First Article Published On Insider Monkey

A few months ago I was approached by an editor at Insider Monkey to start publishing my articles on the site.  Of course I said yes because I love the information that is on the site and have used it regularly in the past when researching my some of my previous articles.

My first article was published on the site today for any of you out there who would like to view it.  The Proposed Going Private Transaction At Dole and Its Shareholders Fighting Back.  The same article that I posted to this blog last week.

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Excerpt From My Upcoming Book About The Proposed Going Private Transaction At Dole and Dole Shareholders Fighting Back.

I have finished up writing the main transcript of my book and have done one full revision and edit of the book.  I have sent the book off to some family members and a couple recently published investing authors to get some feedback on things that I could be doing better.

After receiving some feedback from those sources, (Thank you all so much!) I am in the process of going back over the entire book to make improvements.   I wanted to release this portion of the book right now to you all because I have talked about Dole quite a bit on this blog and I wanted to share my full thoughts about the ridiculous situation at going on at Dole right now.

It appears that a lot of Dole’s current shareholders agree that the buyout offer at $12 is ridiculously low as its own shareholders have been suing the company to stop the low ball going private transaction offer.

Below are just two of the many articles about Dole getting sued for the proposed transaction.

Levi & Korsinsky Notifies Investors of Claims of Breaches of Fiduciary Duty in Connection With Going Private Proposal From Company’s CEO

More cases against Dole board say Murdock bid too low

Directly below are two pages from my upcoming book where I talk about the transaction. Please feel free to leave any comments or concerns you have about the actual excerpt from my book or the proposed Dole transaction as I would love to converse about either.  Also keep in mind that I still have a lot of editing and revising to do if you find any grammar or editing errors.

“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.”

Update On My Value Investing Book, Discount For You Loyal Readers, Company Research, Another Baby Girl, and Dole Shareholders Getting Screwed.

I have been spending the bulk of my time lately getting ready to move, getting ready for another baby girl coming in late October, and writing my book.

We are staying in the same area just getting a bigger house to accommodate our growing family but packing and doing house related things to get ready for closing on both of our houses on the same day later in June, yikes, has been taking up the majority of my time in recent weeks.  Excited but also cannot wait until we are moved and settled in so things can start slowing down again and I can start working on me and my brothers business and researching companies more.  I have been researching companies very slowly but up to this point I am finding everything to still be overvalued.  The search continues though and I hope to pick up steam again after I move and get the book finished.

I am done writing my book and am now onto the editing and revision stage.  So far I have gone through the introduction and six chapters and am getting very excited.  While I was writing the book I was just trying to get the main transcript done without concentrating much on how good it actually was.  Now that I am able to read through the transcript as I am editing and revising it I am getting very excited because I think I will be able to help a lot of people become better investors faster and I cannot wait to release it to everyone.  I hope to have most of the editing and revising of the book done by early July and hope to release the book sometime in the mid October to mid November time frame.  I also plan to release a chapter or two online before the book comes out as well.  Of course if I get picked up by a publisher these things will likely change but if I self publish the book on places like Kindle and others than that is the time frame I am shooting for.

As a thank you to the loyal readers of this blog, my followers on Twitter and Seeking Alpha, and my Facebook friends I also wanted to let you know that if you follow me on this blog, Twitter, Facebook, or Seeking Alpha that you will be getting a 25% discount off of each package I am going to offer for my book.  The same discount is going to apply to anyone who mentions this blog or the upcoming book on Twitter, Facebook, or Reddit as well.  If you want a discount when the book comes out make sure to # or @ me on Twitter, get my attention on Facebook, or email with the link where you mentioned this blog or the upcoming book as I will start to keep a list of everyone who has helped me promote this book and who has supported me while I was just getting started.  I also plan to offer an even bigger discount or prize of some kind for the person or people who help promote the book the most but have not come up with a solid idea for that yet.  Again this is all dependant on what a publisher would want to do if it comes to that but this is what I want to do.

I also want to let everyone know that we will be welcoming our second baby girl to this blog in late October whose name will be Kailani.  My family is one of the main reasons I have decided to write a book because I would like to find a way to start making some money from my investment writing so for every book package you buy.  Every book you buy or help promote will help support my family and keep continued free content on this blog, and it will be immensely appreciated.  I would like to keep most everything on this blog free except for the book and some other premium content I have planned and any help you can offer would help support that.

