Dole Shareholders Win

Dole Shareholders Win

Yes I said I was taking some time off...  And I am...  But this is too good not to talk about.

Dole shareholders fighting back and winning $148 million.

One of the first companies I analyzed in a real way was Dole Food Inc. (DOLE) which is now a private company.

In 2012 I found the company undervalued by a substantial margin.  It had up to $585 million dollars worth of land and property it could sell to pay off debt.  And that it should undergo a special situation to unlock some of the value within the company.

I even did my first comparison analysis where I put Dole up against its public competition Chiquita, and Fresh Del Monte.

After seeing this.  Comparing the companies.  And deciding I had enough margin of safety I bought the company for myself and the portfolios I manage.

I only held a full position in Dole for 104 days before selling with a 70% gain after Dole announced it was selling its worldwide operations to Japanese company Itochu for $1.2 billion.

I continued to hold a half position in Dole because even after a 70% rise Dole was still undervalued.  But by selling out I was protecting my gains and only risking some of the money I'd already earned.

About a year after this I sold the rest of my Dole position in all the portfolios I manage because the company announced it was taking the company private at a low ball price.  And then started making some crazy decisions.

Below is an unedited excerpt from my book talking about these things.

"As I have been writing, editing, and revising this book, Dole’s Chairman Mr. Murdock has put in an offer to take the company private once again like I thought that he may do so I wanted to write my thoughts on the ridiculous offer being given to Dole shareholders.  I did think that Mr. Murdock may have wanted to take the company private again but what I didn’t expect was the manipulation of the company’s stock price in my opinion before that happened.  Shortly after Dole sold its worldwide operations to Itochu Dole management began to do some very strange things.  The value of its land holdings, that Dole management themselves estimated to be worth around $500 million when they were getting ready to sell their worldwide operations to Itochu, suddenly stated that they thought their land now was worth only around $250 million only a few months later.

This was shocking to me and led to me sell the stock I owned in Dole in my personal portfolio and the portfolios that I manage because I figured that Dole was doing something untoward to try to get the value of its shares down so the company could be taken private again at a cheaper valuation.  One of my followers on Seeking Alpha and I actually talked about this and both came to the same conclusion that something fishy was going on.

After selling my shares in Dole due to the above situation I stopped paying attention to the company all together to concentrate on the research of other companies until it came out that Dole was planning to do a massive buyback of its shares.  I thought this was a very good thing for them to do since I found the company to be very undervalued when writing my second article on them so I started to look into them a little bit again.  Before I could do even minimal research into the new situation at Dole though its management made another very strange decision.  A few days after Dole announced that it was going to buy back $200 million worth of its shares it changed its mind and all of the sudden decided to update its fleet of container ships instead and canceled the proposed share buyback program.

Of course this sent the share price falling and again led me to believe that its management was trying to manipulate the share price lower so that it could be taken private at an unreasonably low valuation.

Unfortunately it turns out that I appear to have been right because a month or two after Dole decided to cancel its proposed share buyback program to instead buy new container ships, which of course sent the share price lower, Mr. Murdock announced that he was putting in an offer to take Dole private at $12 a share.

Mr. Murdock brought Dole public in 2009 at $12.50 a share so this in and of itself is ridiculous since the company is much more financially stable now than it was then due to getting rid of its giant debt load.  In my opinion this entire situation from the changing of the estimated value of its land by 50% shortly after announcing that they thought it was worth $500 million, announcing the proposed $200 million share buyback and then a few days later canceling it, and then Mr. Murdock attempting to take the company private again at an incredibly low valuation should be investigated.  If Dole is allowed to be taken private at $12 a share, which it probably will because Mr. Murdock at my last check still owned 40% of the company, then the company should be investigated for manipulating its stock price.   If the company is taken private for a paltry $12 per share then its remaining shareholders are getting screwed.

If a situation like this happens to a company you own be very careful, trust your research, trust your instincts, and get out of owning the company if you think you need to.  There are a lot of other companies you can spend your time researching and owning rather than spending your precious time and capital having to worry about whether a company’s management is going to screw over shareholders.  Dole's current shareholders are fighting back by suing the company and I wish them good luck because the proposed buyout offer is ridiculously low."

Most of the time this would have ended things.  And shareholders would have no recourse.

But not in this case...

Not only did litigation continue.  But shareholders won a $148 million decision.  Below is quoted from the linked article above.

The billionaire chief executive of Dole Food Co and his top lieutenant must pay $148.2 million of damages to shareholders they shortchanged when the produce company went private in 2013, a Delaware judge ruled on Thursday.

