When the likes of former Iseq stalwarts like Greencore, Grafton Group, United Drug and DCC ditched Dublin a decade ago for the allure of the London market, local stockbrokers knew it would only be a matter of time before overseas investment banks that encouraged the defections would be back.
Only next time, they’d be pitching the real global epicentre of capitalism: Wall Street.
It didn’t take long. CRH, the largest company on the Iseq, came under open pressure five years ago from some analysts to consider a partial or full separate listing of its North American unit in New York, where, it was advised, the business would benefit from the traditional premium that US stocks enjoy over European peers. Chief executive Albert Manifold resisted.
Then, in late 2019, when Kerry Group, another Irish market heavy-hitter, was in short-lived talks to merge with the nutrition division of US chemicals giant DuPont (in a deal that would have doubled its size), the recommendation from its advisers in Goldman Sachs was that the larger entity should be listed in New York and London.
[ Dublin-headquartered Dole sells fresh vegetables division for €270m ]
Goldman succeeded, however, in early 2021 in convincing Total Produce, the Fyffes spin-off that floated in Dublin in 2006, that a sole US listing was the future as it advised the company on a combination with North Carolina-based Dole Foods to create Dole plc.
The resulting largest fresh fruit and vegetable supplier in the world, with over $9 billion (€8.2 billion) of annual sales – led by bananas – remains headquartered in Ireland.
The deal provides a cautionary tale for others in these parts who might be seduced by the bright lights of Manhattan.
The $400 million initial public offering (IPO) of Dole that July ended up being priced at the bottom end of a scaled-back price range, as it struggled to grab the attention of investors and traders amid a haze of flotations at the time. The shares fell more than 9 per cent on their first day of trading.
[ Fruit giant Dole doubles revenue on back of merger with Total Produce ]
By the end of last year, it had fallen 40 per cent from its $16 IPO price. Total Produce shareholders ended up with 57 per cent of the combined business.
Fortuitously for executive chairman Carl McCann – the grandson of Charles McCann, who laid the foundations for the Fyffes group when he opened a fruit and veg shop in Dundalk in 1902 – and his chief executive, Rory Byrne, most of the variable pay that fuelled their respective $3.23 million and $4.31 million remuneration for 2021 was by way of cash, rather than stock or stock option awards. (Both packages were more than double those of the previous year, helped by the successful completion of the deal.)
There were reasons from the outset for investors to be cautious on Dole compared to its closest, but much smaller, US-listed rival Fresh Del Monte Produce, which continues to trade at a premium, relative to earnings, and saw its share price decline by only 15 per cent between July 2021 and the end of last year.
For starters, there was a lack of performance history for the merged group, leading to a perception that earnings could be volatile.
There have also been concerns about the future of the almost 13 per cent stake in the group held by Dole Foods’s former chairman, David Murdock, who turns 100 in April, as well as legacy investors from Total Produce’s Iseq days.
The McCann family’s Balkan Investment vehicle owns 7.7 per cent.
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The general spectre of inflation, driving up transport, packaging and labour costs, that took hold in the months after the deal went through, didn’t help sentiment.
However, the real issue has been the group’s fresh vegetables division, which accounts for about 14 per cent of group turnover and sells everything from lettuce to broccoli and radishes, often packaged as salads. It’s a division operating in a highly competitive market in the US and which has been hit by a salad recall amid a Listeria outbreak in late 2021 and, more recently, iceberg and cos lettuce crop failures due to drought in California.
News on Tuesday that McCann and Byrne have managed to sell the fresh vegetables unit to part of Chiquita for about $293 million has since sent the stock up as much as 10.7 per cent that day.
“This should help to clean up the story for the company as we move into a new year, allowing management to focus on growing earnings out of what has been a challenging last year,” said Ben Bienvenu, an analyst with US investment bank Stephens.
[ Total Produce merger with Dole Foods to create world’s largest fruit supply business ]
Davy analysts Gary Martin and Cathal Kenny viewed the unit as Dole’s “Achilles’ heel”, with its earnings before interest tax, deprecation and amortisation (ebitda) having swung from $40 million in 2020 to a likely $30 million loss last year.
Goodbody Stockbrokers analyst Patrick Higgins’s sum-of-the-parts valuation for Dole had actually put the fresh vegetables business at zero. “So, we consider the proceeds achieved, in the context of two years of being lossmaking, to be quite attractive,” he said.
Closing the deal, however, is not without risk. Deutsche Bank analyst Christopher Barnes estimates that the combined packaged salad businesses of Dole and the Chiquita subsidiary Fresh Express, the two leading branded competitors in this space in the US, is about 32 per cent by market share. Adding in the private label contracts they have with retailers, it likely rises to 45 per cent.
“While our base case presumes this transaction will receive regulatory approval, we would not be surprised if regulators demand certain concessions/remedies to preserve competition within the category,” he said.
Shares in Dole, meanwhile, have come back off their highs in recent days. The risk of the sale slipping on a banana skin may be capping the rally – for now.