Dole Foods an under-estimated acquisition candidate for nutrition majors
- May 16, 2009
||proprietory origination, May 2009
||Dole Food Company (USA), global no.1 producer of fresh fruit and vegetables
||candidates include Nestle, Danone, Unilever
||acquire major asset in high-potential fruit and vegetable –based nutrition category
||indebtedness, strategic investor to premiumise the portfolio
||Dole announced asset sale programme at the start of 2009, to reduce debt
Dole is the biggest fruit and vegetable supplier in the world, and has a history to match that achievement. Weighed down by a large debt burden, and besieged by legal claims and allegations in several developing countries where it grows produce, the group is selling assets in an effort to save itself. We believe that the unique fruit and vegetable proposition, provided by Dole, would be an excellent asset for any food major that can think that far ahead.
Dole has a net debt ratio of over x5, and is hounded by claims ranging from illegal activity in Columbia, to use of sterility -causing fertilisers in Nicaragua, to child labour in the Philippines. At the same time, its procurement assets in fruit and vegetables are outstanding, and would provide a major competitive advantage for majors seeking to premiumise superfoods in future.
With its main provenance in pineapples and bananas, Dole has developed into a huge growing and procurement operation spanning Latin America, South Africa, Thailand, China and Australia. Thanks to that network, it has a broad portfolio of fruit and vegetables, including the most rarified varieties. One example - Tibetan goji berries that are 'beyond organic' and contain 'twice the antioxidants of blueberries'.
Although Dole is renowned for its nutrition research and education function, the group's own efforts to premiumise its portfolio have been limited. It was a pioneer in pre-cut packaged salads in the US, some 20 years ago, and has a substantial packaged foods business. However, today fresh fruit and vegetables still account for 85% of Dole's sales revenue.
Premium fruit and vegetable -based nutrition, with themes like superfoods, antioxidants and 5-a-day, has arguably more potential than any other sector of the food industry today. We believe that reliable year-round procurement and traceability of raw materials will be the key to success in that space in future; Dole's assets and know-how provide that key, and potentially at a low cost.
Dole's asset sale programme has so far focused on real estate in the US, its flowers business and certain banana assets. However, the plan to Q1 2009 is to raise only US$ 300 mln, which is just 15% of its total net debt. The group may need to cut more deeply into its core business, in order to survive.
In terms of buyers for Dole's fruit and vegetable assets, the biggest food multinationals should be considered first of all, given the scale of the operations and opportunity presented.
Both Nestle and Danone made major investments in age-related nutrition in 2007, respectively acquiring Gerber and Numico. This development strategy is likely to take them in the direction of nutrition -packed fruit and vegetables, whether spoonable or drinkable, functional or otherwise.
If they can add unique, natural, fresh, fully traceable, rarified ingredients to their nutrition story, then this could be a major advantage in future. Dole's assets can provide that; then back-integration might return.