In a decision that may cast a pall on management-led buyouts, Vice Chancellor Travis Laster said Dole Chief Executive David Murdock, 92, and former Chief Operating Officer C. Michael Carter were liable for depressing the stock so that Murdock, who owned 40 percent of Dole, could buy the rest at a lowball price.

The judge said the $1.2 billion buyout undervalued Dole by 17 percent, letting Murdock pay $13.50 per share rather than the $16.24 that Dole was worth.

And further down

JUDGE FINDS FRAUD

Shareholders accused Murdock and Carter of driving down Dole's share price by downplaying the Westlake Village, California-based company's ability to boost profit by cutting costs and buying farms, and canceling a stock buyback.

In his 106-page decision, Laster saw Carter as the main engineer of the scheme, calling him Murdock's "right-hand man" and saying Carter "actually engaged" in fraud.

Still further down

But shareholders called the move a power play. Laster appeared to agree, calling Murdock "an old-school, my-way-or-the-highway controller, fixated on his authority and the power and privileges that came with it."

The judge said Murdock hurt himself during trial testimony, where defense counsel portrayed him as both a "confused old man" and a disengaged CEO.

"By dint of his prodigious wealth and power, he has grown accustomed to deference and fallen into the habit of characterizing events however he wants," Laster wrote.

"That habit serves a witness poorly when he faces a skilled cross-examiner who has contrary documents and testimony," he added.

This is great for Dole's former shareholders.  And should send a message to companies doing terrible things to depress their own stock price.

But all is still not well here...

While the $148 million paid to shareholders is great.  It still undervalues the company by a huge margin.

By my conservative estimates the company was worth somewhere north of $20 a share when taken private.  But the judge in Delaware deemed the company to be worth only $16.24 per share.  Or at least a 19% discount to what I thought Dole was worth.

So while shareholders are getting paid some of this value I stand by what I said in my book in 2013...

If a situation like this happens to a company you own be very careful, trust your research, trust your instincts, and get out of owning the company if you think you need to.  There are a lot of other companies you can spend your time researching and owning rather than spending your precious time and capital having to worry about whether a company’s management is going to screw over shareholders.  Dole's current shareholders are fighting back by suing the company and I wish them good luck because the proposed buyout offer is ridiculously low."

What do you think of this situation?  And does it give you hope for shareholder rights going forward?  Let me know in the comments below.

***

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Terrible Week – Taking Some Time

Terrible Week - Taking Some Time

In the last year my wife and I have only spent three months out of twelve together.  I spent six months by myself working in Florida.  Came back to South Dakota.  Then a few months later my wife found a job in Tampa and has been down there since June.  And me and our daughters were supposed to be down to Florida sometime in late July after we bought a house.

Well its now August and we still haven't been able to buy a house.  So stress levels for all have continued to rise.

But this week capped things off...

I started the week off with the stomach flu.  Two days ago I had to take my daughter to the emergency room.  And yesterday we were surprised by having to put my 10-year-old yellow lab down that I got for a high school graduation present.  We thought she just had a cold...  But ended up having cancer all over her body.

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Kirra with my oldest daughter Rihanna when she was a baby.

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Kirra with all the grand daughters.

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Kirra with my youngest daughter Kailani

Other than not being able to keep any food down she was acting normal.  Wagging her tail.  And wanting to eat.  So we were in shock yesterday when we took her to the vet.  And he immediately took her to emergency surgery where he found all the tumors.

She was the best.  Most gentle dog you could ever be around.  Never mean even when being kissed, hit, or snuggled too long by the babies.  She was a loving friend and companion who would snuggle up next to me when I was at my worst dizziness wise.  Or anyone else was sick.

She was a 100 pound big baby who thought she was a tiny lab dog.  And always wanted to be near her family.

Physically everyone is fine and back to normal.  But mentally I'm fried and need to take a break.

If you have an email out to me I'll get back to you as soon as possible.  Content will slow down a bit on the blog while I take a bit of a mental break.  But knowing me I'll get the itch to write, research, and analyze again soon.

Thanks for all the memories...  Goodbye Kirra

Yellow Lab royalty-free stock photo

Picture above is a professional picture I took and edited of Kirra and uploaded to iStock photo early this year.

Selling The Seas Case Study Part 1 – Making A Mistake?

Selling The Seas Case Study Part 1 - Making A Mistake?

I read the book Selling The Sea in early 2014 as a way to learn about the cruise industry.  Up to that point I didn't know anything about it other than I never want to go on one because of my dizziness.

From an investment perspective I wanted to expand my circle of competence to the cruise industry because it's an industry that seems ripe for competitive advantages.

Captured customers who have to stay on the boats for sometimes months at a time.  Very few major operators.  And high initial costs to buy or build boats that keep smaller companies out of the industry are a few examples.

