Big industry news today: Dole Food Company, Inc. – a global business best known for fresh fruit and packaged products like its canned pineapple rings and fruit cups –announced this week that it has signed a definitive agreement to sell its packaged foods brand, along with its Asia-based fresh fruits brand, to Japanese trading company Itochu Corporation. The transaction may cost the Tokyo-based Itochu a hefty USD $1.7 billion, but it comes with a lot of power and benefits that will should make the acquisition worth the effort.
The New York Times reports that Dole has been suffering under a fluctuating market for bananas, one of the company’s staple products. Faced with this turmoil, Dole executives entered talks with Fortune 500 listed trading company Itochu Corporation. The decision reached between the two businesses leaves Itochu in charge of Dole Worldwide Packaged Goods and Dole Asia Fresh Produce, as well as exclusive rights to the DOLE® trademark on both the brand’s fresh produce in Asia and Oceania and packaged goods all over the world. A newsletter to Dole investors states that these two business sectors generated revenue of $2.5 billion in the 2011 fiscal year alone, promising a healthy return on investment for Itochu.
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Forbes notes that this is an especially keen purchase for Itochu, explaining that demand for fresh fruit is expected to rise by as much as 7 percent by the year 2016. This deal also offers Itochu not just exclusive access to Dole’s extensive plantations and processing facilities throughout Asia, but also gives the company new opportunities to strengthen relationships with other businesses and subsidiaries throughout the region.
But this transaction doesn’t exactly leave Dole out in the cold, either. The California-based company still retains control of its fresh fruit and vegetable businesses in North America, Latin America, Europe, and Africa. According to the same newsletter, these portions generated revenue of around $4.2 billion for Dole in the 2011 fiscal year thanks to sales of products like pineapples, bananas, fresh-packed produce and bag salads. Dole’s board of executives has expressed confidence that this plan of action is the right one to keep the company stable and secure:
"The consummation of this transaction will result in a more focused Dole that retains significant scale with more than $4 billion in revenue and a rich asset base,” said David H. Murdock, Dole’s chairman. “With a substantial reduction in debt and the expected cost savings, Dole will also be well positioned to take advantage of growth opportunities within the fresh produce category.”
With the $1.7 billion earned from the sale, Dole plans to recapitalize its debt structure and pay for restructuring-related expenses.