Grocery store employee Mike Martorana restocks the shelves with Dole salad mixes in Willimette, Ill.

Dole CEO may have to
sweeten bid, investors say

By Courtney Schlisserman
Bloomberg News

Westlake Village, Calif. >> David Murdock, the billionaire chief executive of Dole Food Co., may have to sweeten his offer for the world's largest fruit and vegetable producer, investors said.

Murdock offered $29.50 a share, or a 20 percent premium, yesterday for the 76 percent of the company that isn't already owned by his family. A committee of independent directors is being formed to consider the transaction, which values Dole at about $2.5 billion, said spokesman Michael Carter. Shares closed up $4.50 today, a gain of 18 percent to $28.99 They had risen as much as 27 percent in earlier trading.

Dole Foods Co. "There's clearly a belief in the market that there'll be a higher bid forthcoming or that the independent committee will not accept $29.50," said Tim Drake, an analyst at Banc One Investment Advisers, which manages about $140 billion in assets, including 1.35 million Dole shares.

The proposal comes as corporate boards face greater scrutiny over protecting shareholder rights and management oversight. It wouldn't be the first time that Murdock had to raise a buyout proposal to win shareholder approval for the purchase of a company he led. In 2000, he raised a bid for real estate developer Castle & Cooke Inc. after the board rejected an earlier offer.

Analysts said a rival bid is unlikely because the fresh and processed-fruit business has been hurt by an oversupply of produce such as bananas. Del Monte Foods Co. agreed to merge operations with H.J. Heinz Co. in June, while Chiquita Brands International Inc. emerged from bankruptcy in March. Dole has relied on cost savings to keep profit rising with sales declining since 1999.

In a letter sent to the board and filed with the Securities and Exchange Commission, Murdock said the unpredictability of the company's earnings have hurt the company's share price. Dole would be better served freed from that short-term perspective, he wrote.

With sales little changed in the second quarter, Dole increased profit 81 percent to $66.8 million by reducing selling and manufacturing costs. Westlake Village, Calif.-based Dole had net income of $150 million, or $2.67 a share, on sales of about $4.5 billion last year. Sales peaked at about $4.8 billion in 1999.

Before Murdock's offer, Dole shares had declined by more than half since March 1998, leaving the company with a market value of about $1.4 billion.

The transaction may result in Dole increasing its debt to finance the agreement, said Peter Abdill, an analyst at Moody's Investors Service, which put Dole's Baa1 ratings on review for a possible cut.

Standard & Poor's said it may also cut Dole's credit rating.

The offer price includes the assumption of debt. The company has about $1.2 billion in total debt, Dole Chief Financial Officer Richard Dahl said in an interview.

Murdock had about 13.2 million Dole shares in July, according to a filing with the SEC. The company has about 56 million common shares outstanding.

Murdock, who's been running Dole since 1985, said he has financial backing for the takeover from Deutsche Bank AG. His own assets are estimated to be worth $1.1 billion, according to Forbes magazine's list of the world's billionaires. He couldn't be reached for comment.

Dole decided against a sale in 2000 after a review by Goldman, Sachs & Co. found that shareholders wouldn't receive full value during a trade dispute between the U.S. and European Union over bananas. A trade agreement has since been reached.

It's the first time Murdock has made an offer for Dole, Carter said. Murdock expects to negotiate a binding agreement by Nov. 6. Deutsche Bank is advising Murdock on the offer.

Dole's roots go back to about 1851, when Castle & Cooke Inc. was formed by missionaries in Hawaii. The company later gained control of the Hawaiian Pineapple Co., founded by James Dole, that made pineapples almost synonymous with Hawaii.

Murdock's Flexi-Van container leasing company took over Castle & Cooke, which at the time still included the fruit and vegetable business, in 1985. Castle & Cooke, which was spun off in 1995, owns two resorts on Lanai, the Manele Bay Hotel and the Lodge at Koele.

Dole remains one of Hawaii's largest private landowners and continues to grow pineapple, papaya, coffee and diversified agriculture products on about 8,000 acres on Oahu.

In January 2000, Dole -- whose stock price had been hurt by a banana trade war in Europe -- hired Goldman to explore options for the company, including a possible sale.

The European Union had boosted the number of banana-import licenses granted to Latin American nations such as Ecuador and Colombia, causing a surplus that reduced prices and squeezed profit margins. The move damped earnings at U.S. banana companies, and forced Dole to close its banana operations in Nicaragua and Venezuela.

Under the trade agreement, producers from various parts of the world were allocated shares of the European banana market before the quotes are scrapped in 2006.

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