In coming months, investment bankers and fast-growing start-ups, including a few from the Tri-Counties, will be hoping the initial public offering market literally goes bananas.

In what analysts say will be a bellwether for whether the IPO markets are back from the dead, Westlake Village-based Dole Food Co. filed regulatory papers Aug. 14 to raise as much as $500 million by selling shares on the New York Stock Exchange. A successful IPO by the world’s largest seller of fruits and vegetables – including bananas, pineapples and other fare – would be by far the biggest capitalization in Southern California this year and could signal that the markets are ready for IPOs from big companies.

Across the region and the nation fast-growing private companies such as specialty chipmaker Inphi are keeping an eye on the capital markets. Though Inphi has no immediate plans for an offering, it has been adding executives with public-company experience who see the Dole deal, along with a handful of well-received tech IPOs, as welcome developments.

“We’re one of the few growth stories over the last year,” said John S. Edmunds, chief financial officer at the Westlake Village-based computer chipmaker. “We’re focused on looking at our own business and building something that’s going to be able to grow over the long haul. When we’re ready, we’ll go out.”

“It’ll be a nice wake-up call that the IPO markets are back – maybe not in A-1 shape, but serviceable,” said Lloyd Greif, president and chief executive of Greif & Co., a Los Angeles-based middle market investment bank. “You could hear a pin drop in the IPO markets in the first six moths of this year.”

With $7.6 billion in 2008 revenue, Dole is the largest private company in the Tri-Counties. The company was public until 2003, when owner and real estate magnate David Murdock bought the company out and took it private.
A Dole IPO would loom large on this year’s deal landscape. There have been only 15 IPOs in the U.S. this year, according to data gathered by Bloomberg. They’ve been mostly small and have raised about $4 billion so far, compared to 36 offerings that generated nearly $30 billion last year, according to Bloomberg data.

Dole said it hasn’t determined what the share price will be or how many shares will be allotted to Murdock. It did say that the cash raised would go partly toward paying down debt – which stood at about $1.9 billion on June 20 – and that Murdock would keep whatever he makes selling the shares that go to him.

Dole has taken aggressive steps to tackle its debt in recent months. The company said earlier in August that it expects to generate $68 million by selling some of its Latin American operations, and on the day it announced its IPO, Dole also said it will sell $325 million in private debt due in 2016 to pay off debt due next year.
Though Dole’s cash flow was up sharply this quarter, the company remains so highly leveraged that in some respects it had no choice but an IPO, Greif said. “There just aren’t are lot of other places find to half a billion dollars these days.”

“It was a gutsy move by David, but I think it was a move he had to make,” Greif said. “He’s highly leveraged, and he has to get that leverage down. His debt is about five times cash flow, and in this market, most companies are at more like three times cash flow.”

But the time may be ripe for a Dole IPO, other observers noted. The world’s biggest supplier of fresh fruits and vegetables isn’t as risky as an IPO from a young company and might prove palatable to investors hungry to get back into stocks.

“Part of what is happening is that there have been so few IPOs that there appears to be a pretty strong appetite because there’s limited supply,” said Tom Hopkins, a partner in the corporate practice group of Sheppard Mullin Richter & Hampton. “But this is also a case of Murdock being very smart. He didn’t end up owning his own Hawaiian island by making bad decisions.”

All important in the Dole IPO will be the price. It must be modest enough that the shares get a boost in trading after the offering, Greif said. Even a modest rise in the price could cue other companies contemplating IPOs to jump in.

“Aggressively priced deals? Not in 2009. That would be the kiss of death,” Greif said. “This requires disciplined investment bankers to make sure the investor who buys the stock doesn’t regret the decision. It would be nice if it were a home run, but even if Dole hits a double or triple with it, that will open a window for others to go through. For the last 12 months, that window has been slammed shut.”

Greif pointed out some reasons why Dole’s shares might fare well. It’s a household name that hasn’t been slammed by consumers cutting back their spending, and there’s plenty of public data available because the company’s debt is publicly traded, requiring it to file financial reports.

“It’s a defensive stock and it’s not cyclical – people have got to eat,” Greif said. “It’s well regarded and has performed well.”

At present, Murdock – who, with a net worth of $4.4 billion is ranked No. 84 on Forbes magazine’s list of the 400 richest Americans in 2008 – is Dole’s sole stockholder. Murdock is also the developer and co-owner of the Four Seasons Westlake Village, an executive health resort, and was the developer of Lake Sherwood, an upscale golf course and country club near Westlake Village that has hosted the high-profile World Challenge golf tournament, a benefit for the Tiger Woods Foundation.

In recent years, Dole came under fire in a series of lawsuits from foreign workers that alleged pesticides used on the company’s plantations in Central America made them sterile. But in April, a Los Angeles County judge handed an unprecedented rebuke to the attorney handling cases on behalf of Nicaraguan workers, blasting the lawyer on evidence that he had fabricated many key parts of the case.

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