DOLE FOOD CO INC DOLE
March 28, 2013 by cuyler1903
2013 2014
Price: 10.71 EPS $0.00 $0.00
Shares Out. (in M): 89 P/E 0.0x 0.0x
Market Cap (in M): 956 P/FCF 0.0x 0.0x
Net Debt (in M): 260 EBIT 0 210
TEV: 1,216 TEV/EBIT 0.0x 5.8x

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Description

DOLE is not just a fruit and vegetable company.  DOLE is a real estate and hard asset company with a fruit and vegetable operation attached to it.  Investors are dramatically underestimating the incredible breadth and value of DOLE’s non-core assets (it’s not just farmland!), causing DOLE shares to trade at a severely depressed multiple of what management has stated are trough earnings.  On Monday, DOLE will close on the sale of its Asian businesses for $1.7 billion, allowing the company to retire virtually all of its debt, creating a dirt cheap stub trading at 3-4x PF EBITDA that is begging to be re-levered for a large special dividend or share buyback and/or taken private.  I estimate fair market value for DOLE shares is at least 50-100% higher than the current price, with a large margin of safety and even greater potential upside based on performance, financial engineering and likely underestimated hidden asset value.

Key Non-Core Assets

  • Management stated on p. 10 of the M&A presentation that there is “Over $500 million FMV of non-core assets (e.g. idle land)” – this number is likely severely understated given the complex maze of DOLE’s holdings, but we can use that as our base case (I have ignored taxes here as these values are so wide-ranging and tax implications are unknowable, our conservatism should easily outweigh any tax)
  • Management seems to have incentive to understate the value of the hidden assets here - Murdock probably wants hidden asset value to be kept as low profile as possible (he may want to buy more DOLE stock or take it private again)
  • 18,260 acres of Oahu, Hawaii land currently listed for sale with $217mm asking price
    • CBRE offering:  http://www.cbre.us/o/baltimore/properties/oahu-land/pages/overview.aspx
    • CBRE price and parcel list:  https://docs.google.com/file/d/0B0xSSQ9VQorNSjdvOHFEVTh4dlU/edit?usp=sharing
    • ~6,740 acres of other non-core Hawaii land (p. 4 of M&A presentation states 25k non-core Hawaii acres in total
    • 1 Dole Drive, Westlake Village, CA – corporate headquarters
      • Sits on 30 acres of owned land in one of the toniest sections of LA County, land likely worth $0.5-1.0mm per acre
      • Reported $65mm construction cost for 169k s.f. office building
      • Profile of property:  www.tedmeeder.com/files/Download/Dole.pdf
      • Dole leases 1,483 s.f. to Laboratory Corporation of America for $115,674 per annum, or $78/sf (per 2007 10-K)
      • Applying $78/sf to the entire 169k s.f. building yields $13.2mm of annual rent, at a 7.5% cap rate you get a value in excess of $175mm for this building alone
      • 2 Dole Drive, Westlake Village, CA – Four Seasons-Westlake Hotel
        • Sits on 20 acres of owned land adjacent to corporate headquarters
        • Tenants include Four Seasons-Westlake Hotel, California Health & Longevity Institute (a high-end clinic/hospital), Westlake Wellbeing Properties, LLC and World Championship Sports Network, Inc.
        • It is unclear as to what ownership DOLE may have in the various structures on the property, but it appears that it may be significant since p. 10 of the M&A presentation stealthily cited “other” assets including “offices, housing compounds, schools and hospitals.”
        • While I think it makes sense to assume that DOLE does not own these buildings, I think it might…  Read here: http://www.hotel-online.com/News/PR2005_2nd/Apr05_DoleSeasons.html)
        • Assessed value of improvements alone is $159mm here https://docs.google.com/file/d/0B0xSSQ9VQorNTFFRZFJyV1NnRkU/edit?usp=sharing
        • “Heavy Iron” – Bombardier Global Express – Tail #N85D (http://registry.faa.gov/aircraftinquiry/NNum_Results.aspx?NNumbertxt=N85D)
          • Estimated value range of $15-25mm for this plane
          • Owned Latin American offices in San Jose, Costa Rica and La Ceiba, value unknown
          • Owned European regional offices in Sweden, value unknown

Notes on Pro Forma Valuation

  • 2013 Pro Forma EBITDA guidance of $150-170mm, which increases to $200-220mm after inclusion of $50mm of cost savings, use Q4 conference call presentation and transcript
  • Management calls this “trough” earnings on the M&A call:  “I think it's fair to say that we believe the banana business is in a trough right now. It's been affected, obviously, by the European economy. We're not sure what the length or duration of that trough is. But certainly, if you go back, as you said very well, if you look at historically, our earnings have been higher than they are today, and we would expect some recovery at some point in time. We do believe that we have a very strong banana business.”
  • Cost savings to be fully run-rated by end of 2013; these are hard cost savings, the majority of which management said will come out of corporate
  • Expecting all debt to be retired, with new term loan in the amount of ~$260mm in place at closing – this is the anticipated gross debt level, although my math very conservatively assumes the $91mm of cash goes away and $260 is the net debt level
  • One-time “strategic” capex need relating to farm rejuvenation and fleet enhancements will be covered by cash from operations and the term loan, per management
  • Normalized ongoing capex of $60-70mm per management
  • Pro forma cash interest expense of $16mm (~6% rate), cash taxes of $7-10mm (~20% rate) and annual pension contributions of $18mm, all per management
  • Potential for substantial excess working capital to be pulled out of business post-closing, per Q&A on M&A call, I have assumed this is $0 in my calculation at the bottom

The Math

 ($MM)                       
   Current   Adj   PF                 
 Stock Price   $        10.72    $        10.72                
 Shares Outstanding                89.2                 89.2                
 Equity Value              956.2               956.2                
                       
 - Cash                 (92)                   92                      -    assume $0 cash for conservatism; all cash should be retained       
 + Debt              1,694          (1,434)                260  per M&A call gross debt $260mm           
 + Pension & OPRB                 245                  245                
                       
