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Jamaica Producers considering buyout offer from Dole
Julian Richardson, Business Observer staff reporter
Wednesday, September 27, 2006
Jamaica Producers Group (JPG) announced yesterday that it is considering a buyout offer from American fruit processing and distribution firm, Dole Food Company, which wants to acquire JPG's 65 per cent stake in its UK subsidiary JP Fruit Distributors Limited (JPFD).
Dole has a 35 per cent shareholding in JPFD and under the offer obligations Producers must either accept the bid or buy back Dole's interest in the company.
Jamaica Producers cultivates, distributes and markets bananas and other fresh produce. It also manufactures and distributes juces.
Producers Group is Jamaica's largest grower of bananas, controlling some 80 per cent of the island's production, and is also a major marketer of the fruit in Britain.
The company has had a partnership with Dole since 1994 when Producers sold 35 per cent of JPFD to Dole for £18 million, giving Producers access to a wider range of products in the British market. Under the partnership, JPFD increased its market share and now is a major player in the UK market.
Yesterday, the Business Observer was unable to contact any senior representative from the organisation as they were all said to be in the UK attending a meeting.
A Producers news release said that the JPG board is scheduled to meet on October 2, 2006 "to consider the offer and explore strategic options", after which an update will be provided to the public.
According to Shane Ingram, financial analyst at Dehring, Bunting and Golding (DB&G), "Dole's initiation of this transaction as well as international news that it is already considering interests from potential partners to purchase JP's 65 per cent in JPFD suggests that Dole is more interested in acquiring the remaining 65 per cent than relinquishing its 35 per cent".
Ingram believes that an underlying factor in the decision is whether Producers can in fact buy out Dole's shares, which he estimates is now valued at J$2 billion.
"If this is the case, it would mean that JP would be forced to pay out Dole. At this point the question becomes whether JP could afford to pay out," said Ingram.
Using a crude analysis, Ingram said the initial investment is now valued at close to J$2 billion or about 25 per cent of JP's equity at July 2006; or almost equal to the J$2.4 billion JP held in cash and cash equivalents at that same interval.
"Of course, debt is always an option and a very good one for JP since non-current liabilities finance just about six per cent of total assets," says Ingram.
However, ingram was wary that a Producers buyout may strain the firm's cash flow and he is also pessimistic about the implications of a Dole fallout in the distribution deal with Jamaica Producers.
"It is still not that simple," he said. "Additional debt would inflict finance expenses on JP's already tight margins, and we do not know the actual size of this potential buyout. In addition, Dole may terminate the distribution agreement with JP and thereby lessen the revenues accruing to JPFD."
On the other hand, Ingarm seems more optimistic when analysing the possibility of Producers accepting the buyout.
He believes that if Dole, one of the largest fresh food produce companies in the world, acquires JPFD, it will have a very positive effect on the company's financials.
"But then there is the upside. If JP's 65 per cent is taken up by Dole, there would be a huge cash inflow to JP," he said. "The company could do myriad things with these inflows, including rewarding shareholders with a big dividend," said Ingarm.
Philip Harvey Lewis, general manager of Paul Chen Young and Company, has a more definitive view of the inevitable transaction. He says that Jamaica Producers is in good standing "either way" due to the fact that, as the majority shareholder, it has the upper hand in the negotiation process.
"It will have a positive effect on Producers in that if they think it's a good deal, then they will buy out Dole and if they don't see too much future in it then they will let Dole buy them out, either way they are in the driver's seat," said Lewis.
According to Jamaica Producers' six-month financial results ended June 17, 2006, profits in its UK operations were flat during the first half of 2006 compared to the corresponding period in 2005. This was primarily due to increased competition, as a result of the new banana export regime, in supplying fruits to UK supermarkets.
