Investors May Sour on Murdock Bid for Dole

By JERRY HIRSCH

Sept. 24, 2002 12 AM PT

TIMES STAFF WRITER

Billionaire David H. Murdock wants to buy Dole Food Co., but shareholders are saying his offer isn’t nearly as sweet as the pineapple that made the company famous.

Murdock is reprising a familiar strategy in his bid for the nation’s largest fresh produce business: make a low offer and hope that the combined weight of his holdings in the business and his position as the Dole chairman will muscle the deal through, analysts said.

A similar approach won Murdock control of real estate firm Castle & Cooke two years ago. But not before he paid a 13% premium over his original bid.

Transactions such as the Castle & Cooke deal, which gave him ownership of a Hawaiian island, have made Murdock, 79, one of the nation’s richest individuals. He has built a reputation as a savvy deal maker who likes to tout how he made his fortune without the benefit of an MBA degree or even a high school diploma. Forbes magazine estimates his net worth at $1.3 billion.

In his latest financial play, Murdock seeks to buy Westlake Village-based Dole in a transaction valued at about $2.3 billion. In a letter sent to Dole’s board of directors late Sunday, Murdock offered to purchase the 76% of the company he doesn’t already own for $29.50 a share, or about $1.25 billion. He also would assume about $1 billion of Dole’s debt.

Considering the current environment of Wall Street scandals and corporate governance issues, Murdock might find the transaction difficult to pull off without raising his price, said Heather Jones, an analyst with BB&T; Capital Markets in Richmond, Va.

“This is totally low ball,” Jones said. “If the board approves this at this price it will look like self dealing to the shareholders. This is a very cheap offer for a strong company that doesn’t have many problems.” BB&T; is not a Dole shareholder and does not do business with the food concern.

Dole plans to appoint a committee of its independent directors this week to review Murdock’s offer.

“I think this is a fair offer considering that everyone’s stock is plunging through the floor,” Murdock told The Times on Monday.

He said his offer represents a 20.5% premium over Dole’s closing price Friday. And it is higher than Monday’s close of $28.99, even after surging 18% for the day.

Cost cutting and such initiatives as selling precut vegetables and packaged salads have helped Dole’s annual profit more than triple from $49 million in 1999 to $150 million last year. But the stock, like most companies, has been caught in the bear market.

Traded on the New York Stock Exchange, Dole shares have fallen 28% from a high of $33.85 on May 3 to Friday’s close of $24.49, the last day of trading before Murdock’s offer.

Murdock said one reason is Wall Street’s fear of what is essentially a commodity business subject to weather and economic conditions.

“There has always been an oversupply of bananas because they are so easy for people to grow,” Murdock said. “Our earnings are up and down.”

Additionally, Dole has lost a number of important licenses for exporting bananas to Europe to rival Chiquita Brands International Inc., he said.

Dole’s revenue dropped from $4.8 billion in 1999 to $4.5 billion last year, though its sales have leveled at just under $2.2 billion during the first six months of 2002.

Several major shareholders have expressed their dissatisfaction with Murdock’s plan.

“We are looking at $35 to $40 a share, certainly not an offer under $30,” said Tim Drake, an analyst with Banc One Investment Advisors, which owns 1.35 million shares, or about 2.4% of Dole.

“We believe it is worth more because of the improvements they have made in the company’s operations over the past three years and its future earnings power,” Drake said.

Kevin Johnson, a portfolio manager with Aronson & Partners, which owns 1.1 million Dole shares, also said Murdock’s bid was low.

“Even after the run-up in the price of the shares [Monday], the company still looks cheap to us,” Johnson said.

The portfolio manager said he expects Dole’s earnings to continue to grow. The company also will be a likely winner when the European Union’s system of quotas and licenses for banana exports ends in 2006.

Who else might bid more for Dole remains a question, Jones of BB&T; said.

Dole retained investment banker Goldman Sachs to evaluate a sale of the company two years ago, but ultimately took no action. The bid Murdock made Sunday was unsolicited.

Dole’s three major competitors--Chiquita Brands International, Fresh Del Monte Produce Inc. and an Irish company, Fyffes--lack the financial strength to purchase the company, Jones said. Indeed, because of the problems in the banana market, Chiquita was forced into a Chapter 11 bankruptcy reorganization, from which it emerged six months ago.

Founded by James Dole in 1900 as Hawaiian Pineapple Co., Dole now sells everything from asparagus to carnations to raspberries. In 1922, James Dole purchased the Hawaiian island of Lanai to expand his pineapple production. Dole eventually merged with Castle & Cooke, another large Hawaiian agriculture and shipping concern.

Murdock, through his Flexi-Van Leasing Inc. container leasing business, gained control of the company in 1985. Later Murdock split the business into two public companies, Castle & Cooke real estate business and Dole Food.

He bought out Castle & Cooke--including virtually all of Lanai--two years ago. Shareholders complained about his initial offer, forcing Murdock to make a series of successively higher bids. Even after he completed the $615-million deal, several shareholders used an unusual Hawaiian securities law to protest the Castle & Cooke deal, eventually reaching a confidential settlement of their claims.

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Murdock’s Deals

1983

Takes control of New Jersey-based Flexi-Van Leasing Inc., a transportation equipment leasing company.

1984

A major stockholder in Occidental Petroleum, he breaks with Chairman Armand Hammer and gets $194 million for his holdings.

1985

Merges Flexi-Van into struggling food and real estate company Castle & Cooke, producer of Dole-brand pineapples and bananas.

1987

Takes Flexi-Van division public.

1988

Buys outstanding shares of Flexi-Van, takes it private.

1990

Tries to spin off Dole from Castle & Cooke but gives up after lower-than-expected bids. Opens resort on Lanai, the Hawaiian island owned by Castle & Cooke.

1991

Changes name of Castle & Cooke to Dole Food Co. and moves headquarters to Westlake Village, near his Sherwood Country Club development.

1993

Takes development unit Castle & Cooke Homes public.

1994

Has Dole buy out minority owners of Castle & Cooke Homes, becoming sole owner of the company.

1995

Announces spinoff of Dole’s real estate and resort operations into a separate company to be called Castle & Cooke Inc.

2000

Pays $615 million to take Castle & Cooke private and becomes owner of 98% of Lanai.

2002

Seeks to take Dole private in a deal worth $2.3 billion.