 TEV (ex. Pension & OPRB)   $        2,559    $        1,216                
 TEV (incl. Pension & OPRB)   $        2,804    $        1,462                
                       
   Good   Better   Best                 
 PF TEV (ex. Pension & OPRB)   $        1,216  $        1,216  $        1,216                
 PF TEV (incl. Pension & OPRB)   $        1,462  $        1,462  $        1,462                
                       
 Non-Core Assets                       
 Oahu Land (18,260 acres)                 195                205                215  $217.3mm asking price   (http://www.cbre.us/o/baltimore/properties/oahu-land/pages/overview.aspx)   
 Other "Non-Core" Hawaii Land   (~6,740 acres)                    67                   71                   74  est at $10-11k/acre; p. 4 of M&A pres   says 25k non-core Hawaii acres in total     
 Land at 1 Dole Dr., Westlake Village, CA   (Corp HQ)                    15                   23                   30  30 acres of property, value at   $0.5-1.0mm/acre (http://goo.gl/maps/JntCS)       
 Building at 1 Dole Dr., Westlake Village, CA   (Corp HQ)                    65                100                150  169k sf, $65mm cost to build in 1999   (http://assessormap.co.la.ca.us/mapping/viewer.asp)     
 Land at 2 Dole Dr. (Four Seasons/Wellness   Center/Spa)                    10                   15                   20  20 acres of property, value at   $0.5-1.0mm/acre (http://goo.gl/maps/JntCS)       
 Buildings at 2 Dole Dr. (Four   Seasons/Wellness Center/Spa)                       -                  100                200  20 acres, $81mm cost to build ex. land,   improvements alone assessed at $159mm     
 Bombardier Global Express                    15                   20                   25  http://registry.faa.gov/aircraftinquiry/NNum_Results.aspx?NNumbertxt=N85D     
 Other "Non-Core" Assets                 200                200                200  this is a guess, includes 88k owned acres   ex. Hawaii, housing compounds, research facilities, schools and   hospitals 
    Total                 567                733                914  "Over $500mm FMV of non-core assets   (e.g. idle land)" - p. 10 of M&A presentation     
                       
 Excess Working Capital                       -                     50                100  Up to $200mm per M&A call Q&A           
                       
 PF Adjusted TEV (ex. Pension)                 649                433                202                
 PF Adjusted TEV (incl. Pension)                 894                678                447                
                       
 2013 EBITDA                 150                160                170  Mgt guidance, calls this "trough"   earnings in M&A call         
 + Cost Savings                    50                   50                   50  Hard cost savings (largely corporate o/h)   per mgt guidance, to be fully run-rated late 2013     
 2013 PF EBITDA   $              200  $              210  $              220                
                       
 Normalized Capex                    70                   70                   70  Per Q4 conf call 60-70 range; $100mm 2013   strategic capex funded from TL & CFO per Q4 conf call   
 2013 PF EBITDA - Norm. Capex   $              130  $              140  $              150                
                       
 PF Adjusted TEV (incl. Pension) / 2013 PF   EBITDA  4.5x 3.2x 2.0x                
 PF Adjusted TEV (incl. Pension) / (2013 PF   EBITDA - Norm. Capex)  6.9x 4.8x 3.0x                
                       
Valuation                      
 2013 PF EBITDA - Norm. Capex   $            140  $            140  $            140                
 Multiple  10.0x 11.0x 12.0x  8-10% unlevered FCF yield             
 TEV   $        1,400  $        1,540  $        1,680                
                       
 - Debt               (260)              (260)              (260)                
 - Pension & OPRB               (245)              (245)              (245)                
 + Cash                       -                        -                        -    Very conservative, likely $90mm+ of cash              
 + Non-Core Assets                 500                600                700  Let's be conservative             
                       
 Equity Value              1,395             1,635             1,875                
 Shares Outstanding                89.2               89.2               89.2                
 Value/Share   $          15.63  $          18.33  $          21.02                
                       

 

David Murdock

Key Risks

  • Management is wrong and these are not trough earnings
  • Poor capital allocation, use of proceeds from asset sales
  • Asset sales are not realized
  • Murdock does not seek to maximize asset value
  • Company is taken private at a substantial discount to FMV
I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

  • Closing of Asia sale transaction on Monday, April 1st
  • Large share repurchase
  • Large dividend recap
  • Investor awareness of hidden assets
  • Asset sales
  • Forced buying to close short positions – 9.0mm shares are currently sold short, presumably relating to capital structure arb trades that will be unwound post Asia sale closing
  • LBO or sale to strategic buyer
    sort by   Expand all   New post

    Description

    DOLE is not just a fruit and vegetable company.  DOLE is a real estate and hard asset company with a fruit and vegetable operation attached to it.  Investors are dramatically underestimating the incredible breadth and value of DOLE’s non-core assets (it’s not just farmland!), causing DOLE shares to trade at a severely depressed multiple of what management has stated are trough earnings.  On Monday, DOLE will close on the sale of its Asian businesses for $1.7 billion, allowing the company to retire virtually all of its debt, creating a dirt cheap stub trading at 3-4x PF EBITDA that is begging to be re-levered for a large special dividend or share buyback and/or taken private.  I estimate fair market value for DOLE shares is at least 50-100% higher than the current price, with a large margin of safety and even greater potential upside based on performance, financial engineering and likely underestimated hidden asset value.