Yesterday news came out that the majority owner of Dole, Mr. Murdock, was attempting to take Dole private again at $12 a share.  Dole came public at a price of $12.50 a share a few years ago.  After some of the things that Dole management has done in the past few weeks from saying their land suddenly wasn’t worth as much money, to saying they were going to do a buyback, then a few days later not doing a buyback, to this low ball buy-out offer I am very glad that I got out of Dole when I did.  I figured that something fishy was going on when they said that some of their land suddenly wasn’t worth as much money as they thought and had a conversation with one of my followers on Seeking Alpha about how something funny was going on and how management might be trying to lower the price of the stock so they could take it private again.  Unfortunately it appears that I was right because by my conservative estimates Dole is worth somewhere between $15 and $22 a share.  If Dole management is able to pull this off and only take the company private for $12 a share then there should be an investigation into what management has done over the past month or so as its shareholders are about to get screwed.

I will continue to update happenings on the book and if I find a company to write an article on but until I move later this month posts will continue to be few and far between most likely.

Remember if you follow this blog, me on Twitter, Facebook, or Seeking Alpha you will get a discount on my book when it comes out so please share this with as many people as possible so they can get the discount too, thank you.

Until next time.

The Float Of The Companies I Own

Originally I was planning on evaluating the float of every company I have written an article on but decided to just focus on the companies whose stock I currently own.  Below I am going to give you an example of the full analysis on one company and then just do an overview and chart of the rest of the companies as the calculations are all the same.

Brazil Fast Food Company (BOBS)

All numbers for BOBS are in $R million unless otherwise noted.

  • Financial Assets: Cash and cash equivalents of 28.4+prepaid expenses of 1.2+advance to suppliers+deferred tax assets net of 6.8=38.5
  • Operating Assets: All other assets such as goodwill, IA, AR, inventories, etc of 89.3.
  • Total Assets=127.8.

Liabilities

  • Equity of 38.3
  • Debt of 21
  • Float-Accounts payable & accrued expenses of 9.7+payroll and related accounts 6.7+taxes 4.6+deferred income tax 0.2+current portion of deferred income 2.5+current portion of contingencies and reassessed taxes 2.1+other current liabilities 0.8+deferred income 2.4+long term contingencies and reassessed taxes 17.9+other liabilities 1.2=float of 48.1

Total liabilities are 69.4

Float/operating assets=53.86%.  BOBS float is supporting 53.86% of operating assets meaning that BOBS float is not completely free.  The float being completely free would mean that the company’s operations are being operated generally by completely free money if the ratio was over 100% and the float is costless.  A situation where float is costless is when an insurance company is earning an underwriting profit.  BOBS still has a pretty good portion of its OA operated by float, as you will see in the chart below, which is always a good thing.

Pretax profits/total assets=ROA

  • 17.4/127.8=13.62%

Pretax profits/ (total assets-float) =levered ROA

17.4/79.7=21.83%

BOBS MAIN CMT STRT VIVHY DOLE
Float/Operating Assets

53.86%

90%

27.27%

60.53%

37.68%

27.69%

Unlevered ROA

13.62%

9.59%

14.23%

10.65%

6.43%

1.29%

Levered ROA

21.83%

9.73%

19.25%

20.59%

9.67%

1.79%

As you can see from the chart, BOBS, MAIN, and STRT all have float supporting more than 50% of each companies operating assets and BOBS, CMT, and STRT’s levered ROA make the companies look even better than I already thought they were.

VIVHY and DOLE, my two spin off companies that I do not plan to hold for as long as the other companies above, have ratios that are generally quite a bit worse than the other four.  Looks like I have been doing a decent job of spotting float in my long term companies before I even knew what it was.

To tie this whole theme up of the past several weeks I am capping it off by analyzing and evaluating an insurance company, the ultimate providers of float and a big reason why Buffett was able to compound his returns at such a fantastic rate over the past four decades.  I started research last night on an insurance company whose market cap is under $75 million and will have the write up written as soon as possible.  It will take me longer than usual to get this article ready because this is the first time where I have truly tried to evaluate an insurance company and need to learn as I am going; the specific terms and best ways to evaluate this type of company.