The previous banana export regime was changed after large-scale Latin American farmers successfully argued to the World Trade Organisation that the previous arrangements of tariffs and quotas were unfair. The old regime gave preferential access to the EU's banana market to the African, Caribbean and Pacific countries with which it had a trade and aid agreement. Link
Julian Richardson, Business Observer staff reporter
Wednesday, September 27, 2006
Jamaica Producers Group (JPG) announced yesterday that it is considering a buyout offer from American fruit processing and distribution firm, Dole Food Company, which wants to acquire JPG's 65 per cent stake in its UK subsidiary JP Fruit Distributors Limited (JPFD).
Dole has a 35 per cent shareholding in JPFD and under the offer obligations Producers must either accept the bid or buy back Dole's interest in the company.
Jamaica Producers cultivates, distributes and markets bananas and other fresh produce. It also manufactures and distributes juces.
Producers Group is Jamaica's largest grower of bananas, controlling some 80 per cent of the island's production, and is also a major marketer of the fruit in Britain.
The company has had a partnership with Dole since 1994 when Producers sold 35 per cent of JPFD to Dole for £18 million, giving Producers access to a wider range of products in the British market. Under the partnership, JPFD increased its market share and now is a major player in the UK market.
Yesterday, the Business Observer was unable to contact any senior representative from the organisation as they were all said to be in the UK attending a meeting.
A Producers news release said that the JPG board is scheduled to meet on October 2, 2006 "to consider the offer and explore strategic options", after which an update will be provided to the public.
According to Shane Ingram, financial analyst at Dehring, Bunting and Golding (DB&G), "Dole's initiation of this transaction as well as international news that it is already considering interests from potential partners to purchase JP's 65 per cent in JPFD suggests that Dole is more interested in acquiring the remaining 65 per cent than relinquishing its 35 per cent".
Ingram believes that an underlying factor in the decision is whether Producers can in fact buy out Dole's shares, which he estimates is now valued at J$2 billion.
"If this is the case, it would mean that JP would be forced to pay out Dole. At this point the question becomes whether JP could afford to pay out," said Ingram.
Using a crude analysis, Ingram said the initial investment is now valued at close to J$2 billion or about 25 per cent of JP's equity at July 2006; or almost equal to the J$2.4 billion JP held in cash and cash equivalents at that same interval.
"Of course, debt is always an option and a very good one for JP since non-current liabilities finance just about six per cent of total assets," says Ingram.
However, ingram was wary that a Producers buyout may strain the firm's cash flow and he is also pessimistic about the implications of a Dole fallout in the distribution deal with Jamaica Producers.
"It is still not that simple," he said. "Additional debt would inflict finance expenses on JP's already tight margins, and we do not know the actual size of this potential buyout. In addition, Dole may terminate the distribution agreement with JP and thereby lessen the revenues accruing to JPFD."
On the other hand, Ingarm seems more optimistic when analysing the possibility of Producers accepting the buyout.
He believes that if Dole, one of the largest fresh food produce companies in the world, acquires JPFD, it will have a very positive effect on the company's financials.
"But then there is the upside. If JP's 65 per cent is taken up by Dole, there would be a huge cash inflow to JP," he said. "The company could do myriad things with these inflows, including rewarding shareholders with a big dividend," said Ingarm.
Philip Harvey Lewis, general manager of Paul Chen Young and Company, has a more definitive view of the inevitable transaction. He says that Jamaica Producers is in good standing "either way" due to the fact that, as the majority shareholder, it has the upper hand in the negotiation process.
"It will have a positive effect on Producers in that if they think it's a good deal, then they will buy out Dole and if they don't see too much future in it then they will let Dole buy them out, either way they are in the driver's seat," said Lewis.
According to Jamaica Producers' six-month financial results ended June 17, 2006, profits in its UK operations were flat during the first half of 2006 compared to the corresponding period in 2005. This was primarily due to increased competition, as a result of the new banana export regime, in supplying fruits to UK supermarkets.
The previous banana export regime was changed after large-scale Latin American farmers successfully argued to the World Trade Organisation that the previous arrangements of tariffs and quotas were unfair. The old regime gave preferential access to the EU's banana market to the African, Caribbean and Pacific countries with which it had a trade and aid agreement. Link
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