    Key Non-Core Assets

    Notes on Pro Forma Valuation

    The Math

     ($MM)                       
       Current   Adj   PF                 
     Stock Price   $        10.72    $        10.72                
     Shares Outstanding                89.2                 89.2                
     Equity Value              956.2               956.2                
                           
     - Cash                 (92)                   92                      -    assume $0 cash for conservatism; all cash should be retained       
     + Debt              1,694          (1,434)                260  per M&A call gross debt $260mm           
     + Pension & OPRB                 245                  245                
                           
     TEV (ex. Pension & OPRB)   $        2,559    $        1,216                
     TEV (incl. Pension & OPRB)   $        2,804    $        1,462                
                           
       Good   Better   Best                 
     PF TEV (ex. Pension & OPRB)   $        1,216  $        1,216  $        1,216                
     PF TEV (incl. Pension & OPRB)   $        1,462  $        1,462  $        1,462                
                           
     Non-Core Assets                       
     Oahu Land (18,260 acres)                 195                205                215  $217.3mm asking price   (http://www.cbre.us/o/baltimore/properties/oahu-land/pages/overview.aspx)   
     Other "Non-Core" Hawaii Land   (~6,740 acres)                    67                   71                   74  est at $10-11k/acre; p. 4 of M&A pres   says 25k non-core Hawaii acres in total     
     Land at 1 Dole Dr., Westlake Village, CA   (Corp HQ)                    15                   23                   30  30 acres of property, value at   $0.5-1.0mm/acre (http://goo.gl/maps/JntCS)       
     Building at 1 Dole Dr., Westlake Village, CA   (Corp HQ)                    65                100                150  169k sf, $65mm cost to build in 1999   (http://assessormap.co.la.ca.us/mapping/viewer.asp)     
     Land at 2 Dole Dr. (Four Seasons/Wellness   Center/Spa)                    10                   15                   20  20 acres of property, value at   $0.5-1.0mm/acre (http://goo.gl/maps/JntCS)       
     Buildings at 2 Dole Dr. (Four   Seasons/Wellness Center/Spa)                       -                  100                200  20 acres, $81mm cost to build ex. land,   improvements alone assessed at $159mm     
     Bombardier Global Express                    15                   20                   25  http://registry.faa.gov/aircraftinquiry/NNum_Results.aspx?NNumbertxt=N85D     
     Other "Non-Core" Assets                 200                200                200  this is a guess, includes 88k owned acres   ex. Hawaii, housing compounds, research facilities, schools and   hospitals 
        Total                 567                733                914  "Over $500mm FMV of non-core assets   (e.g. idle land)" - p. 10 of M&A presentation     
                           
     Excess Working Capital                       -                     50                100  Up to $200mm per M&A call Q&A           
                           
     PF Adjusted TEV (ex. Pension)                 649                433                202                
     PF Adjusted TEV (incl. Pension)                 894                678                447                
                           
     2013 EBITDA                 150                160                170  Mgt guidance, calls this "trough"   earnings in M&A call         
     + Cost Savings                    50                   50                   50  Hard cost savings (largely corporate o/h)   per mgt guidance, to be fully run-rated late 2013     
     2013 PF EBITDA   $              200  $              210  $              220                
                           
     Normalized Capex                    70                   70                   70  Per Q4 conf call 60-70 range; $100mm 2013   strategic capex funded from TL & CFO per Q4 conf call   
     2013 PF EBITDA - Norm. Capex   $              130  $              140  $              150                
                           
     PF Adjusted TEV (incl. Pension) / 2013 PF   EBITDA  4.5x 3.2x 2.0x                
     PF Adjusted TEV (incl. Pension) / (2013 PF   EBITDA - Norm. Capex)  6.9x 4.8x 3.0x                
                           
    Valuation                      
     2013 PF EBITDA - Norm. Capex   $            140  $            140  $            140                
     Multiple  10.0x 11.0x 12.0x  8-10% unlevered FCF yield             
     TEV   $        1,400  $        1,540  $        1,680                
                           
     - Debt               (260)              (260)              (260)                
     - Pension & OPRB               (245)              (245)              (245)                
     + Cash                       -                        -                        -    Very conservative, likely $90mm+ of cash              
     + Non-Core Assets                 500                600                700  Let's be conservative             
                           
     Equity Value              1,395             1,635             1,875                
     Shares Outstanding                89.2               89.2               89.2                
     Value/Share   $          15.63  $          18.33  $          21.02                
                           

     

    David Murdock

    Key Risks

    • Management is wrong and these are not trough earnings
    • Poor capital allocation, use of proceeds from asset sales
    • Asset sales are not realized
    • Murdock does not seek to maximize asset value
    • Company is taken private at a substantial discount to FMV
    I do not hold a position of employment, directorship, or consultancy with the issuer.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Messages


    SubjectDisclaimer
    Entry03/28/2013 01:11 PM
    Membercuyler1903
    Disclaimer:  The author of this idea presently has a long position in securities of this issuer and may trade in and out of these positions without notice.  The data contained herein are prepared by the author from publicly available sources and the author's independent research and estimates.  No representation or warranty is made as to the accuracy of the data or opinions contained herein.

    Subjectdole
    Entry03/28/2013 01:29 PM
    MemberNails4
    What's your sense on what would happen if Dole died?
     
    Are there heirs in the business? If not, would the rest of the biz be sold?
     
    How important is Dole's personal involvement in the business? (scale of 1-10, 1 being a monkey, 10 being Steve Jobs at AAPL)

    SubjectRE: dole
    Entry03/28/2013 01:35 PM
    Membercuyler1903
    Nails - I think if Murdock died it would make this even more attractive to buyers.  (He thinks he will never die, though.)
     
    His personal involvement isn't worth much here from an operational perspective is my take, except for making sure management doesn't do anything stupid.
     
    I think he's the driving force behind value realization though.
     
    Cuyler

    Subjectquestions
    Entry03/28/2013 01:35 PM
    Memberandrew109
    thanks for the idea.  two questions:
     
    1) for valuing operations, you use an 8-10% unlevered FCF yield.  however, it looks like you haven't taken anything out for taxes... are they not paying income taxes?
     
    2) you mentioned that this is trough earnings... is that just for the banana business or for the entire business?
     
    thanks
     

    SubjectHidden Assets bullets
    Entry03/28/2013 01:38 PM
    Membercuyler1903
    Sorry for the poor formatting of the Key Non-Core Assets bullets, but when you're reading make sure you note that sub-bullets are in many cases separate hidden assets.
     
    - Hawaii land for sale
    - Other non-core Hawaii land
    - 1 Dole Dr.
    - 2 Dole Dr.
    - Bombardier Global Express jet
    - Latin American offices
    - Sweden offices
     
    Thanks,
    Cuyler

    SubjectRE: questions
    Entry03/28/2013 01:40 PM
    Membercuyler1903
    Andrew - for ULFCF yield I was simply using the inverse of TEV/(EBITDA-Capex).  As for trough earnings, management thinks this is trough for the entire business.
     