While I learned about the industry I still haven't invested in any cruise related public company because of high valuations.  But I did learn about one in this book that caught my eye.  And I've kept it on my watch list ever since.

I was never able to buy the company because it was overvalued.  But was it really?

The company we're going to do a case study on over the coming weeks is Steiner Leisure (STNR).

Private equity firm Catterton is about to buy STNR for $834 million.  Or $65 a share.   A 15% premium to its current share price.  And a 39% premium to the price I could have bought it at almost two years ago.

So did I make a mistake in my analysis then by not buying it?  Or is the private equity firm buying the company at overvalued levels now and making a mistake?

Let's find out

Below are the 2013 and 2014 10K's for the company and the most recent 2nd quarter 2015 release.  I used the 2013 one to evaluate the company more than a year ago.  And haven't looked at them again since.

2013 10K

We need to use this one to find out if I made a mistake in my initial analysis.

We need to use the 2014 10K below to find out if the company is a good buy today.  Or if the private equity firm who's buying it is making a mistake.

2014 10K

Also provided here is the most recent quarterly information the companies released as well.

The next case study post I'll start to go over my preliminary analysis from both years.

***

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Searching For Case Studies – Turning $2 Million Into $2 Trillion

Searching For Case Studies - Turning $2 Million Into $2 Trillion

I've been sick this past week which is why I haven't posted anything.

But as I've recovered I've started to look for case study candidates again and have kept hitting walls.  Every company I look at is either crap.  Way overvalued.  Or is something small I may analyze for Press On Research.

Learning happens when we're challenged.  Not when things are easy.  And I'm having a hard time finding something to evaluate that's challenging.  So I need your help again.

If you have any companies you want me to research and do case studies about please let me know.  Because the more we're all involved the more we'll learn.

Analyzing companies over and over is the best way to learn how to evaluate them for investment.  The more we do here the faster we'll all learn.  So please let me know of any companies in the comments below.

Until then I'm posting an excellent case study done by Charlie Munger.  It's a brilliant thought experiment on Turning $2 Million into $2 Trillion via Mungerisms.

Let me know your thoughts about this in the comments below as well.

August Press On Research Pick Out Tomorrow

August Press On Research Pick Out Tomorrow

The August Press On Research pick is out tomorrow.  And below is an unfinished excerpt from the issue.

We Can Buy This Company For Free

By Just Paying For It’s Cash

By Jason Rivera

Press On Research Volume 1 Issue 5

On two islands a small tech company is providing some of the biggest names in the tech world with necessary services most of us never think about.

When we think of tech Intel’s (INTC) microchips and processors.  Google’s (GOOG) search engine and Android.  Microsoft’s (MSFT) operating system.  And Apple’s (APPL) phones, tablets, and other gadgets come to mind.

If not new tech like of Facebook’s (FB) or Twitter’s (TWTR) social networking does.

The tech industry is rarely on the minds of value investors as an industry to research though.

Most of us stay away from it.  This is because of how fast things change in the industry.

And value investors love to invest in stable companies and industries.

But today’s recommendation isn’t in the tech hardware, software, or app businesses.  It’s in a stable industry.  And the service it provides is necessary for industry giants.

Not only does it meet my strict criteria for valuation, safety, and quality.  But one of the biggest and best value investors in the world owns a significant portion of the company.

I don’t research any company based on other prominent value investors owning portions of them.  But when I read in financials that a prominent value investor owns a company I’m considering recommending it’s always something I love to see.

And I’ve invested alongside this prominent value investor one time before…

That time led to a 50+% gain for the portfolios I manage.

The last time it was a ~$20 billion company going through a special situation.  The company had great margins.  A lot of cash.  A lot of debt.  And was undervalued by a substantial margin to my conservative valuations.

This time it’s a ~$450 million company that has great margins.  Its margins are even better than its bigger competition.  More cash than the company’s current market cap.  And it’s undervalued by a substantial margin to every one of my conservative valuations.

But before I tell you what the company is I need to tell you how it does business.

Handle With Care

When thinking about deep value investing in small caps.  The last companies you consider are high tech companies.

Technology changes so fast that it’s hard to evaluate high tech investments as a deep value investor.  Because deep value investors like stable, safe, businesses.

Most of the time value investors stay as far away from the tech sector as possible.

But there is another side of this industry most people don’t even know of.  And this is where our recommendation today does business.

Companies who build parts that go into computers have to make sure their parts work well once manufactured.  And since most of these hardware manufacturers have their assembly lines set up to make the chips, processors, and memory. They have to outsource the testing of their products to third parties

Without third party specialists like our pick today testing and packaging products.  The part and product manufactures would have to test them in house.  And would have to take money away from R&D that would have to be put towards expensive testing and assembly equipment.