In the mean time I will probably post some links but from now on I will not be posting updates on what I am doing anymore.  I am constantly reading, learning, and trying to find companies to research and evaluate so if I don’t post for a while, from here on out that just means I haven’t found a company I think deserves a full write up.

A Portfolio Update And Two Powerful Insights Every Serious Investor Should Read

Portfolio Update

Yesterday I made some adjustments to my portfolio and the portfolios I manage and I just wanted to update those positions.

Personal Portfolio and Portfolios I Manage:

  • Bought Strattec Security Corporation $STRT

Personal Portfolio:

  • Sold Altria $MO up 18%.
  • Sold Philip Morris $PM up 24%.
  • Sold Intel $INTC up < 1%, could have sold a while ago up 30%, doh!

All sold positions are after fees but before taxes.  I never bought any of the above three positions for the portfolios I manage and I bought Altria, Philip Morris, and Intel before doing any kind of valuations or any kind of in depth research so I am a bit fortunate to end up anything in those positions.

I said a couple months ago that I planned to hold the above positions for the foreseeable future because I felt that I could have my results compound well over time in all of the three companies.  I still think that is true for all of the above companies but have still decided to sell them all.  Lately I have been gaining confidence in my abilities to analyze companies, and I now think that I am at the point where I am getting pretty good at analyzing companies and think I can find better opportunities in the smaller mid to nano caps that I am concentrating on now.

Also as Red reminded me of the other day, why would I try to compete with the millions of people who are invested in and analyze those massive companies when I can find less competition, potentially less efficiency, and more upside, in the much smaller companies.

After selling those companies to free up cash for future opportunities, my current portfolio stands as follows, ranked by position size.  Portfolio does not add up to 100% because of rounding:

  1. $VIVHY.PK-28% of portfolio.
  2. Cash-26% of portfolio.
  3. $STRT-16% of portfolio.
  4. $MAIN-11% of portfolio.
  5. $CMT-8% of portfolio.
  6. $DOLE-8% of portfolio.

Two Powerful Insights Every Serious Investor Should Learn From and Reread.

Fundoo Professor-Presentation On Moats And Floats.

The Red Corner Blog-Kfaftwerk; A look at economies of scale and how Wal-Mart changed its industry and made a ton of money.

I hope you enjoy the above links as much as I have.

I have already started researching another company and tomorrow I will post some links and ask your advice on something I have been thinking about quite a bit lately.

Dole Is Still Undervalued: Updated Valuation And Analysis Article After Sale To Itochu

Earlier this year I completely dedicated myself to learning the techniques, process, and proper mind set to become an excellent value investor.  I wrote my first full article back in June about Dole Food Company (DOLE).  Here are my thoughts on Dole back in June, and my conclusion thoughts after comparing Dole to Chiquita (CQB) and Fresh Del Monte (FDP).  Due to its big change since that time I have been asked by a reader what my thoughts about New Dole are now that it has eliminated what was its biggest problem; its debt.  Here is just one of the many articles outlining the sale to Itochu for $1.7 billion that is expected to close by the end of the year.

The reader wants to know what I think about New Dole’s prospects going forward, if I still think the company is undervalued, or if I would think about selling now if I find it to be overvalued.

The reader also asked me about the 2009 Dole Food Automatic Common Exchange Security Trust which I talk about here.

Since the transaction has not closed still, most of the information in the above articles remains intact as it pertains to margins and debt levels about Dole’s current state.  I will first value the business as I see it after the sale of its worldwide operations and then comment on what I think about New Dole’s prospects after the transaction closes.  When I refer to Dole as a whole I mean Dole before the sale of its worldwide operations.  New Dole is in reference to my estimates of Dole’s operations after the sale of its worldwide operations.  I have a call into Dole investor relations to get exact revenue and EBIT numbers for New Dole, but to this point I have not received a call back.  I am estimating that New Dole will lose about 36% of its EBIT after the sale of its worldwide operations.  I came to that estimate from looking at Dole’s sale to Itochu presentation from September which can be viewed here.

These valuations were done by me, using my estimates, and are not a recommendation to buy any stock in any of the companies mentioned. Do your own homework.

