Dole Food to Separate Real Estate Unit From Core Business : Spinoff: Analysts applaud move, saying Castle & Cooke operations have dragged down company’s profit and stock price.
Dole Food Co., a name synonymous with Hawaiian pineapple for more than a century, said Tuesday that it will separate its real estate and resort operations from its core food business.
The long-anticipated spinoff was widely praised by analysts who have long argued that the Westlake Village-based company’s extensive Castle & Cooke real estate operations, which are subject to cyclical market swings, have dragged down Dole’s profit and stock price.
“There was no benefit from having both operations under the same corporate roof,” said analyst James Yu at the investment firm Gabelli & Co. “It made the company harder for people to analyze.”
Yu said Dole’s stock suffered because the more profitable food business was discounted due to the real estate operations, which should be evaluated more in terms of their asset value than their earning power.
Investors embraced Dole’s announcement, pushing its stock price up $2.625 a share to close at $36.875 on Tuesday on the New York Stock Exchange.
The spinoff will be accomplished through a tax-free distribution of one share of common stock in the new Castle & Cooke Inc. for every three shares of Dole common stock.
This is the second time the food giant has attempted to divide its diverse operations into distinct companies.
In 1993, Dole sold a minority of its real estate development subsidiary to the public at $15 a share. But the developer’s stock continued to be a laggard, and in August, 1994, Dole repurchased the part of Castle & Cooke it didn’t then own.
This time, Dole will completely sever itself from Castle & Cooke, although financier David H. Murdock will remain chairman of both companies. Murdock currently owns 23% of Dole’s stock.
“We believe that these businesses are fundamentally different in performance objectives, investor base, capital needs, opportunities and management structure,” Murdock said in a statement. “By separating these businesses, Dole shareholders will be better able to evaluate the performance of each.”
Dole, which was founded in Hawaii in 1851, is one of the world’s largest suppliers of fresh and packaged fruits, vegetables and nuts, and is famous for its canned and fresh pineapple and fresh bananas. Much of its produce is grown in California, but it also ships food products grown in other countries to customers around the world on its modern fleet of refrigerated ships.
In 1994, Dole earned $67.9 million on $3.84 billion in revenue.
Among the operations that will be part of the new Castle & Cooke are residential, commercial and industrial developments on the Hawaiian island of Oahu, and two luxury resorts on Lanai, which is 98% owned by Dole. Several Bakersfield-area housing projects and office parks, as well as residential and commercial properties in Arizona, Georgia, North Carolina and Mississippi, will also be included.
Dole said its third-quarter results will include a $118-million after-tax charge for the write-down of Castle & Cooke’s property holdings. The combined effect of the write-down and the stock distribution will reduce Dole’s net worth by about $650 million, it said. Dole’s net worth currently stands at $1.2 billion.
But William F. Maguire, an analyst at Merrill Lynch, estimated that without the real estate and resort operations, Dole’s 1996 net income will grow to about $160 million.
In January, Dole took one step toward its goal of splitting the food and real estate businesses when it sold its worldwide juice business to Seagram Co. for $285 million. At the time, Murdock said Dole was reviewing all its operations for a possible sale or distribution, which analysts interpreted to mean that the real estate and resort businesses would probably be spun off by year-end.
Dole said it expects the distribution to be completed in December. Shares of Castle & Cooke stock will trade on the New York Stock Exchange.
