If shareholders and regulators approve Dole Food's deal to sell two… (Kiyoshi Ota, Bloomberg )
Struggling with declining profit and lower demand, Dole Food Co. will sell two major businesses for $1.7 billion in cash to help it pay off debt and realign itself as a smaller, more profitable operation.
The Westlake Village company, the world's largest fruit purveyor, agreed to sell its global packaged food operations and its fresh fruit and vegetable business in Asia to Japanese trading giant Itochu Corp.
The news sent Dole's stock up nearly 6.6% during early trading Tuesday, but investor enthusiasm quickly cooled. The stock ended the day with a modest gain of 10 cents, or less than 1%, to $13.80.
The proceeds from the deal, expected to close by the end of the year, would help Dole pay off outstanding net debt of $1.5 billion, analysts said. The company would end up with $144 million in net cash before taxes, they said.
That would leave Dole in an "enviable financial position," analyst Jonathan Feeney at Janney Capital Markets said in an investor note.
If shareholders and regulators approve the deal, Itochu would gain control of canned pineapple, fruit juice concentrate, frozen produce and other products. And with Dole's exit from Asia, the Japanese firm also would have access to a supply chain that includes farms, factories and distribution centers.
The two Dole operations pulled in $2.5 billion in revenue last year. The packaged foods portion alone makes up 18% of Dole's business. Itochu also would gain exclusive global rights to Dole's trademark on packaged foods.
That would leave Dole with its fresh vegetables business in North America as well as more than 70% of its fresh fruits business, including operations in the Americas, Europe and Africa. The holdings brought in $4.2 billion in revenue last year.
The company also would continue to hold more than 113,00 acres of land, five salad processing facilities, 11 ships and 13,000 containers, as well as ports, housing compounds and research facilities.
"The consummation of this transaction will result in a more focused Dole and retain significant scale and a rich asset base and a much improved balance sheet," said Chief Executive David A. DeLorenzo in a conference call with analysts Tuesday.
Dole said it hoped to shave $50 million in annual costs by the end of fiscal 2013 and "realign and streamline its global personnel and corporate structure," the company said.
It plans to adopt cost-saving and restructuring initiatives as demand fluctuates and its key market in bananas wavers. Over the last three years, earnings have been on a roller coaster, hitting bottom with a loss of $49 million in the third quarter of 2010 and reaching a peak of $83 million in last year's second quarter.
In its second quarter, which ended June 16, Dole said its net income fell more than 21% to $65.5 million from $83.1 million a year earlier. Earnings from bananas were weakened by lower prices in North America.
Unfavorable exchange rates in Europe affected business on that continent. And U.S. income from packaged foods suffered from the costs Dole absorbed in launching a nationwide advertising campaign.
Shares this year had been trading below $10 until the company said in late July that it was "reviewing a number of strategic alternatives," including spinoffs. The stock surged after the news, and again when Dole said last week that it was in advanced talks with Itochu on a deal.
Itochu is a Fortune 500 conglomerate involved in textiles, machinery, aerospace, energy, finance, real estate, food and other industries. It has about 70,000 employees.
As companies hustle to serve Asia's growing — and increasingly moneyed — population, other Japanese trading companies have been busily moving into the food sector.
Marubeni Corp. is trying to buy American grain merchant Gavilon for $5.6 billion. Mitsui & Co. last year spent $508 million making Swiss company Multigrain a subsidiary so it could "secure a stable supply of grain mainly to [the] Asian market," it said in a report.