All numbers are in millions of U.S. dollars, except per share information, unless otherwise noted. Valuations were done using Dole’s 2011 10K, second quarter and third quarter 2012 quarterly reports and presentations, and Dole’s presentation of what it should look like after its asset sale.

The main thing I was worried about with any asset sale is that Dole would have to unload some of its very valuable land assets.  Thankfully after the transaction is completed New Dole will still own 113,000 acres of land including some very valuable land in Hawaii.  All assets below are being kept by New Dole.

Sum of the Parts Valuation

Land Holdings

Dole owns 25,000 acres of noncore land in Oahu valued by Dole at $500 million or $20,000 per acre.  Dole also owns 22,100 acres in Costa Rica, 3,900 acres in Ecuador, and 25,500 acres in Honduras.  Only part of each countries acreage are being used for growing fruit: 8,200 in Honduras, 7,300 in Costa Rica, and 3,000 in Ecuador meaning the rest could presumably be sold without interfering with current operations, about 33,000 acres.

  • All Costa Rica land valued at $5,000 per acre equals $110.5 million.
  • Al Ecuador land valued at $3,500 per acre equals $13.65 million.
  • All Honduras land valued at $3,500 per acre equals $89.25 million.
  • Remaining 36,500 acres valued at $5,000 per acre equals $182.5 million.

Adding total land value estimates up equals $895.9 million just in land value or $7,928.32 per acre, which comes out to $10.18 per share in total land value.

Estimated value of unused noncore land 33,000 acres in the above three countries at $5,000 an acre for Costa Rica and $3,500 for Honduras and Ecuador land is $75.7 million.

Total noncore land assets that could be sold valued at $575.7million total, or $9,925.86 per acre; $6.54 per share in land assets that could be sold.

Ship and Ship Related Equipment

Dole owns 13,300 refrigerated 40ft containers at a very conservative $5,000 each equal $66.5 million.  This is a very conservative estimate as these containers can sell for as much as $50,000 a piece.  I am using $5,000 per unit as my estimate because I want to be extra conservative and because I have not been able to find an exact break down on how many of the 13,300 container units are the 40ft refrigerated units as Dole’s also has some 20ft refrigerated, and completely unrefrigerated containers, so I wanted a very conservative estimate of price to be safe.

Dole also owns 11 ships which I am very conservatively valuing at $1 million each.  I found a few container ships selling for under $1 million but most were well over that price, with some reaching prices over $100 million.  I am again just being conservative here because I do not have vast knowledge on the prices of Dole’s ships.

Adding all of the land, ship, and container value up gets us to a total of:

  • All land, ship, and container value=$973.4 million, or $11.06 per share.
  • Only noncore land that could be sold, ship and container value=$653.2 million, or $7.42 per share.

None of Dole’s operations, cash, debt, or any of its building or other equipment is counted in the above calculations.  I will include Dole’s cash in the below valuation.

I did not include any of its buildings or other equipment in the above valuation because I could not find any concrete information and again did not want to speculate on numbers.

Now I will value Dole’s operations.

EBIT and Net Cash Valuation

Cash and cash equivalents are 82 and it has 0 in short term investments.

Dole as a whole has a trailing twelve month EBIT of 180.7 for its entire current operations.  Per Dole’s sale to Itochu presentation I am estimating that it will lose approximately 36% of EBIT after the sale of its worldwide operations which leads to a trailing twelve month EBIT estimate of 115.65 for New Dole’s operations.

5X, 8X, 11X, and 14X EBIT + cash and cash equivalents + short-term investments:

  • 5X115.65=578.25+82=660.25/88=$7.50 per share.
  • 8X115.65=925.2+82=1007.2/88=$11.45 per share.
  • 11X115.65=1272.15+82=1354.15/88=$15.39 per share.
  • 14X115.65=1619.1+82=1701.1/88=$19.33 per share.

Combined Valuation Of New Dole

All values are per share values.

Total Land, Ship, and Container Value Only Non Core Saleable Land, Ship, and Container Value
5X EBIT $18.56 $14.92
8X EBIT $22.51 $18.87
11X EBIT $26.45 $22.81
14X EBIT $30.39 $26.75

The only thing the above values are not containing is the debt.  The reason I am not including the debt in any of the estimates of intrinsic value is because Dole as a whole now has total debt of $1.4 billion but will be able to pay off all of it if it chooses to after it receives the $1.7 billion from Itochu.   Thus making the above very good estimates of what New Dole should be worth after selling its worldwide operations and ridding itself of the debt.