Not only does this outsourcing save the tech giants and manufactures money and time.  But it also brought to life an entire specialized packaging, testing, and assembling industry.

Combined this industry does billions of dollars worth of work.  And saves the tech giants billions of dollars by letting other companies buy the expensive equipment to do these specialized processes.

To see what this company is.  And what the other four Press On Research picks have been.  You can subscribe here.

And remember that free Value Investing Journey subscribers get a 50% discount on their Press On Research subscription.

On Failure and Purpose

On Failure and Purpose

Whether you love him or hate you have to admit that Steve Jobs is one of the most influential people of the last 30 years.

He started Apple and grew it to become a great company.  Got fired from the beloved company he founded.  Started Next and worked with Pixar.  And then got brought back to Apple to save the company.

But he didn't just save it.  He changed the world as we know it with the products the company introduced.

So I thought it'd be great to learn from a super successful guy who failed a lot on the way.

Are you ready to do what's necessary to be great.  And achieve your goals?

Just Ask

Stay Hungry, Stay Foolish

Do you love what you do?

"The ones who loved what they did persevered.  And the ones who didn't love it quit because they're sane."  Steve Jobs

"If you haven't found it yet don't settle.  And keep looking" Steve Jobs

"If today were the last day of my life would I want to do what I' about to do?" Steve Jobs

"Have the courage to follow your heart and intuition.  They somehow already know what you truly want to become.  Everything else is secondary." Steve Jobs

What is your purpose?

"I recently read a shocking statistic. Did you know that most heart attacks happen on a Monday? It doesn’t matter where in the world you live, the highest occurrence of heart attacks seems to be between 8am-9am on Monday morning.

According to a recent study, the risk of a heart attack increases by about 20 percent on Mondays for men and 15 percent for women.

Why do you think this is?

I believe it has a lot to do with the feeling of dread that overcomes us as we are getting ready to go to work. Because let’s face it; very few of us enjoy our jobs.

In fact, if you have a college education or higher the chances are that you hate what you do. You probably fell into a good corporate career in your twenties, lured by prospects and credentials rather than passion.

Years later you find yourself trapped." Les Brown

So...  What is your purpose?  And are you working towards your goals?

Let me know in the comments below.

***

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Six Days Until Release of August Press On Research Pick

Six Days Until Release of August Press On Research Pick

We're now six days out until release of the August Press On Research pick.  And its time to release an excerpt from the issue.

Since I was on vacation I'm a bit behind this month.  So keep in mind with the content below that this is an unfinished, unedited excerpt from the issue.  And since I'm still writing this one the content will change.  But the valuations and numbers are finished.

"On two small islands a small tech company is providing some of the biggest tech names in the world with a necessary service that most of us never even consider.

When we think of tech we think about Intel’s (INTC) microchips and processors.  Google’s (GOOG) search engine and Android.  Microsoft’s (MSFT) operating system.  Apple’s (APPL) phones, tablets, and other gadgets.

Or we may think of Facebook’s (FB) or Twitter’s (TWTR) social networking “new tech.”

The tech industry is a wasteland for value investors though.  Most of us stay far away from it.  And I do in most cases too because of how fast things change in this industry.

But today’s recommendation isn’t in the tech hardware, software, or app businesses.  Its in a more stable industry.  And the service it provides is necessary for industry giants.

Not only does it meet my strict criteria for valuation, safety, and quality.  But one of the biggest and best value investors in the world owns a significant portion of the company.

I don’t start researching any company based off other prominent value investors owning portions of companies.  But when I read in  company financials that a prominent value investor owns a company I’m considering recommending its always something I love to see.

And I’ve invested alongside this prominent value investor one time before…

This led to a 50+% gain for the portfolios I manage.

The last time it was a ~$20 billiion company going through a special situation.  The company had great margins.  A lot of cash.  A lot of debt.  And was undervalued by a substantial margin to my conservative valuations.

This time it’s a ~$450 million company about to go through a potential special situation.  The company has great margins. A lot of cash.  A lot more debt than I would like from a company this size.  Has better margins than its bigger competition.  Is more undervalued than its competition.  And it’s undervalued by a substantial margin to every one of my conservative valuations.

But before I tell you what the company is I need to tell you how it does business."

To see the rest of this issue.  What the company is.  And the four other Press On Research picks up to this point.  Subscribe here.

And remember Value Investing Journey subscribers get a 50% discount on a Press On Research subscription.  To get this discount subscribe to Value Investing Journey here.