    Cuyler

    SubjectRE: RE: dole
    Entry03/28/2013 01:43 PM
    Membercuyler1903
    Nails - btw, I said Murdock was 88, which is what Capital IQ had, but according to that CBS interview link I provided, he's 90. 
     
    Cuyler

    Subject2013 PF EBITDA
    Entry03/28/2013 03:14 PM
    Memberwerd725
    A small quibble, but I believe the 2013 EBITDA they guided to already included $20 million of the projected $50 million in cost savings.  So really there is only $30 million in incremental savings on top of 2013 guided EBITDA.  I think this could materially change the value per share in certain scenarios, particularly if you assume in your "good" case that they get to $20 million savings and are unable to achieve anything further, and therefore "go forward" EBITDA is only $150 million.

    Subjecta few thoughts
    Entry03/28/2013 03:47 PM
    Membersalvo880
    Thanks for the write-up.   For those who may be new to the name, Boyar presented this in a couple of places in recent months, e.g.:    http://sumzero.com/headlines/food_beverage_and_tobacco/DOLE/141-dole-sitting-on-a-big-old-hidden-catalyst
     
    I agree with the core premise-- it's undervalued, with obviously overlooked real estate assets.  Four points, though, for the sake of discussion:  1) you mentioned this as a risk, but to amplify-- I did not leave the Q4 conference call with a great feeling about capital allocation.  I left wondering whether management were primed to write checks for additional farms (the "15% hurdle" part of the conversation), in the hopes of gaining pricing leverage in the market.  2) Perhaps the goal is to under-promise and over-achieve, but management believes that the sale of non-core real estate will "take a few years." 3) Along the lines of Werd725's comment, the President/ COO's position on cost savings in the 4Q call seemed markedly more conservative than-- and perhaps even contradictory to--  statements in the company's slide decks. 4) Perhaps not a major issue, but Dole signed non-competes associated with the Itochu deal; going by memory here, but I believe they are prohibited from selling bananas and pineapple in Asia.
     
    Still think it's a good idea...

    SubjectImplied Cap Rate
    Entry03/28/2013 05:05 PM
    Membermjw248
    A $1.4 B TEV seems to imply a 6.5% after-tax yield on UFCF. That's maybe a little better of a cap rate than I'd expect for this business at first glance. A lot of the upside goes away if you bump that cap rate up. Thoughts? 

    SubjectRE: Implied Cap Rate
    Entry03/28/2013 05:09 PM
    Membermjw248
    For example, a lazy glance at FDP show it trading at a 9.0% earnings yield...

    SubjectSmoking banana peels?
    Entry03/28/2013 06:27 PM
    Membermack885

    Cuyler,

    Thanks for the write up. I've been following this as well and appreciate the rundown on the real estate.

    To me the biggest question here is poor capital allocation vs. conspiracy theory. On the last call, management talked about applying non-core asset proceeds towards buying new farms, new ships ($50mm per), improving the infrastructure that had been underinvested in while levered, and other projects. Do you think they will actually blow all the cash or is there a larger conspiracy at play? Is it possible mgmt is kitchen sinking the estimates and talking crazy about mega capex just prior to Murdock re-taking the reins in order to set the bar low for a low ball take-out (bad) maybe just a large repurchase (good)? Am I just smoking banana peels?

    It was certainly odd that management guided to EBITDA of $150-$170 on January 2 only to guide to $150 three weeks later on January 24. Subsequently, mgmt indicated on the earnings call that $150 assumed the operating environment would stabilize in banana-land.

     

     

    SubjectRE: Smoking banana peels?
    Entry03/28/2013 08:12 PM
    Membercuyler1903
    Mack - You are a very smart man.  I think you have nailed it.  There is a reason that Murdock bought $60mm more stock just before the Asia sale was announced, and I would bet you many banana peels that it was not because he was hoping the stock would go to $15 or 16.  He has far grander plans.  This is a man who did not get stupid rich by accident (or by making 20% pre-tax on stock trades).
     
    I think cost savings estimates, guidance and all of that stuff will prove to be silliness over the next 12 months, although as a value investor it's nice to know that the stock is dirt cheap even on this depressed guidance.  The "strategic capex" will be funded from CFO and the term loan, and I think that's fine and probably smart.  Financial engineering and corporate actions (including asset sales and likely company sale) are going to drive value creation here.
     
    I hesitate to even put it in writing and therefore tried to be conservative in the writeup (ignoring cash, using low land prices, etc.), but there is an outside chance that the non-core assets here are worth nearly as much as the company's TEV.
     
    I suspect we'll look back in 12-18 months and see a re-leveraging event, non-core asset sales AND a sale of the core business with a SOTP far higher than the numbers I conservatively indicated... 
     
    We shall see.  In the interim, I love the fact that everyone is bummed out over the latest guidance - that's created a great opportunity for us as the stock came down nicely (a good 10% post earnings), allowing us to initiate our position at a terrific price.
     
    Cuyler

    Subjectsumzero presentation
    Entry03/28/2013 09:29 PM
    Memberoogum858
    okay i realize this is a tangent and this is not at all a knock on you cuyler or your writeup.  but this freakin' sumzero presentation on DOLE is so irritating.  it says this:
     
    "Notably, Dole will own 113,000 acres of land including 25,000 acres of non-core acres located on the north shore of Oahu, Hawaii. It should be noted that the Company is only farming ~2,600 acres of its land in Hawaii. Management estimates the fair market value of all of its idle land (Dole also has idle land in Latin America associated with its operations) to be over $500 million, a value that is understated on the Company’s balance sheet and is likely conservative in my view in light of recent transactions. In the third quarter of 2011, Dole sold 400 acres of land in Hawaii for $10.4 million valuing the land at $26,000 per acre, while the sale of 2,200 acres in 2008 occurred at nearly $18,000 an acre."
     