I had an additional two paragraphs written about Dole’s TEV/EBIT and ROIC margins but those had to be scrapped since I have still not heard back from Dole investor relations about New Dole’s exact numbers and I did not want to speculate.

New Dole is also forecasting that after the sale is finalized it will be able to save around $100 million in cap ex and corporate expenses by the end of fiscal 2013 which supposedly are going to be yearly savings going forward, and to be able to improve its overall business operations.  Even leaving improvement in operations, possible future acquisitions, and money savings out of all my calculations, New Dole should be selling at a very conservative minimum of $14.92 per share, and I actually think quite a bit higher.  Current share price for the whole of Dole is $10.70 per share, a 29% margin of safety.

Dole management has also stated that after the sale to Itochu is finalized that it may look to sell or spin off further assets, or make some acquisitions to bolster its operations within New Dole, any of which may help unlock further value in its shares.  This is pure speculation, but I could see Mr. Murdock who owns around 40% of Dole, possibly looking to take the New Dole private again now that its major problem has been eliminated so he can control its operations again, which would also help unlock shareholder value.

Why after all of the above has Dole as a whole been dropping in price lately?  My guess is that people have been selling for a combination of the following reasons:

  • That Dole just released bad quarterly numbers that missed analyst estimates and which sent the herd running.
  • Before that people were probably selling some personal shares that they owned to lock in profits since the stock has run up from around $8.50 a share to over $15 a share at one point.
  • A lot of it may also be that people are still treating this as a highly indebted, risky, poorly operated, and marginally profitable company that it is without looking deeper at the assets that it will still hold after receiving the $1.7 billion from Itochu, and how New Dole will now be a much healthier and less risky company.

However, even if you do not count any of its operations at all, Dole as a whole is selling now for less than JUST a conservative value of the land, ship, and containers that it owns.  Meaning the downside is covered by hard saleable assets even if New Dole’s operations were to become massively unprofitable, which I think is very unlikely.

New Dole looks to be massively undervalued, will still hold very good high value assets, especially saleable land, has some future potential catalysts that could help unlock value, it should be able to compete better with Fresh Del Monte and Chiquita, and New Dole will now be freed up to make acquisitions and improvements to its business and operations after the transaction with Itochu closes as it will not be burdened by the massive amount of debt that it has carried for years.

I plan to buy shares for my personal account and add more shares back into the accounts I manage after selling some Dole shares up 70% in September.

Here is a last minute update as Dole has set the shareholder meeting for December 6th to approve this transaction.

2009 Dole Food Automatic Common Exchange Securities Trust

The Seeking Alpha reader who was asking my opinion on Dole now that it has sold some assets to pay down debt, also brought something to my attention that I have now done quite a bit of research on and what I have been waiting to hear back from Dole about.

I had a call in to Dole investor relations and they called back yesterday saying they could not answer questions about this agreement and referred me to the bank who is handling the trust.  The trust has also not called me back so I am going to tell you what I think about the situation and ask your opinion on if I am right about the situation or not.

Mr. Murdock, the chairman of Dole and also the man who has been buying a lot of Dole shares in the past few months, started the 2009 Dole Food Automatic Common Exchange Security Trust upon IPO’ing Dole back into the markets in 2009.  Here is the 2009 Trust Offering agreement.

As described in the Registration Statement, concurrent with the IPO, a newly formed trust not affiliated with the Issuer, the 2009 Dole Food Automatic Common Exchange Security Trust (the “2009 Trust”), offered up to 24,000,000 of its $0.875 automatic common exchange securities (the “Securities”), with the option for the initial purchasers to purchase up to an additional 3,600,000 Securities from the 2009 Trust at the initial offering price (the “Trust Offering”).

