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Monday, Jun 5, 2023

Produce Powerhouse

By buying a large stake in Dole Food Co., the Irish company Total Produce plc gets a share of 124,000 acres of farmland, 15 container ships and six salad manufacturing plants among other assets of the world’s largest fruit and vegetable producer. It also assumes a lot of debt. Dole, in Westlake Village, owed more than $1.2 billion as of April of last year, according to a filing with the Securities and Exchange Commission. That includes a $300-million note due next year. Paying off that debt that may have been behind the decision by billionaire David Murdock to sell a 45-percent stake in the business to Total Produce, according to analysts who follow the fresh food industry. The transaction came after Dole was engaged in talks to be acquired by Greenyard NV, in Brussels, but negotiations broke down. Dole also had filed preliminary paperwork to go public – but pulled out of that arrangement also. Rick Andrade, a managing director at Janas Consulting, an investment bank in Pasadena, specializes in acquisitions and finance for food and beverage companies. He characterized Total’s taking a 45-percent stake in Dole as dipping their toes to test the water. “Dole has got billions of dollars in debt and struggles just to squeeze out some profits,” Andrade said. “So that would make somebody like Greenyard or Total Produce a little hesitant about jumping right in.” The deal between Dole and Total Produce calls for the Irish company to pay $300 million in cash for its share. Within two years, Total has the option to buy another 6 percent, to make it the majority owner. After two years, it can buy the entire company outright. Attempts to reach an executive with Dole were not successful but Murdock, who has been majority owner of Dole since 1985, said he was proud to announce the deal. Murdock was a friend of Neil McCann, the late father of Total Produce’s current chairman, Carl McCann. “Both Dole and Total Produce have a standard of perfection that leads the industry in innovation,” Murdock said in a statement. “Together we will further our joint mission of providing the highest quality produce to the world.” McCann called the investment in Dole the single most positive step in the company’s history. “It places Total Produce at the forefront of our industry, and we anticipate it will create significant additional value for shareholders in the years ahead,” McCann said in a statement. Once the deal closes, Murdock will remain as chairman of the board and can appoint three directors. His counterpart from Total Produce will be vice chairman and appoint three directors as well. Major decisions will require consent of at least one board member appointed by both Total Produce and Murdock. The Dole deal represents the third investment in a California company that Total Produce has made in the last two years. In March 2016, the company acquired 65 percent of Progressive Produce LLC, in Los Angeles, a packer and distributor of conventional and organic produce to the retail, wholesale and foodservice sectors in the U.S. and Canada. In November of last year, Total Produce took a 50-percent stake in The Fresh Connection LLC, in LaFayette, a distributor of fresh fruits and vegetables to customers in more than 35 countries. Synergy potential Christian Mueller is vice president of special risk management at Atradius, a firm that provides trade credit insurance, and manages a portfolio that includes Dole. He said that, in his mind, the steps the company had taken the past few months made it look like it was looking for an exit strategy. “I think this (the Total Produce deal) is just a continuation and they feel they got a better deal from Total Produce to sell the company,” Mueller said. “They are getting the expectation that by combining both companies that there are synergies for both players.” On paper, the transaction makes sense because Dole brings complementary products to Total Produce. For example, Dole has a strong presence in bananas and pineapples, whereas Total Produce has a smaller percentage in that field, Mueller said. Additionally, only 14 percent of Total Produce’s sales are outside of Europe while Dole has a lock on the North American market. Together, the companies will create a produce giant in Europe, where the top four distributors were only separated by 400 million Euros in revenue, he added. “By combining Total Produce and Dole, they are going to be the number one by a mile ahead of their competitors,” Mueller said. Andrade, of Janas Consulting, believes taking a 45-percent stake in Dole should not set up any regulatory issues for Total Produce, although he admitted he was not familiar with the European Union’s regulatory criteria. “If they do acquire 100 percent and Mr. Murdock steps aside, there might be some dominant player issues related to regulation that they might face,” Andrade said. But a big difference between the companies is that Total Produce is asset light, not owning any of the farms, cargo ships and containers that Dole does. Those assets has contributed to Dole’s debt, Mueller said. He believed that perhaps by taking just a 45-percent stake in Dole, Total Produce can deleverage the company over the next two years and then buy it outright and put it on their balance sheet. “If they were to do it right now, I think their balance sheet would go upside down in a heartbeat,” Mueller said. “That is my speculation.” ‘White knight’ investment? James Drummond Dole started the company that would bear his name in 1901 as the Hawaiian Pineapple Co. Not until the 1930s would the Dole name begin to appear on cans of pineapples and pineapple juice. The company would later merge with Castle & Cooke Inc. in 1961 and rename the company Dole Food Co. in 1991. Its headquarters have been in Westlake Village since 1999. Murdock gained control of the company in 1985 and took it private in 2003. He repeated the cycle, taking it public in 2009 and private again in 2013. Murdock is worth an estimated $3.6 billion, according to sister publication Los Angeles Business Journal. In the 2013 privatization, Murdock bought all the shares for $13.50 apiece, valuing the company at roughly $1.6 billion, including debt. Later lawsuits by shareholders alleged Murdock and others undervalued the company in the deal. The company paid more than $150 million and Murdock himself paid an unspecified amount in settlements. Calling off the third time to go public, as Dole did in January, may have been because the IPO looked iffy and not as attractive as when the process started, said Andrade. Or it might have been the IPO was an option for Dole to take other than filing for bankruptcy, he added. “A white knight came running in and that was the shotgun wedding with Total Produce,” Andrade said. Dole finds itself trying to stay relevant in the face of a produce market in which the younger millennials look for organically grown foods with no preservatives that are delivered fresh. Technology, too, is changing how agriculture works with satellites for water analysis, soil analysis, supply chain automation and packing equipment enhancements. As a global company, Dole is trying to figure out where it can relieve pressures both financially and regulatory, Andrade said. “They found a good friend out there in Ireland,” he added. “We’ll see.”

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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