    So it highlights these teeny insignificant recent transactions, implies the rest of the hawaii land may be worth similar amounts per acre, but fails to mention that the castle&cooke north shore piece is already listed, *offered* at $217mm...  
        that just seems intentionally misleading to me.  
     
    anyway, sorry for the distraction. . .
     
     
     
     

    SubjectRE: RE: Smoking banana peels?
    Entry03/29/2013 10:31 AM
    Membermojoris
    Solid write up, well articulated thesis. The undemanding valuation creates a decent entry with a lot of 'cheap' levers to make a nice return.
     
    A few questions:
     
    Do you know if Murdock or mgmt in general is going to make themselves more accessible going forwards (attend more conferences, analyst days, etc)?
     
    Under what conditions or events that could possibly transpire, would cause you to change your mind about your thesis and how much time/quarters will you give them to prove they won't bring down nums again or good / poor capital allocation? 
     
    From a corporate governance perspective, do common stock holders have rights in the event that Murdock moves forward with some type of scorched earth mgmt style in order to take the company private?
     
    Lastly, there is tremendous option value as you presented above and discussed below, but if these options do not transpire, and the EBITDA (w synergy) does not improve and goes lower, but the overall equity markets continue to go higher and perhaps there is a rotation into DOLE type fruit/packaged food/etc value names, at what value would you consider taking chips off the table? 
     
    Thanks,
     
    Mojo

    Subjectitochu deal
    Entry03/31/2013 02:47 PM
    Memberegec
    Cuyler, 
     
    Thank you for the writeup. I'm sympathetic to the value case for dole. 
     
    I wanted to mention that the ITOCHU sale, which hasn't yet closed, doesn't sit right with me..and I hope it's nothing (full disclosure, I'm betting that it will close, but will breathe easier when it actually closes). 
     
    Clearly this sale is a critical event for the capital structure of dole. If the sale doesn't happen then the company is massively levered. The original deal had a termination date of the end of dec 2012. This isn't a date that some manager just picks out of the air...it's a date that both sides, and their related lawyers, deal advisers, etc...have carefully chosen while considering the necessary approvals, capital requirements, business requirements..etc...determining a date that will give each party a reasonable amount of time to perform their set of conditions (i.e. getting necessary approvals, and ITOCHU paying the cash, among others). The fact that they blown through the termination date isn't such a big deal in itself ...it commonly happens (in general) when there is an unexpected long antitrust process and usually the parties just agree to extend the date. But keep this in mind regarding the following...
     
    Press releases should be carefully read because they are vetted by legal and the language is therefore very careful and deliberate. 
     
    On 1/24, dole published a press release announcing the china approval (the last remaining) and the press release says the following..
     
    "...C. Michael Carter, Dole’s Executive Vice President and General Counsel. “We are grateful to the case team of China’s Anti-monopoly Bureau of MOFCOM for their professionalism and commitment to the timely review of our transaction with ITOCHU. We have now received all seven required regulatory approvals, and Dole expects to complete the sale within the next 30 days.”

    So, I my words, Dole says .."ok! we've satisfied all our conditions, you (itochu) have our wire instructions so just send over the cash when you're ready ...and we remind you that we expect it to come in the next 30 days or we'll probably consider you in breech of contract". 

    Next, about 30 days later there is a press release where they announce a $200mm non-refundable deposit (from ITOCHU) and an agreement to close the deal on April 1. 

    On the q4 call, when there was the following Q&A..
    "Jordan Hughes - Goldman Sachs Group Inc., Research Division

    One question, can you give us a few insights into the negotiation that led to the $200 million nonrefundable deposit? I guess why did you seek to procure that?

    C. Michael Carter - President, Chief Operating Officer, Director and Member of Executive Committee

    Jordan, you may have been tracking our press releases going back to September. When we signed the acquisition agreement, we had several conditions in front of us. One was shareholder approval, then we had about 6 or so countries that we had to get antitrust clearance. While we had every expectation of having all of that done by the end of December and our contract call for a closing by the end of December, as you know, we got all of them, except for China and then early in the latter part of January, we got China. And, frankly, I think through that process, Dole managed to get that China approval ahead of any kind of expectations in terms of what normal course timing is out of China. And so ITOCHU, in that context, asked for enough time to complete some of the organizational changes that it needed to do on its side to be ready to take on the business. So in exchange for extending out to a fixed date of April 1, ITOCHU and Dole agreed to ITOCHU paying this nonrefundable $200 million. And obviously, as we've indicated in the press release, that's a set amount that has been paid, and there's -- and on the expectation that the deal will close on April 1, and it will."

     

    Ok, so they knew they needed china approval when they made the deal, and surely got professional advice as to how long that would take -  and with all that information agreed to a termination date for the end of dec 2012. But now the COO says that they got china "ahead of any kind of expectations in terms of what normal course timing is out of china". So were they just poorly advised? 

     I can't help but love the doublespeak that in almost back-to-back sentences he says they (dole) had every expectation of having all approvals by the end of dec and, at the same time, dole managed to get china approval ahead of "any kind" of expectations...except they didn't get china until the end of jan. 

     That part doesn't bother me so much...but what tells me things are not going to plan is the COO saying that they got china approval so fast (yeah - so fast that they had to blow through the termination date) that itochu just asked for some time to complete some organization changes on their side. hmmm....it's two months after the original termination date of the deal, all conditions are satisfied, and itochu isn't stepping up with the money. I suspect something is going on, I don't know what it is. I will refrain from spouting a bunch of scenarios that I can think of because they are all just total speculation. 

     April 1 is Monday so we'll know the answer soon enough. 

     Other than that I agree that Murdoch blowing up the company share price to take it private (or, barring that, some other form of related party transaction shenanigans) is the biggest risk. It looks like all the "real" professional managers are going with the ITOCHU business. 


