Top Banana Dole, Up for Sale, Looks Like Tasty Package

If Castle & Cooke Chairman David H. Murdock has his way, he may soon be able to adopt a new corporate slogan; something like: Yes, we have no bananas. Or pineapples. Or broccoli. Or pistachios. Or any other kind of fresh fruit or vegetable.

After five years at the helm of the food and real estate giant, Murdock announced that Castle & Cooke Inc. will sell its produce and packaged goods arm, the venerable Dole Food Co. Dole has bounced in and out of the news since May, 1989, when Castle & Cooke launched an abortive attempt to spin off the food company.

Several international firms are eyeing the Los Angeles-based concern--and with good cause. Dole is so big and has such a lock on international produce that industry analysts revert to a language of superlatives when cataloguing the company’s attributes.

Dole is the dominant company in the worldwide production and distribution of fresh produce, they say. It offers retailers and wholesalers the broadest line of field-grown products. It has the largest fleet of refrigerated container vessels. It has operations in 50 countries from the United States to Thailand.

There is at least a little bit of trouble in produce paradise--a tiny worm or two in the apple, an occasional issue that could cause some consternation for a potential bidder.

But in an era of recessionary fears and a moribund bond market, the fact that there are nibbles for Dole Food at all is an accomplishment in itself. And if the company sells, analysts say, it would be a real coup for Goldman, Sachs & Co., the New York-based investment banking firm handling the sale.

“This will be one of the big deals of the whole year,” said Randy Havre, president of J. B. Havre Securities, a Honolulu brokerage.

When David Murdock merged his Flexi-Van Corp. with Castle & Cooke in the summer of 1985, the beleaguered food and real estate firm had just withstood two takeover attempts in less than a year and had spent months teetering on the brink of bankruptcy.

It was overburdened with debt, said Kevin Skislock, consumer analyst for Rotan Mosle, a New York brokerage. The Dole brand name had been neglected. Castle & Cooke’s land holdings were suffering under the burden of agricultural zoning when the real money was in development.

David Murdock was just what the doctor ordered.

“He just put some creativity to work, sharply enhanced the value of the brand name and added it to new products,” Skislock said. “Then he got real creative and did his best to get up-zonings for his non-Dole real estate.”

Murdock likes a challenge, a financial puzzle, and when he figures it out, analysts say, he tires of it. As an August report by Furman Selz Mager Dietz & Birney points out, Murdock’s typical holding period for any company approximates five years.

Murdock assumed control of Castle & Cooke in July, 1985. In July, 1990, after failing to spin off Dole, Murdock announced that the food firm was up for sale.

And after five years, what is the independent Murdock--who refused to be interviewed--leaving to potential bidders? An awful lot.

“This company has gone from being just another old-boy-club Hawaiian operation to the dominant worldwide producer and distributor of fresh produce,” said Larry Selwitz, an analyst with Cruttenden & Co., a Newport Beach-based brokerage and investment banking firm. “The transformation in my mind has been remarkable.”

For starters, Dole’s revenue was $2.55 billion in 1989, up from $2.3 billion in 1988 and $1.75 billion in 1987. Its operating income was $196 million in 1989. That’s down from $207 million in 1988, but a big jump from its 1987 figure of $148 million, according to the company’s 1989 annual report.

Although Murdock announced this month that Dole will phase out pineapple production on the island of Lanai, the company is still the world’s largest producer of pineapples. It is No. 2 in bananas and citrus and one of the largest marketers of table grapes.

Its fresh fruit is grown in North America, Central America, South America, Hawaii and the Philippines. It has 35 direct selling offices in North America, Europe and Asia. And that’s just the Dole Fresh Fruit division.

Dole Fresh Vegetables is the largest marketer of branded vegetables, offering retailers and wholesalers 20 fresh varieties, including lettuce, celery, cauliflower, broccoli, carrots and spinach, Selwitz said.

Dole Packaged Foods sells processed products in North America, Western Europe and the Far East, including such items as canned pineapple slices, chunks, sauce and juice, chilled and frozen fruit juices and frozen desserts.

Then there’s Dole Dried Nuts & Fruits, which is the largest processor of California pistachios, No. 2 in California raisins and a major processor of almonds.

Analysts place Dole’s value at $2.5 billion to $3 billion.

“I think they’ve got very strong blanket coverage (in grocery stores) throughout the United States and in major markets throughout the world,” said Jan DeLyser, executive vice president of the Fresh Produce Council in Los Angeles. “They have an outstanding reputation, based on their ability to deliver . . . a consistent supply of a quality product.”

But there are problems. The European market is one. Although North America is Dole’s biggest market, chipping in $1.82 billion of its 1989 revenue, Europe weighs in as its smallest sales target, with only $212 million in 1989 revenue.

“I wish they had a stronger position in the European food market,” Skislock said. “There are some very interesting new markets opening in Eastern Europe. Chiquita is in Western Europe with a 44% market share in bananas. Dole has a 13% share. Del Monte has 11%.”

Then there are the inherent difficulties of operating in the food business, problems that showed up starkly in 1989.

The first quarter was marred by a $10-million writeoff as a consequence of the Food and Drug Administration’s temporary ban on the sale of Chilean fruit. Dole’s fresh fruit from Chile could not be unloaded, causing the company to lose sales and incur unreimbursed costs.

And, as the 1989 annual report so delicately states, “Dole fresh vegetables experienced business disruptions due to labor disputes with two different unions.”

Then there’s the weather.

“When you’re dealing with food, there’s always a risk,” Selwitz said. “There are hazards. You could have a tropical storm that could wipe out all the bananas in Honduras. Dole’s earnings are banana-based. They’ve diversified so that it’s not as wild a swing factor as in the past, but it’s still a very, very major factor.”

And although the company boasts that it offers the widest range of fruits and vegetables, not all market chains tap into what Dole offers. Most of its customers rely heavily on perennial favorites such as pineapples and bananas. But the company has just begun to offer produce such as apples, and some industry watchers contend that it still has a way to go to gain wide acceptance.

“They are very strong in pineapple,” said Roger Schroeder, vice president of produce for Hughes Markets Inc. in Los Angeles. “We buy 90% of our needs through them. We buy probably 30% of our bananas through Dole. Chiquita has stronger brand recognition. As far as other commodities, we do very little business with Dole. . . . That’s a pretty fair assessment of every chain you’d see in Southern California.”

Still, the investment community can list a good half dozen companies interested in putting up big money for Dole’s few faults and many strengths.

Chiquita Brands International, based in Cincinnati, is at the top of the list. The company has said that it will make a bid for Dole, regardless of the potential for antitrust action. Chiquita is the No. 1 banana producer in the world; Dole is No. 2.

Also on analysts’ lips as possible purchasers are Philip Morris, Unilever, Mitsubishi, the British produce company Fyffe, the Italian produce firm Del Getti and Grand Metropolitan.

“There was a lot of speculation that Philip Morris would do it on a stock swap,” Havre said. “Murdock is adverse to paying taxes, and that would be a non-tax event. It would be a very good deal. But from what I understand, Philip Morris has not done a stock-type deal for decades, and they’ve got a fabulous cash flow.”