Total tipped for sell-off after $300m Dole deal
Generating operating efficiencies and selling non-core units will be "key strategic priorities" for Total Produce in coming years as it beds down its investment in rival Dole, according to a new report from Davy Stockbrokers.
"Total Produce's investment in Dole represents a coming of age for its regional consolidation model and provides significant runway for future earnings and value growth," said Davy of the Total Produce deal announced in February to buy an initial 45pc stake in Dole for $300m (€243.5m).
The holding in Dole is being sold by 94-year-old David Murdock, who has controlled the company since 1985.
Two years from now, Total Produce has the option to buy Dole out entirely for between $250m and $450m, something that the Irish company is widely expected to do.
Dole's gearing is a relatively high 5.5 times earnings, with $1.3bn of debt. Davy said it understands that Total Produce and Dole have agreed a list of non-core assets for potential disposal to address the leverage.
"Such disposals may include surplus real estate, non-production Hawaiian land [most recently valued at about $120m] and other non or quasi-core assets and operations," said Davy.
Davy Stockbrokers said Total Produce's investment in Dole represents "a compelling step-change for its regional investment and consolidation model". It added that the stake in Dole gives Total Produce access to an iconic brand with strong category positions in fruits such as bananas and pineapples in the key North American and European markets.
Total Produce was already one of the biggest fruit and vegetable distributors in the world before it partnered with Dole.
Davy Stockbrokers pointed out that Dole's vertically-integrated model, where it exercises control across the entire value chain from production to storage, packing, manufacturing and shipping, is "increasingly relevant" as demographic and technological changes drive fresh supply chains to become more agile and responsive.
The broker added that the fresh produce sector is set to remain robust, underpinned by "global megatrends", including rising population, technology adoption, health and wellness and retailer investment.
"Those with scale and integration, embedded relationships and access to high-quality and branded produce stand to emerge as victors of these on-going trends," it said.
Total Produce generated revenue of €4.28bn last year and earnings before interest, tax, depreciation and amortisation of €61.2m. Dole reported revenue of $4.4bn (€3.5bn) in the 12 months to the beginning of last October and a $16m (€13m) net loss.