    SubjectMurdock going strong
    Entry04/01/2013 10:52 AM
    Memberazia1621
    http://www.aarp.org/health/brain-health/info-04-2013/david-murdock-live-forever.html

    SubjectRE: itochu deal
    Entry04/01/2013 01:27 PM
    Membermack885

    SubjectAsia sale completed
    Entry04/01/2013 01:32 PM
    Membercuyler1903
    Itochu sale has closed, as expected.  They shifted some planned revolver to term loan and now have emerged with what appears to be $100mm of cash and $500mm TL, for net debt of $400mm which is 2.5x the midpoint of 2013 Adjusted EBITDA guidance.  The bad news is that the TL has crept up but the good news is that the TL would fund the extinguishment of the $45mm EU fine (which they are still contesting), the yen hedges, post-closing restructuring expenses and possible resolution of Honduras tax issue and DBCP cases and a good amount of the strategic capex as previously discussed in conf calls.  All in all, a pretty decent outcome and glad to see egec's worries were unfounded.
     
    Now investors can return to thinking about asset values and contemplate Murdock's next steps.  Watch him use Castle & Cooke as a vehicle to try to take this bad boy private again....  You know investment bankers are all over this situation...  There's an easy 2 turns of additional leverage this thing could handle, if not more in this environment.
     
    Will be interesting to monitor the short interest in coming days/weeks.  With 9mm shares short I'd expect to see some post-deal covering as capital structure arbs unwind. 
     
    Cuyler

    SubjectRE: Asia sale completed
    Entry04/01/2013 02:45 PM
    Memberbdad
    Any idea why the difference in net debt bw the $260MM you were expecting and the $400MM actual? $40MM or so is for EU fine, but I can't figure out where the remaining $100MM would have gone to. Capex and potential legal settlements (DBCP, Honduras tax case etc) shouldn't have resulted in an increase in net debt since those are potnential future expenditures, so any idea what they spent the remaining $100MM on?
    Also, it looks to me like the Westlake Village hotel and the Global Xpress may be owned by Castle & Cooke, not Dole.
    http://www.castlecooke.net/property/details.aspx?rid=108&cat=Resorts
    I tend to agree w your thesis, but I have been rather disappointed by mgmt either continuing to sandbag numbers, or just overpromising and underdelivering.
     

    SubjectRE: RE: Asia sale completed
    Entry04/01/2013 03:12 PM
    Membercuyler1903
    bdad - I really don't know why debt is higher, as it's not very transparent, unless they are putting some of these funds in reserve and not counting them in their net debt numbers, or if they had planned on covering some expenses out of cash flow or cash on hand and decided instead to term out the balance.  I'm far from thrilled with it but at least the deal closed.
     
    As for the airplane, Dole Foods Flight Operations is listed as the owner here: http://registry.faa.gov/aircraftinquiry/NNum_Results.aspx?NNumbertxt=N85D.  This entity is a subsidiary of DOLE.  Castle & Cooke is listed as an "other owner" and I think I saw in a proxy that DOLE bears 68% of the cost of the plane.  The plane is pry worth more than what I had listed, but still small dollars. 
     
    Regarding 2 Dole Drive, where the Four Seasons, Health & Longevity Institute, Westlake Wellbeing Properties, etc. sit, if you go to LoopNet you'll see that they show DOLE as the owner of this property.  I agree that it is difficult to say who owns the land, who owns the buildings and what the ownership splits (particularly on the buildings) might be, but at a minimum it looks like they own the land here.  Here's the LoopNet clip:  https://docs.google.com/file/d/0B0xSSQ9VQorNU3hUbG1pbUFwVzA/edit?usp=sharing 
     
    Tenants at 2 Dole Drive are listed in LoopNet as Burton Way Hotels (Four Seasons), California Health & Longevity Institute, Inc., Westlake Wellbeing Properties and World Championship Sports Network.  CapIQ shows Westlake Wellbeing is a 100% owned sub of Dole Foods Inc.
     
    Further, what else could the company possibly be referring to on p. 10 of the M&A presentation that cites other assets including "housing compounds, schools and hospitals"?  I agree this is murky as hell and it wouldn't surprise me if this asset is something Murdock spends a lot of time thinking about.
     
    The 2005 10-K has this to say about it:
     
    In December 2005, the Company executed a second amendment (the “Second Amendment”) to the Amended and Restated Credit Agreement. The Second Amendment permitted the Company to reinvest the proceeds from the sale of any of its principal properties (defined as each of the Company’s U.S. manufacturing plants and processing facilities that have a net book value exceeding 1% of the Company’s net tangible assets) in a new principal property and also allows DHM Holding Company, Inc., to borrow under project financing facilities the proceeds of which would be used for the construction, start up and operational deficits of a hotel, spa and wellbeing center, subject to certain restrictions.
     
    -and-
     
    During the year ended January 1, 2005, the Company paid cash dividends of $20 million to Dole Holding Company, LLC. In addition, the Company entered into a transaction with a related party to exchange similarly valued land. The Company subsequently leased the land to a subsidiary of HoldCo to be used in the construction of a hotel, spa and wellbeing center by such subsidiary. Due to its terms, the lease was treated for accounting purposes as a distribution of land and reflected as a non-cash dividend of $6.3 million to Dole Holding Company, LLC in the consolidated financial statements. The non-cash dividend represents the tax-adjusted value of land used in the construction of the hotel, spa and wellbeing center.
     
    Cuyler

    SubjectRE: RE: RE: Asia sale completed
    Entry04/01/2013 03:35 PM
    Memberbdad
    Thanks Cuyler-that makes sense.
    My understanding is Murdock squeezed our minorities when he took Castle & Cooke private and at this point, my base case assumption is that he'll try to steal this one as well. HDS base looks pretty docile, but I'd love to see somebody at least put him on notice that investors have an eye on him...
    As for 2 Dole Drive, as part of the IPO, looks like one of the tenants (WWP) was actually transferred to Murdock, but to your point, none of this addresses the totality of the property there or break down land v building:
    "DHM Holdings will contribute to us no more than 50% of the outstanding limited liability company membership interests it holds in WWP and will retain the remaining interest in WWP.
    DHM Holdings will merge with and into us, and we will be the surviving corporation in the merger. Following the merger and the transfers described below, 51,710,000 shares of Dole common stock will be outstanding. As a result of the merger, we will hold the 85% interest in WWP and will assume $115 million of debt of DHM Holdings associated with WWP. This transaction is referred to in this prospectus as the Merger Transaction.
    Following the Merger Transaction, we will transfer our 85% interest in WWP and $30 million of the debt associated with WWP, in each case previously held by DHM Holdings, to affiliates of Mr. Murdock through which he owns his shares of Dole. We will use a portion of the net proceeds from this offering to pay off in its entirety the $85 million of remaining debt that we assumed in the Merger Transaction and did not assign to such affiliates of Mr. Murdock. We will also transfer ownership interests in one parcel of idle farm land of approximately 1,600 acres in Honduras, with a fair market value of approximately $12 million and a book value of approximately $150,000, to affiliates of Mr. Murdock through which he owns his shares of Dole."