 

The Securities are exchangeable, at the Trust’s option, for shares of Common Stock or the cash equivalent value of such shares of Common Stock, beginning on November 1, 2012 (the “Exchange Date”). In connection with the Trust Offering, on October 22, 2009, (i) Mr. Murdock entered into a Forward Purchase Agreement (the “Forward Purchase Agreement”) with the 2009 Trust pursuant to which Mr. Murdock agreed to deliver to the 2009 Trust on the Exchange Date a number of shares of Common Stock equal to the product of the exchange rate times the 24,000,000 Securities offered in the Trust Offering, or 27,600,000 Securities, if the initial purchasers exercise their option to purchase additional Securities; and (ii) Mr. Murdock entered into a Collateral Agreement (the “Collateral Agreement”) with U.S. Bank, National Association, as Collateral Agent (the “Collateral Agent”), and the 2009 Trust, pursuant to which Mr. Murdock agreed to grant a security interest in the maximum number of shares of Common Stock initially deliverable under the Forward Purchase Agreement.

 

The foregoing summaries of the Forward Purchase Agreement and Collateral Agreement are qualified in entirety by reference to the complete text of the Forward Purchase Agreement and Collateral Agreement copies of which are filed herewith as Exhibits 99.6 and 99.7, respectively, and are incorporated herein by reference. As of the date of this filing, the 2009 Trust sold 24,000,000 Securities, resulting in Mr. Murdock’s pledge to the Collateral Agent of 24,000,000 shares of Common Stock. Pursuant to the Collateral Agreement, Mr. Murdock has the right to vote these shares of Common Stock for so long as such shares are beneficially owned by him and pledged under the Collateral Agreement, unless an event of default occurs under the Forward Purchase Agreement or the Collateral Agreement.

 

In addition, pursuant to the Forward Purchase Agreement and Collateral Agreement, if the initial purchasers exercise their option to purchase an additional 3,600,000 Securities from the 2009 Trust at the initial offering price, Mr. Murdock is obligated to deliver to the 2009 Trust and pledge to the Collateral Agent an additional 3,600,000 shares of Common Stock. The Reporting Persons intend to review on a continuing basis their investment in the Issuer.

The Reporting Persons may decide to increase or, subject to, among other things, the Lockup Agreements, decrease their investment in the Issuer depending upon estate planning considerations, the price and availability of the Issuer’s securities, subsequent developments affecting the Issuer, the Issuer’s business and prospects, other investment and business opportunities available to the Reporting Persons, general stock market and economic conditions, tax considerations and other factors. Mr. Murdock, as a member of the Issuer’s Board of Directors and its Chairman, expects to continue to be involved in the Issuer’s policies and activities.

 

Except as set forth herein and except for changes in the composition of the Board of Directors of the Issuer previously disclosed in the Registration Statement related to bringing the Board of Directors in compliance with the rules of the New York Stock Exchange regarding director independence in accordance with the transition rules related thereto, the Reporting Persons presently do not have any plans or proposals that relate to or would result in:
(a) The acquisition by any person of additional securities of the Issuer or the disposition of securities of the Issuer.
(b) An extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries.
(c) A sale or transfer of a material amount of assets of the Issuer or of any of its subsidiaries.
(d) Any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board.
(e) Any material change in the present capitalization or dividend policy of the Issuer.
(f) Any other material change in the Issuer’s business or corporate structure.
(g) Any changes in the Issuer’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person.
(h) Causing a class of securities of the Issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association.
(i) A class of equity securities of the Issuer becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Act.
(j) Any action similar to any of those enumerated above.

The way I am understanding the above, after also doing a bunch of other research into the subject, is that Mr. Murdock treated this as kind of a quasi loan in 2009, and now after November 1st 2012 the quasi loan, the $0.875 automatic common exchange securities, has to be paid back in the form of either full Dole shares or cash, to the tune of as much as 27.6 million Dole shares at the original IPO price of $12.50 per share or the cash equivalent, which is $345 million?

Yesterday this came out in regards to what happened: http://xml.10kwizard.com/filing_raw.php?repo=tenk&ipage=8541842

I was worried that Dole would issue as many as 27.6 million shares to cover this transaction, diluting current Dole shareholders in the process. It seems that Mr. Murdock sold some of his own personal stake in Dole to cover the transaction thus not diluting current shareholders by as much as 24%, which is obviously a good thing.

Please let me know if my assumptions are wrong in any case since other than what I already read online and some of which I share above, I do not have any other concrete information as I have not been able to get answers from either Dole or the Trust up to this point.

