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US: Dole Food considers options

Dole Food Co., which has evolved from a Hawaiian pineapple purveyor into the world’s largest producer of fresh fruit and vegetables, would now stand to reap almost 60 percent for shareholders by splitting itself up.

The California-based company last week said it was considering options including a breakup after its shares dropped by a third in the past year, the second-worst performance among North American food makers with market values larger than $500 million. Dole is now trading at a lower valuation relative to sales than 97 percent of the industry.

Dole’s shares have slumped as earnings swings at the company’s produce operations overshadowed higher profit margins from packaged foods such as fruit cups and popsicles. The fresh fruit, vegetable and packaged foods businesses could be worth a combined $15 a share in a breakup, 58 percent more than yesterday’s closing price, said Paradigm Capital Management Inc. CreditSights Inc. says proceeds from a possible spinoff could be used to help pay down the company’s $1.69 billion in debt, which is twice the current market value.

"On a sum-of-the-parts basis, the company seems to be pretty significantly undervalued," Jason Ronovech, an Albany, New York-based money manager for Paradigm Capital, which oversees about $2 billion including Dole shares, said in a telephone interview. "We’ve seen the packaged foods business the past couple of years put up pretty consistent results."

Chief Executive Officer David DeLorenzo’s commented recently, saying "We believe that Dole’s share price does not reflect the inherent value of our packaged foods business. In order to unlock this value, we have initiated a review of strategic alternatives, seeking to enhance shareholder value."

Operating profit from fresh fruit, Dole’s biggest business, was down 43 percent last year from 2009, according to the company’s annual regulatory filing. In the first quarter, Dole said results were hampered by extraordinarily low prices in all major commodity vegetables.

Including net debt, Dole was valued at $2.5 billion as of yesterday, which is 6.9 times analysts’ 2012 estimates for earnings before interest, taxes, depreciation and amortization.

Dole would likely use the proceeds from listing its packaged foods business as a separate publicly traded stock to help pay down some of its borrowings, according to Wen Li, an analyst at CreditSights in New York.

Another way Dole can reduce debt is to sell some of its land in Hawaii, which may be worth as much as $400 million, Carla Casella, a credit analyst for JPMorgan Chase & Co., wrote in a May 4 note. In a breakup, Dole could be valued at as much as $19.70 a share, including its property, she wrote.

Source: www.bloomberg.com

Publication date: 5/9/2012


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