Could a Possible Buyout Mean Dole Is Rotten?

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Almost four years ago, Dole Food  (UNKNOWN: DOLE.DL  ) arrived onto the stock market. Everything seemed OK at first -- within a couple of years, the company's stock price had risen 21% to $14.87. However, even Dole, the world's largest fruit and veggie distributor, was not immune to the general volatility of the food industry.

Now it looks like billionaire David Murdock, Dole's CEO and nearly 40% shareholder, is making a bid to take the company private again. Why is this happening, and what could that mean for Dole's current shareholders?

A brief history of Dole buyouts
This is definitely not David Murdock's first time at the Dole privatization rodeo. He took the company private for the first time in 2003, then stepped down as CEO from 2007 until earlier this year. When Dole IPOd again in 2009, it was worth approximately $12.28 a share. Murdock's buyout offer of $12 a share is significantly lower, but recent events suggest this isn't an underestimation of the company.

After selling two of its business units -- Asian produce and global packaged food -- to Japanese trading firm Itochu, Dole became a smaller company in exchange for a $1.7 billion price tag. In a statement to the Securities and Exchange Commission, Murdock said he expected the sale to help improve the trajectory of Dole's share price.

Sadly, these efforts haven't really worked. Since peaking in February 2011, Dole's shares have fallen 15% to $12. Plan B for Murdock is to take the whole company private.

Watch for falling financials
On top of a smaller stock price, Dole has also suffered from a number of unfortunate financial statements. The company's annual revenue has slipped from $4.7 billion in 2011 to $4.2 billion in 2012, and its quarterly earnings have jumped back and forth from $1.08 billion to $2.2 billion to $1.9 billion in the first through third quarters of 2012. In March 2013, Dole's quarterly earnings dropped to $1.05 billion, and its net income was negative $66 million.

Dole is also heavily laden with the rotten fruit of debt. The company currently has $175 million on the books in terms of short-term debt and has had between $1.5 billion and $1.8 billion of long-term debt to its name since 2008. A buyout would allow Murdock to assume this debt and let the company start fresh, and that may be exactly what Dole needs right now.

So what's next?
Dole investors have to wait until July 31 to have their say on the privatization matter. Judging from the fact that Dole's stock price has jumped on news of a buyout to around $12.88, it looks like there's some hope that Murdock could change his tune of paying out $12 a share to something higher than the company's IPO price.

The whole affair is much calmer than the soap opera surrounding another recent buyout rumor for tech company Dell. No one has come out of the woodwork like activist investor Carl Icahn and claimed that Murdock doesn't have Dole's best interests at heart, and no special committees have been organized to prove that the competing bidder doesn't actually have their facts right. Murdock just wants to remove the bruises of debt from his company and make it shine like a ripe piece of fruit. And when you're a 90-year-old billionaire who's holding about 40% of a company's shares, who can say no to you?

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