Also what do you think were Mr. Murdock’s reasons for setting up this transaction in 2009, could there be anything more than the short term quasi loan?  I just want to make sure that I might not be missing anything here.

Dole Article Update and My Investment Checklist

Since my last post I have been doing a lot of research on Dole and its history and operations.  I have the sum of the parts valuation almost completely done and am just waiting for its next quarterly report so that I can finish all my valuations and analysis and get the article together.

I also have a call in to Dole investor relations about something that I came across that could be potentially problematic for current shareholders if I understand the situation correctly.  After I hear back from Dole IR tomorrow, I will let you know about the situation and how it could affect my valuations and analysis, if at all.

In between doing research I have also finally put together my buying investment checklist and wanted to share it with you to see if I missed anything.  I still need to organize the checklist better but wanted to get your input first.

Investment Checklist-Buying

  1. Can I in a short paragraph explain what the company does?
  2. Is the company undervalued?  If so by how much and does it reach my minimum 30% margin of safety threshold?
  3. Does the company create FCF?  If it does, how long has it created positive FCF?
  4. Does the company pay a dividend and is the dividend safe?
  5. Does the company buy back shares?  If the company does buy back shares is it at a discount to intrinsic value?  Does the company take advantage of its shares being overvalued by issuing shares?
  6. What is the EV/EBIT ratio?
  7. What are the company’s margins? (EBIT, Net, Gross, FCF/Sales, ROIC, ROE, etc)  Are the company’s margins getting better or worse?
  8. If ROIC and ROE are high is it because they are inflated by debt?
  9. What are the company’s debt ratios and are they getting better or worse?  Are they sustainable in your eyes?
  10. What are the company’s total debt and contractual obligations?  When are these obligations due?  Is this sustainable?
  11. Is there some kind of catalyst to unlock the value in the shares if the shares are undervalued?
  12. What is insider ownership?  Have insiders and institutions been buying or selling?
  13. Do any value investing partnerships, hedge funds, or activist investors own shares in the company?
  14. What is the company’s book value per share and is it selling for less than book value?
  15. Has book value been growing or declining?
  16. Does the company have any kind of sustainable competitive advantages?  If so what?  Same questions with barriers to entry into the industry?  Does the company have pricing power?
  17. What are the current and quick ratios?
  18. Has there been recent dilution in the stock?  If so why?
  19. Do I trust Management?  Have any directors or executives had problems in the past legally or ethically with companies they have been a part of?
  20. Does the company require a lot of cap ex to maintain?
  21. Are the company’s prospects good into the future?
  22. Is the company’s business essential?  Can the company’s operations becoming outdated fast by technology?  Can the company’s operations be destroyed by Amazon, EBay, or Wal Mart?
  23. Have cost of goods sold as a % of revenue been going up or down?
  24. Is managements pay too high?  Is management pay structure convoluted?  Do management and other insiders own a decent portion of the company?  Are managements goals aligned with shareholders?
  25. Is the company in an unloved boring sector?
  26. Has the company been having problems it can overcome?  Has it recently dropped out of an index or is there irrational selling in the stock?  Is the company dealing with any other kind of irrational fear that could lead to a buying opportunity?
  27. If this is a spinoff have company insiders been buying shares in either company?
  28. Are you comfortable holding the company for at least 5 years?  If this is a spin off or other special situation, how long are you comfortable holding the company for?
  29. In your opinion is the company able to compound its returns over time without acquisitions?
  30. Which portion of the portfolio will this company go into Special Situations, Long Term Compounders, or Net Net/Asset plays?
  31. Are you willing to go all in on this company; at least a minimum 20% of the portfolio?
  32. Is the company better than having cash in the portfolio?
  33. How long is the cash conversion cycle, has it being going up or down?
  34. How big is the downside if you buy into the company?
  35. How much cash and other assets does the company have in case of problems?
  36. What potential problems does the company face in the near future?  Are those problems big enough to keep you from investing?  What are risks to the company and how likely are those risks to disrupt your investment thesis?
  37. How robust is the company’s competition?  What is the company ranking in its industry?  Can the company out compete?
  38. Is this investment better than buying stock in companies that are already in your portfolio?  If so why?  If not why should it be added to the portfolio?
  39. How many customers does the company have?  If it is only a few are you comfortable with those customers?
  40. Does the company have any underlying undervalued assets that could be sold/spun off/put to better use to unlock value; land, intellectual property, buildings, etc?

