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Fresh Del Monte Produce Inc. Message Board

  • bigfishbold bigfishbold Aug 12, 2004 9:45 AM Flag

    Poor Acquisition? Depends...

    This is the first acquisition I've seen that I am not very supportive of. I agree that it seems more an acquisition for aquisitions sake, versus a strategic buy. The refrigerated tankers was better, I think... this one is less so.

    However, it all depends on a few factors:

    1) Price - If they didn't pay a signficant premium for the business over its book cost, and/or it was generally a very small price overall, then it may be worth it.

    2) % of Business - If FDP thinks that it will represent more than 50% of the business, then it might not be a bad deal. Again, they are consolidating operations, ensuring they are customer #1, and capturing all profit out of the entire supply chain.

    However, what I am most concerned with is that either:

    1) They paid a high price given the amount of free cash flow that will be generated. I'm not overly concerned, because this was a one owner/operated small company, and these don't usually generate high multiples when they sell.

    2) It will distract management from the important acquisition they just received.

    3) If FDP doesn't represent the majority of the business, then they will lose customers. I mean, what competitor of FDP wants to support them?

    Overall, I'll remain pessimistically neutral until I see the details. But I hope this doesn't become a trend... I want to see organic growth, not purchased growth.

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    • Valdivostok Huh?

      Well, wouldn't we all like to know that. My guess would be that the trucks would be used for three items; Tropical and Domestic Fresh Produce, Fast Food Fresh Cut, and in the future Canned Goods. They now have the right to use the name for canned products everywhere in the world except here. Does not make sense that this would be left out. Especially since DMFP is now the official supplier of canned pineapples to DM Co. (one of if not their most popular item.

    • "This was an operational purchase, enabling them to start up it's own interstate transport."

      Could be, these guys have been pretty shrewd so far, I don't see them buying a North Dakota trucking company just for giggles. I'd like to look inside their 10-year plan, see what they have in mind. They've gone horizontal and vertical. What's next, supermarkets?

    • Just going to address items in a cursory manner.

      Faxtor 1. Price. Every other acquistion they have made they have said it would be acretive within a short period of time. That was not said this time. They paid some sort of premium.

      Factor 2. I would expect FDP to discontinue marginal route or places they could not expand the core business. They did not buy this to expand RLN trucking, but to sell more fruit.

      Concern 1. See factor 1

      Concern 2. I think management has their eye on the ball all the time.

      Concern 3. If they "lose business" of CQB or Dole, wouldn't their sales rep be glad to step in and say "no we no longer ship CQB or DOLE but I can give you a discount on some high quality FDP produce"

    • What a great idea... I can imagine 120 trucks travelling all the roads with the bright images of fresh fruit... just like the annual report.

      Great "free" advertising...

    • Whether this is a good buy will probably be highly dependant on the discount to fair value to which they bought the company.

      Is buying the company cheaper, or just buying a bunch of refrigerated trucks and setting up the infrastructure? I don't see the business having any strong economic moats that prevents other entities from entering the playing field.

      But I guess if they want to convert that company to exculsively distributing FDP products and not serve any of the other customers. I guess they can get some extra advertising by painting the trucks with the Del Monte seal.

      Also on the good side, trucking probably will be a working business model for years to come. I don't see any signs of technology such as the flying truck or teleportation, that can replace trucking for many years to come. Our goods will be shipped by trucks for the rest of our forseeable life times.

      The aquisition does raise some concerns for me. But I'll leave that to another post in the future after I can comprehend the risks more accurately.

    • Sorry, but 150 tractors is a small company. Big companies (Swift, JB Hunt) have many thousands.

      FDP products will, in general, be a one-way haul. Revenue in both directions is much more cost-effective, and can be done without risk to the quality of service of FDP's principal products. It does take good management.

    • This is not a small trucking company and I do not think they will be moving any product other than DMs from now on.

    • Some thoughts:

      1. It is unlikely that a small North Dakota trucking firm would be union.

      2. Given the geographical spread of their operations, it is likely that their basic commodity is meat, not fruits & veggies, so other customers would not be competitors of FDP.

      3. If they are orgainized to haul meat from the packing plants of the upper midwest, then there is potential for 2-way haul, meat s to the east & south, fruits & veggies, back into the upper midwest. Efficient, cost-effective.

      However, there is a reason that vertical integration has been unpopular within big business in recent years, so FDP's continuing in that direction concerns me.

      (By the way, I'm long, and intend to stay that way for now).

    • You and I are saying the same thing except your saying it will be cheaper.

      I don't believe it will lower cost. If this were true there not be many trucking companies. Truckers = unions = strikes = higher cost and lost product. Hence why so few companies have their own trucking.

    • Refrigerated long distance haulage is not that reliable or cheap. They're not like regular trucking companies and with these commodities they have to be at your full disposal. The only way you can guarantee the best combo of performance & flexibility, while being cost effective is in-house. Look for DM to increase this fleet dramatically as they already have contacts with all the major leasing cos.

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