Dole Food Co. has lost half its value since billionaire David Murdock bought the company six years ago in a transaction valued at $2.5 billion.
The large decline in the value of the Westlake Village food company was disclosed in Securities and Exchange Commission documents filed in conjunction with Dole's efforts to sell a 41% stake in the company to the public for about $14 a share. The offering values Dole at about $1.2 billion.
Analysts who reviewed the transaction questioned whether the Dole offering would be a good deal for investors. They expressed concern over its terms, which leave Murdock, 86, Dole's chairman and sole owner, firmly in control of the business.
"Any time a majority shareholder controls a company, it should make you cautious. His interests and your interests might not align," said Scott Mushkin, an analyst with Jefferies & Co. in New York.
For example, a corporate restructuring wrapped up in the offering would use money from the stock sale to pay off $115 million of Murdock's debts. He accrued the debt while building and operating an elaborate hotel and wellness center near Dole's headquarters, according to SEC documents.
Additionally, the transaction includes a merger between Dole and Murdock's personal investment arm and a secondary transaction that pays off an additional $90 million of Murdock's debt guaranteed by the food company, the filing by the company Friday said.
"Paying off Murdock's wellness center debt is not necessarily in the interest of Dole," Mushkin said.
Dole spells out the potential for conflicts in its offering documents.
"We are a controlled company, controlled by David H. Murdock, whose interests in our business may be different from yours," the company warned investors in the stock sale prospectus.
"Mr. Murdock and his affiliates will, for the foreseeable future, have significant influence over our management and affairs, and will be able to control virtually all matters requiring stockholder approval, including the election of directors and significant corporate transactions such as mergers or other sales of our company or assets," the Dole filing said.
The company also signaled that there would be little chance Dole would become a takeover target any time soon, and that could hurt the value of its shares.
Dole said its corporate rules and bylaws "could make it more difficult for a third party to acquire control of us, even if the change in control would be beneficial to stockholders."
Nonetheless, Mushkin said there were good reasons for people to invest in Dole, as long as they were comfortable with having Murdock as a controlling shareholder, although some investors might balk at the expected $14-a-share price.
"It is the right brand name and a good franchise," he said. "Dole is a good company with a well-run organization."
Moreover, the offering would trim the food company's borrowings to about $1.6 billion from its current $1.9 billion, according to the SEC documents.
"This transaction would be a credit positive because of the debt reduction and the way it gives the company access to the equity markets in case it needs future capital," said Carla Norfleet Taylor, an analyst with Fitch Ratings.
Dole has struggled to cope with a high debt load and declining sales. For the third quarter ended Oct. 10, Dole said it had an operating loss of $58.5 million, compared with an operating loss of $2.3 million in the same period a year earlier. Revenue fell 13% to $2 billion from $2.3 billion.
Among other investments, Murdock owns almost the entire Hawaiian island of Lanai. He is the son of a traveling salesman and didn't complete high school. The 1985 death of his wife, Gabriele, convinced Murdock that their high-fat, high-calorie diet of red meat and potatoes contributed to her illness. He then adopted a fish and vegetarian diet. He's known for banning hamburgers in the cafeteria of Dole's corporate headquarters.