Dole Food investors shake the Murdock buyout money tree
Elijah Brumback
The CEO of Westlake Village-based Dole Food David Murdock could be heading to trial after a Delaware Chancery Court judge refused to throw out a case against the executive’s 2013 deal to take the company private.
According to the suit, investors claim to have dug up evidence that put Dole directors and Murdock’s ability to negotiate freely into question. The suit also calls out Murdock and Deutsche Bank AG, which helped structure the deal, for allegedly manipulating the transaction at the expense of shareholders.
In a Feb. 5 ruling, Judge Travis Laster said investor questions as to how the deal was negotiated were legitimate.
“Murdock had previously threatened and taken punitive action against directors who did not accede to his wishes,” Laster wrote in his ruling.
Representatives from Dole did not respond to Business Times’ requests for comment in time for this report. The judge’s decision was not unexpected at Deutsche Bank, a person familiar with the matter told the Business Times. The ruling doesn’t represent any findings as to the actions of the bank, and the institution maintains it acted within its rights, they said.
“Neither Murdock or Deutsche Bank needs to have acted with an intent to harm Dole’s stockholders. Self-interested conduct is sufficient,” Laster said in his opinion.
Murdock took part of Dole private in 2000 when he acquired real estate assets previously spun off by the company. In 2003, Murdock took Dole private in a $2.5 billion deal; however, he reversed course and took Dole public in 2009, raising $446 million.
What makes the current case against Murdock and those involved in the most recent privatization deal more interesting is that many of the same players from the 2003 buyout are reprising their roles.
According to The New York Times, four of the directors on Dole’s seven-member board, including Murdock, were directors when the company was public the first time. Two of the directors are former or current executives of Dole, with more than a decade at the company.
Murdock’s advisers — the law firm Paul, Hastings, Janofsky & Walker and Deutsche Bank — played the same roles in the first buyout. Even the lawyers for the special committee of independent directors, Sullivan & Cromwell, were counsel to the underwriters on Dole’s 2009 IPO, according to The New York Times.
With the same cast in place, it isn’t too much of a stretch to think that some connections in Murdock’s latest deal are a little too greasy this time around. And this is just one of the reasons Dole investors are getting an unfair shake.
In the deal valued at $1.2 billion that closed Nov. 1, 2013, Murdock paid $13.50 per share to take the company private. However, shortly after the deal closed, several major investors filed appraisal claims, again in a Delaware court, looking to squeeze more money out of the transaction.
At the start of the litigation, the Wall Street Journal reported that a 2007 ruling by the Delaware court opened the door to more appraisals when it allowed investors to claim appraisal on shares they acquired after a deal’s record date, the date that determines which shareholders are entitled to vote on a deal.
Ripe Holdings, Fortress Investment Group — also the parent of Ripe Holdings — Hudson Bay Capital Management and Merion Capital were all late stock purchasers before the buyout that filed claims.
By letting firms come into the stock and seek appraisal after the record date, the decision lowered the risk that the vote on the deal would fail, as record-date holders who want to seek appraisal must vote no. The shift also gave investors time to review financial information that is often published after a record date is set.
Appraisal is a legal proceeding in which dissenting stockholders in a cash-out merger can ask a judge to determine the fair value of their shares. Both sides submit dueling valuations, and a judge can choose one or decide upon another.
Additionally, the low-interest environment has been the basis for a rising tide of appraisals. Investors are guaranteed interest on their claims of 5 percent above the federal funds rate, whether they win or not. The risk for investors is that shares can be appraised below the deal price; also, appraisal litigation can take years, tying up investors’ money in the meantime.
A trial for the current case is set for Feb. 23.