Other than organizing it better which I am going to do, let me know if I missed anything that you use in your own checklists.

Hopefully I will hear back from Dole IR tomorrow so I can update that situation as well.

Portfolio Update and A New Dole Article Planned

I just sold my entire position in Taseko Mines (TGB).  TGB released its most recent quarterly report yesterday and yet again it was a disappointment.  It seems that ever since I bought into this company every quarter has been a disappointment at least on some level with excuses being given by its management for why it is not performing as good as it could.  Also of note is that TGB had to resubmit its New Prosperity mine assessment report at the end of September and now a decision will not be made until sometime in 2013 about if the mine will be approved or not.  The original plan was to have a decision by this month which was the only reason I had even held onto it this long.

This is yet another company I bought before doing any kind of valuations and only minimal research and again I paid the price with a total loss of 47%.  The only thing that again saved me was that at least I was smart enough to make my positions pretty small when I first started out so I didn’t lose a ton of money.

My portfolio is now 23% in cash and I am down to owning stock in only six companies. After clearing out the only remaining company that I knew for sure I was going to sell at some point, I now only own stock that I think are good companies and have the potential to continue to compound into the future.

The three remaining companies I own from before doing valuations and anywhere near the amount of research that I am doing now: $MAIN, $MO, and $PM, are all by my estimates either fairly valued or overvalued by quite a bit and I may sell stock in each of these three companies if I detect deterioration in any of their businesses.  If I do not see deterioration in the businesses I will most likely hold these companies for years because I think each of these companies will compound their results well into the future, unless of course I find a better company to put my money into.

The three companies I have bought into since doing valuations and the amount of research I am doing now are: $CMT, $VIVHY, and $DOLE.  At this point I still think that CMT and VIVHY are undervalued and will let you know if I decide to buy any more stock in either of those two.

This gets me to Dole.  I got a request from one of the readers of my original Dole article that I posted on Seeking Alpha who liked my original analysis series on Dole, Chiquita, and Fresh Del Monte and he was asking if I would do an updated valuation and analysis article on Dole now that it has sold some of its assets and is able to pay off most of its debt.

The reader asked if I would do an updated article giving my thoughts on how Dole stands now after it sold some of its assets and paid down debt, if I still think that it is undervalued, and what I think of its operations going forward now that it eliminated its biggest problem.

I have learned a lot since that time and hope to use some of my new knowledge to see what I think about Dole now, if I still think they are undervalued after rising in price as much as 75% at one point and currently still being up 47% since I originally bought into it.  I am researching its land, other assets, and history more fully now in preparation so that when its next quarterly report comes out on November 15th I am ready to value the company with updated numbers and post the article shortly after that.

In the mean time I will continue to post any updates and links that I think contain knowledge.  I may also every once in a while ask some questions of you since I know some of you are more knowledgeable in certain areas than I am.  Since I am planning on adding some new things to this article I may need some feedback making sure I am applying the new techniques correctly.

Investment Philosophy Review For New Visitors And Setting Up My Next Article

Let me first set up my next article for anyone who might be new to the site.  I only take into consideration with my valuations and analysis what I can see now, and pay almost no attention to rumored future possibilities or estimates of revenues and margins.

The only time future possibilities play any role in my articles are in situations where there is a clear catalyst: Activist/value investing firm or individual involved, the company is undergoing some kind of strategic review and is owned and controlled by a few people as in the case with Dole (DOLE) before I bought it, or the company’s management is trying to figure out ways to unlock the companies undervaluation by asset sales or spin off as in the situation with Vivendi (VIVHY.PK) before I bought into them.  Even in the above situations I still only valued the assets and operations as they are presently.

Generally, any other future potential I see in the company plays no part in my valuations or analysis, and is treated as the proverbial icing on top of the cake.

I like as much of a margin of safety as possible as I am a very conservative investor.  I see future possibilities and analyst and company estimates of the future generally as highly and unrealistically optimistic, which makes them wrong a lot and is why I have learned not to pay much attention to them.

Having stated all of that, I have begun my next article which is on Jack in the Box.  I hope to have the article up as soon as possible.