Dole Food Proposes Buyback of Minority Stake in Castle

Dole Food Co. on Wednesday proposed to buy back for $72 million in cash the minority stake in Castle & Cooke Homes that it spun off to the public just last year.

Los Angeles-based Castle & Cooke, a major real estate developer in Bakersfield and on the Hawaiian island of Oahu, said its outside directors will consider Dole’s $14-a-share bid to buy the 17% of common stock Dole doesn’t already own.

In March, 1993, Dole, headed by Los Angeles-based investor David H. Murdock, sold the minority stake in Castle & Cooke at $15 a share.

But the stock has floundered--falling 14% this year.

On Wednesday, Castle stock jumped $2.50 to $14.125 on the New York Stock Exchange as investors apparently expected higher offers to appear. Meanwhile, Dole Food shares rose 50 cents to close at $29.25.

“I can’t say (the initial spinoff of Castle & Cooke) was a very successful undertaking,” said Mark Matheson, a senior research analyst at Los Angeles-based Crowell, Weedon & Co.

Matheson said investors who expect a higher bid might be disappointed. Dole “owns most of the stock and no one is going to outbid them.”

Castle & Cooke stock, like that of developers across the nation, has been pummeled this year as rising interest rates have slowed down the pace of home buying. In addition, Castle & Cooke’s profit margins were disappointing this year and even in 1993, analysts said. Murdock, who owns 23% of Dole and chairs both Dole and Castle & Cooke, has publicly stated his intentions to separate Dole’s food operations from its real estate assets. While it’s unclear what Murdock will do with Castle & Cooke and his commercial real estate holdings, he’s still making money.

In July, 1993, he bought 85,700 shares of the home builder not held by Dole at prices ranging from $11.13 to $12.88 each, bringing his personal holdings to 94,500 shares, according to filings with the Securities and Exchange Commission.

Several food analysts said the purchase could provide a way for Dole to spin off its money-losing Hawaiian resort operation by packaging those holdings with the profitable Castle & Cooke.

The Lanai resort “has been cash-flow negative since its inception and is unlikely to generate earnings in the near term,” wrote NatWest Securities Corp. analysts Michael Branca and Mitchell Speiser. “The best way to realize value out of its Lanai resort operation is to consolidate it with the real estate business.”

At Dole’s bid price of $14, Murdock would realize a profit of between $95,984 and $245,959 on the buyback.

“With so few shares outstanding, he probably saw the cost of operating as a public company wasn’t worth it,” said home building analyst Timothy L. Jones of Southeast Research Partners.

In the meantime, Castle & Cooke said the proposed transaction is subject to the approval of a committee of outside directors, preparation and execution of definitive agreements, and other conditions. The committee will retain an independent investment banking firm to evaluate the offer.