Ireland-based Total Produce has entered into an agreement to buy a 45% equity stake in the Dole Food Co. ( Total Produce/Dole Food Co. )

(UPDATED, 1 p.m.) Adding a huge building block to its North American produce empire, Ireland-based Total Produce has entered into an agreement to buy a 45% equity stake in the Dole Food Co. from chairman and owner David Murdock for $300 million. 

The transaction, expected to close by mid-2018, has been approved by the board of directors of Total Produce and is subject to anti-trust review in a limited number of jurisdictions, according to a news release. Total Produce also has the option to purchase 100% of Dole two years after the initial deal closes.

The Feb. 1 announcement by Total Produce comes less than a month after Belgium-based Greenyard announced an end to negotiations to buy Dole Food Co.  On Jan. 9, Dole filed documents with the Securities and Exchange Commission to back off plans for an initial public offering. 


Details of the deal

Total Produce said the deal with Dole is a continuation of its successful expansion strategy and brings together two of the world’s leading fresh produce companies, with complementary market positions in various product segments and geographies.

In November, Total Produce purchased a 50% stake in Lafayette, Calif.-based distributor The Fresh Connection.

Earlier in 2017, Total Produce increased its stake in British Columbia-based The Oppenheimer Group to 65%, up from a 35% stake acquired in 2013. Total Produce bought 65% of Los Angeles-based Progressive Produce in February 2016.

The deal with Dole is bigger than all of those, as Total Produce has annual revenues of $4.97 billion and Dole’s estimated at $4.45 billion.

“We are delighted to have signed an agreement with Dole, long held in the highest regard as one of the world’s best fresh produce companies, with iconic brands dating back to 1851,” Carl McCann, chairman of Total Produce, said in the release. “We are particularly pleased to be partnering with David Murdock who has been an inspirational and visionary leader since he acquired a majority shareholding in Dole in 1985.”

The deal will deliver efficiencies and cost savings of $15 million to $20 million per year in the short term and $35 million per year over the longer term, according to the release.


A good fit but some questions

For the twelve months ended October 7, Dole generated revenue of $4.455 billion and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $237 million, according to the release. 

The 45% interest implies a Dole value of about $2 billion, according to the release, calculated with a valuation of nine times Dole’s $237 million EBITDA.

Ian Hunter, analyst with Ireland-based Investec, said the two companies seem to have a good fit, with not a lot of overlap in what they do. Total Produce is Europe-oriented, although it has been buying into the North American produce industry on a small scale.

Dole is an iconic North American brand that has big volume of bananas and pineapples and other fruits and vegetables. The deal isn’t expected to tripped up by anti-trust reviews.

But Hunter said there are questions about the deal.

“Over here, one of the questions is why Total Produce is going for such a business partnership, given it is an asset-light model,” he said. Total Produce doesn’t own farms and vessels as Dole does.

Total Produce used to be connected to Fyffes, which fits closer to Dole’s profile as a big supplier of bananas, pineapple and melons. Fyffes spun off from Total Produce in 2008.

“It looks like a strategic fit (between Total Produce and Dole), but any reservations are why Total Produce is going into an asset-heavy business that is highly indebted.”

Hunter said most analysts are interested about what the joint parties are going to do about debt levels at Dole, which he said have been estimated at  $1.3 billion, or 4.5-5 times the EBITDA. 

Hunter and other analysts believe the structure of the deal, with the option of buying all of Dole after two years, is designed to create a window in time to reduce Dole’s debt levels to an acceptable level before Total Produce brings it on to their balance sheet. As a rule, he said debt levels at about 3.5 times EBITDA are considered acceptable for Total Produce.

“If the deal is going to go further than 45%, the net debt to EBITDA ratio (for Dole) is going to come down,” he said.


Transaction structure

Under terms of the agreement, Total Produce will acquire a 45% stake in Dole from Murdock for $300 million.

Total Produce has the right, but not the obligation, to acquire up to an additional 6% of Dole common stock any time after the deal is closed. Two years after the deal closes, Total Produce has the option to acquire the balance of Dole, according to the release.

If Total Produce does not decide to exercise its right to acquire 100% of Dole within five years, the release said Murdock is allowed to sell 100% of Dole common stock.


Board members

After the transaction closes, Total Produce and Murdock will have “balanced governance rights” at Dole, according to the release.

The Dole board of directors will have six members, three appointed by Total Produce and three by Murdock.

Murdock will remain chairman of Dole and Carl McCann will be vice chairman.

Major decisions will require consent of at least one board member appointed by each of Total Produce and Murdock, according to the release.