Castle & Cooke Stock Dives in Wake of Spinoff Failure
A day after announcing that its spinoff of Dole Food Co. has hit a roadblock, Castle & Cooke Inc. became one of Wall Street’s biggest losers, dropping $4, or 11% of its value, in unusually heavy trading.
Analysts said the stock is a favorite of arbitragers, who quickly bailed out after the bad news spread. Arbitragers are traders who actively buy and sell takeover stocks or shares in companies undergoing great structural changes.
Investors had been hoping that the spinoff would be complete on schedule by the end of June. When those hopes were dashed Tuesday, they took out their frustrations on Wednesday.
“Some of the fast money in there expecting a spinoff soon left,” said Ronald B. Morrow, managing director, at Smith Barney, Harris Upham in New York. “That’s pretty clear. These were the more speculative investors.”
On Tuesday, Castle & Cooke stock closed at $36.125, down $0.125. But then on Wednesday, the stock dropped $4 to close at $32.125 on the New York Stock Exchange. What’s more, nearly 1.3 million shares changed hands, up from an average trading day of 100,000 transactions.
“The feeling on the stock is that it’s as if the deal is off,” said Kevin Skislock, first vice president at Rotan Mosle/Paine Webber in Houston. “In my view, it’s an overreaction. The worst case is that the deal is delayed by a couple of months.”
Castle & Cooke announced a year ago that it would spin off Dole to create separate corporate identities for its food and real estate subsidiaries in an effort to better finance both segments’ growth.
“In order to grow these companies, we need to create two strong companies with their own identities,” David H. Murdock, company chairman and chief executive, said in 1989. “The managements of each business will be better able to focus exclusively on their own business operations.”
But tight credit and slow government approval have put a roadblock in Castle & Cooke’s progress. In a written statement, company officials said Tuesday that they have been pursuing the necessary governmental approvals for the proposed separation, including seeking a ruling from the Internal Revenue Service that the transaction would be tax free.
The delay, said Larry Selwitz, an analyst with Cruttenden & Co. in Newport Beach, “could take quite a while.”
“The problem is that if they do the restructuring and you have a separate Dole and a separate Castle & Cooke real estate operation, that separate real estate operation is not going to show good numbers,” Selwitz said. “My sense is that we’re not going to see a restructuring before you see a turn around in their real estate business and real estate in general.”
Dole, the world’s largest producer of pineapple, also markets other fruits and vegetables, some grown in California. Castle & Cooke owns the entire Hawaiian island of Lanai and has holdings in California and Arizona.