Dole Food Company, Inc. (DOLE) chairman and CEO David H. Murdock is once again trying to take the company private by buying up the 60% of outstanding shares that he doesn't already own. This is not the first time Murdock has attempted to privatize the produce giant; the 90-year-old billionaire successfully did the same in 2003. At present, Murdock is offering $12 per share of common stock, a valuation that represents an 18% premium to Monday's closing price. This offer may be augmented as the deal approaches, though, as share prices have shot up 19.53% after word of the potential buyout reached investors. The offer would value the entire company at $1.07 billion and suggest an enterprise value of $1.5 billion. In 2012, the company reported revenue from continuing operations of $4.2 billion.
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Dole recently sold its packaged food and Asian produce business to the Japanese trading house Itochu Corp (TYO:8001) for $1.7 billion in April. Since the deal, Dole has been able to better focus on its international fresh produce business, which has historically the driving force behind Dole's revenues. This move, though potentially profitable, is one that will cause the company's earnings to be subject to the price fluctuations of produce products, which are among most volatile of all commodities. The potential complications involved with a produce-exclusive enterprise were exemplified early this year, as a strawberry glut slashed margins and partially halted a proposed share buyback, which was eventually scrapped. The remaining funds earmarked for the buyback were reallocated into growth-focused endeavors such as the expansion of its shipping fleet. Concerns over the management's seemingly erratic behavior caused investors to flee the stock as these developments occurred; the buyout announcement sheds light on these once-concerning developments.
The divesture in its less profitable ventures allowed Dole to repay the majority of its outstanding debt, which had been racked up during a borrowing binge in the mid-2000s. These debts carried with them particularly high interest rates that had been cutting into revenues for years. The company replaced the outstanding loan pastiche with a more manageable $675 million term loan that allows for more malleable cash flows. The debt relief provided by this maneuvering will be taken into account by shareholders and speculators alike as the buyout deal approaches, and this will likely push the company's valuation higher.
The company is arranging a special committee to discuss negotiations. Since shares are already trading at a higher level than the premium offered up by Murdock, it is expected that the nonagenarian executive will be forced to raise his bid for the stock. Speculators seem to have recognized that the stock holds what amounts to a guaranteed value level that likely sits above current valuation, and they will continue to buy in until they are told otherwise. Prior to news of the buyout, the stock was down 32.7% from an all-time high of $15.16 per share in September after the sale to Itochu Corp. Deutsche Bank (DB) is said to be advising on the transaction and, according to a Reuters report on the deal, has reported to Murdock via a "highly confident" letter regarding the financing of the transaction.
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Trade: On June 6, a trader bought 19,431 DOLE July 10 calls for $.25 and 16,921 DOLE July 8 puts for $.05. What did this trader know? Well, let's break it down.
Risk: $.30 per one lot
Breakeven: (Roughly) $7.70 and $10.30
Cash Outlay: $570,380
On June 11, just five days later, DOLE spiked on a takeover bid is trading $12.25. Let's check out these trade results:
- 19,431 DOLE July 10 calls went from $.25 to $2.25 for a net profit of $3,886,000.
- 16,921 DOLE July 8 puts went from $.05 to zero for a net loss of $84,605.
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