    Subjectcore business
    Entry04/01/2013 04:07 PM
    Memberjuice835
    thanks for the interesting idea and active Q&A. it seems that this investment is likely to really work if the issues facing the core bus for several years reverse-- to that end, is your thesis that the persistent downtrend in EBITDA of the last few years caused by competitive dynamics and supply issues IS actually likely to reverse or is this just a cheap option on an ok business that isn't likely to get too much worse with a smart capital allocator (nothing wrong with that)?

    SubjectRE: core business
    Entry04/01/2013 04:23 PM
    Membercuyler1903
    juice - definitely the latter.  I have no special insight on fruits and vegetables beyond that, ex. orange juice, I don't eat many of the former, am very picky about the latter and have argued since I was a kid that french fries are be a bona fide vegetable since potatoes grow in the ground.
     
    Cuyler

    SubjectRE: core business
    Entry04/01/2013 06:25 PM
    Memberegec
    juice - I would chime in and just add that, at the moment, I think it's easy for investors who don't know the story to overlook the company given it's weak profitability and, more importantly, 10x+ net debt/ebitda levels (fy12).
     
    Once the new financial statements are out for a few quarters or a year, I think even without a dramatic improvement in the business, investors will see much less downside risk (due to dramatically reduced leverage) and will then be willing to look more closely at asset values or where we are in the cycle..etc..

    SubjectRE: core business
    Entry04/01/2013 07:16 PM
    Memberandrew109
    cuyler -- what % of pro-forma revenue/profit comes from bananas... aren't bananas in secular decline in US and Europe?
     
     

    Subjecttaxes
    Entry04/03/2013 09:04 AM
    Memberbdad
    Cuyler-any sense of the tax situation here? Do they have NOLs? I know you mention their guidance for $7-10MM in cash taxes but is that ~20% rate a usable assumption going forward?

    SubjectMurdock's Personal Loan
    Entry04/08/2013 08:25 PM
    Memberrskfrarb210
    So Murdock has a personal "term loan facility" with DB Private Clients Corp, which was originally drawn in Dec 2010 with 2.5mm DOLE shares securing the term loan.  The disclosure said , "Mr. Murdock expects to use to support various business activities. If additional amounts are borrowed, additional shares may be pledged."

    Additonal shares were pledged, so (I assume) additional amounts were borrowed. He now has 24mm shares securing the term loan, or 68% of the shares he owns, with his 13d's showing the progression in shares serving as collateral.
     
    You mention that "Some investors mistakenly think Murdock “sold” DOLE shares in November 2012, but this disposition was related to the 2009 “MACES Trust” placement to institutional investors – this was not an open market sale and was not discretionary."  Murdock did have an option to settle in cash, in whole or in part, for the 23.3mm DOLE shares he was obligated to deliver, and was required to specify the mix of physical/cash settlement by on Aug 31, 2012.
     
    Murdock was buying shares in Jul and Aug 2012 at an average cost of $12.20/share.  He has access to credit which can be secured by DOLE shares purchased.  He has complete discretion to purchase (via cash settlement on with the MACES trust) up to 23.3mm shares at $12.866/share settlement price on Nov 1, 2012.  He chooses to forego this option.  Then on Nov 16, 2012 he increases the shares securing his personal term loan from 21.1mm to 24.2mm, drawing liquidity of ~$36mm.
     
    Today (at ~$10.50/share) he owns $374mm of DOLE shares, of which $254mm secures a personal term loan.
     
    What did he do with the $36mm he received on Nov 16, 2012?  What did he do with the original $227mm he received from the original 2009 deal with the MACES trust?
     

    SubjectRE: Murdock's Personal Loan
    Entry04/09/2013 01:36 PM
    Membercuyler1903
    Who cares what he does with money he borrows against his stock?  What does Larry Ellison do with his stock secured loans (buy sailboats?)?  Doesn't really matter to me if Murdock used proceeds to buy new airplanes or land for Castle & Cooke, or to throw big parties at his house....
     
    Murdock has been buying stock in the open market - a lot of it - if he turns around and borrows against it, all the better in my view.  Why he settled MACES with stock is anyone's guess, prob a better question for his tax accountant.
     
    One might say that an owner who borrows against his stock does so because he is confident that it is not overvalued and thus won't result in a margin call?  Maybe he figures the stock is going to appreciate and he's only going to pay 2% or something on his secured loan, so why not?
     
    Yes, borrowing against stock adds risk to his personal equity, but for this multi-billionaire I'm guessing it'll be okay....
     
    Cuyler
     
     

    SubjectQ1
    Entry05/03/2013 11:26 AM
    Membermack885
    Was the quarter as bad as it looked?  I am still in awe over how much leakage there was from the sale proceeds from Itochu.

    SubjectAuthor Exit Recommendation
    Entry05/09/2013 02:47 PM
    Membercuyler1903
    The author has recommended exiting the position

    SubjectRE: Author Exit Recommendation
    Entry05/09/2013 02:52 PM
    Membercuyler1903
    Well, this recommendation was no good, but at least we got out with a tiny gain.  I was tempted to close it right after the new credit facility came meaningfully larger than expected, but I figured some capital return was on the horizon.  Now that we have an announced buyback today, we can move on to greener banana fields.
     
    I'm 100% certain over the long term this idea ends up working just fine as banana market normalizes, but since the thesis is no longer valid as originally presented, I'll try to be disciplined and exit when the thesis changes rather than trying to change my thesis to fit the evolving story.
     
