Dole shares sink in debut despite low starting price


POSTED: Saturday, October 24, 2009

Dole Food Co., the world's largest producer of fresh fruit and vegetables, retreated in its first day of trading after becoming the fifth U.S. company since September to cut its initial public offering price.

Dole slid 22 cents, or 1.8 percent, to $12.28 yesterday in New York Stock Exchange composite trading. The Westlake Village, Calif.-based company raised $446 million selling 35.7 million shares for $12.50 each Thursday, according to a sale document.

Dole, which sells fresh bananas and pineapples, packaged spinach and canned fruit, had planned to price the stock at $13 to $15 a share, an Oct. 9 filing showed.

The IPO valued Dole at $1.09 billion as its shares traded yesterday after a six-year hiatus. Chairman David Murdock took Dole private in 2003 after rescuing the food producer, founded in Hawaii in 1851, from bankruptcy more than two decades ago.

Dole owns approximately 26,000 acres on Oahu and farms pineapple on 2,700 acres of that land and coffee and cacao on an additional 195 acres. The remaining acres are leased or are in pastures and forest reserves.

As of Jan. 3 approximately 9,000 acres were classified as assets held-for-sale. Other Hawaii land parcels are currently under evaluation for potential sale.

“;Historically, deals that have been priced below the low end of the initial pricing range have a significantly poorer level of performance in the after-market,”; said David Menlow, president of in Millburn, N.J., after the sale was announced. “;It is considered in many circles damaged goods.”;

; The offering is the 16th U.S. company IPO since the start of September, the most over a two-month period since 16 went public in January and February of 2008, data compiled by Bloomberg shows. More than half of the stocks have fallen below their IPO prices.

Initial share sales evaporated after New York-based Lehman Bros. Holdings Inc. filed the world's largest bankruptcy last September, dragging the financial system to the brink of collapse.

The underwriters, including New York-based Merrill Lynch & Co. and Goldman Sachs Group Inc. and Frankfurt-based Deutsche Bank AG, have the option to offer 5.36 million additional shares. Dole initially said it planned to raise about $500 million when it announced the stock sale in August.

Dole intended to use the proceeds to repay $451 million in debt and a prepayment penalty of $17 million, the Oct. 9 filing said. The shares will trade under the ticker symbol DOLE.

The fruit producer also priced $300 million of convertible securities, according to terms obtained by Bloomberg News. The securities were priced at $12.50 apiece and carry a 7 percent coupon. The conversion price was set at $15. They were sold in a private placement to institutional investors.

The company has a market value of $1.07 billion, smaller than rival Fresh Del Monte Produce Inc., which is worth about $1.41 billion, and 63 percent bigger than Chiquita Brands International Inc., which has a capitalization of $657 million.

There have been four IPOs announced by food companies this year — Dole; National Beef Inc. of Kansas City, Mo.; Rochester, N.Y.-based Birds Eye Foods Inc.; and Greeley, Colo.-based JBS USA Holdings Inc. — the most since 2004, data compiled by Bloomberg shows.

Dole is the first IPO by a food company since the July 2005 offering of Diamond Foods Inc., the Stockton, Calif.-based marketer of almonds and other nuts. It's also the largest in the industry since Northfield, Ill.-based Kraft Foods Inc. raised $8.7 billion on June 12, 2001.

Dole earned $20.9 million in income from continuing operations in the quarter ended in June, according to Dole's prospectus. That implies a valuation of about 13 times earnings over a full year, based on the company's market value.

Murdock, who owns about 98 percent of Lanai through his ownership in Castle & Cooke, took Dole private in March 2003 after purchasing the 76 percent of shares he didn't already own for $33.50 apiece. The transaction, which Murdock financed primarily with debt, valued the company at $1.9 billion.

His holding company also assumed $594 million in Dole's net debt at the time of the deal, data compiled by Bloomberg shows. Murdock contributed $125 million in cash toward the purchase.

Prior the IPO, Dole had about $1.58 billion in long-term debt as of June, according to a regulatory filing. Dole has generated negative cash flow, or cash flow from operations minus capital spending and dividends, every year since 2005, according to Fitch Ratings.

“;Dole is very overleveraged,”; said Francis Gaskins, president of in Marina del Rey, Calif. “;It's borrowed way too much money.”;