Castle & Cooke Inc., the troubled Honolulu-based company best known for its Dole products, confirmed yesterday that it is discussing a possible merger with an unidentified New York Stock Exchange-listed company.
With a depressed stock price that does not appear to fully reflect the company's vast real estate holdings in California and Hawaii, C&C has been mentioned in the past as an attractive takeover target. However, C&C is in such desperate financial straits that its stockholders could receive less than the market price for their shares in a merger, the company said.
The company's financial problems have gotten worse lately, and analysts said that without either a merger or an agreement with creditors to reschedule debt, C&C could be forced to declare bankruptcy by the end of the month.
The most likely merger partners for C&C are giant companies with food operations, including General Food Corp and R. J. Reynolds Inc. Sources said the company began talking with Reynolds about a possible merger last month.
"There is no assurance that an acceptable merger agreement will be reached," C&C said.
C&C missed an interest payment March 1 and, "If the failure to pay interest is not cured within 30 days, it will constitute default," the company said. C&C continues to hold discussions with a group of unsecured lenders in an effort to reschedule about $250 million in debt.
The company's March 31 deadline for making up its missed interest payment coincides with the expiration of an agreement with Minneapolis investor Irwin L. Jacobs. Jacobs owns about 12 percent of C&C and agreed not to acquire additional shares until the end of March.
C&C has lost about $126 million in the last two years. It has raised cash by selling some assets, including its Bumblebee Tuna subsidiary.
Early last year, Houston investor Charles Hurwitz purchased about 12 percent of the company, threatened to buy more, and then sold his stock to C&C for more than $70 million, pocketing an estimated $15 million in profits and leaving C&C short of cash.
The company owns the Hawaiian island of Lanai, which could be worth substantially more if the island, used now to grow pineapple, could be developed. C&C's real estate subsidiary, Oceanic Properties Inc., performed in the black last year, contributing $9 million to net income.
But that is one of the few bright spots. In recent years, a diversification program aimed at producing more balanced earnings has failed as the company journeyed into and out of industries, such as pool sweeping and propellers, that it knew little about.
It is possible that the company's real estate could be sold to one group and its food operations to another. The Bass Brothers of Fort Worth, who have significant real estate holdings, reportedly own preferred stock in C&C that is convertible into about 1 percent of C&C common stock.
"They [C&C] have until the end of the month and if they miss that [payment], they go into bankruptcy," said William Gibson, a vice president with Davis Skaggs research, a division of Shearson Lehman Brothers. "Ongoing losses are complicating negotiations. At the rate they are bleeding, they will dissipate the value of their assets."