    Thanks to Ben Bernanke for giving us a breakeven.
     
    Cuyler

    Subjectnot a shareholder friendly healine...
    Entry05/28/2013 10:49 AM
    Membermack885
     
    "Suspends Indefinitely Share Repurchase Program "

    SubjectRE: not a shareholder friendly healine...
    Entry05/28/2013 11:01 AM
    Membercuyler1903
    Yeah, fortunately I think we changed course at the right time.  A good case study in why you shouldn't change your thesis to accommodate a story that has changed....  Also sounds like the excess real estate monetization is going to take longer than folks at probably been expecting.
     
    Good post on ZH this morning....
     
     
    Cuyler

    SubjectMgmt makes $12 buyout offer
    Entry06/11/2013 07:28 AM
    Memberstraw1023
    First, another good idea from cuyler even though it did not play out exactly as expected. The value was there. Always difficult to figure out how mgmt plays it in situations like this.
     
    I imagine that, in retrospect (hindsight is 20/20), the suspension of shr buyback was indication that something was in the wings.
     
    Any thoughts on chance that buyout happens at >$12? Is $12 start of negotiation or the final offer?
     
     

    SubjectRE: Mgmt makes $12 buyout offer
    Entry06/11/2013 08:35 AM
    Membercuyler1903
    Well, I'm not surprised at this whipsaw.  Seems obvious that all of the negative outlook talk and actions were designed specifically to depress the share price.  It worked like a charm for the man pulling the strings.  The problem for outsiders is that it's dangerous to speculate that Murdock comes forward in the event the business was as bad as they were indicating, because DOLE is a pretty highly leveraged equity.
     
    It could certainly attract other buyers, but if Murdock really wants to own it he's going to.  He knows where all the value is and what the hidden assets are likely worth.
     
    I'm not happy about it, since I wanted to buy stock again in the 9s but didn't pull the trigger, thinking we could quickly see 7 or 8.  Glad at least Straw made some dough here! 
     
    Cuyler

    SubjectRE: RE: Mgmt makes $12 buyout offer
    Entry06/11/2013 05:38 PM
    Memberstraw1023
    alas, I did not make money. I could never get comfortable with Murdock. I agree very much with your analysis throughout, and i do not think you erred at all . . . except in hindsight. 
     
    This morning, I was wondering about a higher negotiated deal, but also think significant chance murdock walks away so not a layup even at $12 . . . and not attractive at $12.50. alas, missed the move from $12 to $12.50 as well.

    SubjectRE: RE: RE: Mgmt makes $12 buyout offer
    Entry06/11/2013 09:53 PM
    Membermack885
    Even though we all saw it coming, Murdoch's playbook was shady here. 

    SubjectDOLE CVR
    Entry06/17/2013 08:54 AM
    MemberValueGuy
    Murdock should offer to spin the $5.56 of non-core assets into a contingent value right (CVR), and bump his cash price as well. In this way, shareholders can be assured they are getting the best value for both core and non-core assets.  The new deal consideration would be say $13.75 of cash and 1 CVR.

    SubjectRE: DOLE CVR
    Entry06/17/2013 09:23 AM
    Membertyler939
    Given the recent history, is there any reason to believe this will happen, or is this just what would be "fair" in a world where management cared about doing the right thing?

    SubjectRE: DOLE CVR
    Entry06/17/2013 11:37 AM
    Memberpcm983
    can you send me the sheet on math of your CVR proposal? thanks

    SubjectRE: RE: DOLE CVR
    Entry08/12/2013 10:50 AM
    MemberValueGuy
    It would be fair in an ideal world - but we know that the idea of the CVR is in the public domain and so it's likely the special committee has seen it

    SubjectCEO Murdock bumps to $13.50!
    Entry08/12/2013 10:51 AM
    MemberValueGuy

    Murdock raised his bid to $13.50 all cash and he and the company have signed a definitive merger agreement as of today! That's 12.5% above the initial $12.00 offer and 32.4% above the 6/10/13 pre-deal share price of $10.20. In the absence of another bidder I would see the deal closing in the November timeframe, based on the timing around SEC clearance of a definitive proxy and a majority of the minority shareholder vote.

    Lazard will now spend 30 days shopping the company, so potential exists for one or more new bidders.

    Link to press release:
    http://investors.dole.com/phoenix.zhtml?c=231558&p=irol-newsArticle&ID=1846859&highlight=


    SubjectGo shop expires Sept. 12th; other bidders in proxy
    Entry08/21/2013 01:24 PM
    MemberValueGuy

    Based on the preliminary proxy filed today it appears that the go-shop period will end on September 12th. As of August 16th, interested parties had executed confidentiality agreements and were granted access to an online datasite to commence diligence. The proxy discusses prospective bidders (particularly Party B and Party C) and the stock is now trading through the $13.50 deal price.  Companies are taking a close look at DOLE and that is good for shareholders. Murdock has run his play book from 2003 all over again, but the endgame here may look very different thanks to one stubborn fact....

    Remember: 41% ($5.56/share) of the current agreed acquisition price ($13.50/share) consists of assets that can be sold without affecting the earnings power of DOLE. I continue to like DOLE here because we pay 20c (i.e. $13.70 last trade - $13.50 offer price) to get exposure to $5.56 of potential upside.

    For those with further interest, I'd recommend a close reading of the background of the transaction section of the proxy: http://www.sec.gov/Archives/edgar/data/18169/000119312513341344/d587864dprem14a.htm


    SubjectRE: Go shop expires Sept. 12th;
    Entry08/26/2013 04:35 AM
    Memberrh121
    Hi ValueGuy:
     
    Thanks for the information. Are you concerned that Murdock's large holding will make any potential bidder think twice? 
     
     

    SubjectRE: RE: Go shop expires Sept. 12th;
    Entry08/26/2013 08:42 PM
    MemberValueGuy
    Hi rh121 - thanks for your question!
    From the proxy it seems that other bidders have so far not been dissuaded by his large stake.
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