanwhile, Flexi-Van's strong cash flow rapidly improved Castle & Cooke's financial footing, Bureker said.
The company now is spinning off Flexi-Van in an offering expected to net Castle & Cooke $164 million, slightly more than its investment in Flexi-Van and a large share of the Tenneco purchase price.
What Castle & Cooke Is Getting Castle & Cooke would acquire all of Bakersfield-based Tenneco West, except 270,000 acres of land leased out for farming in California and Arizona. The acquisition includes:
20,000 acres of prime farm land in Southern California and the San Joaquin Valley. 18,000 acres of urban real estate in Bakersfield and Sierra Vista, Ariz.
House of Almonds and Morrow Nuts national retail chains.
Eight packing, processing and marketing plants at various California locations.