Billionaire David Murdock, the founder of the North Carolina Research Campus in Kannapolis, and an executive at Dole Food have been ordered to pay $148 million in a dispute over Murdock’s buyout of that company in 2013. The judge says Dole directors and shareholders were mislead in the deal.
A Delaware judge on Thursday ordered the 92-year-old Murdock and a former top lieutenant to pay up. Murdock is CEO of the company.
Dan Primack, a financial columnist at Fortune, called the case the “Pineapple express.”
The decision, he adds, could lead to more lawsuits in other buyouts.
“Appraisal lawsuits have become increasingly common after leveraged buyouts, and yesterday’s move by the Delaware Court of Chancery is likely to only embolden such litigants (some of which are legitimately angry shareholders, some of which are hedge fund managers that buy just before a buyout closes in order to role the dice on these very suits),” Primack wrote.
The judge on Thursday said Murdock, along with former Dole president and chief operating officer C. Michael Carter, breached their fiduciary duties of loyalty in structuring a $1.2 billion cash buyout that left the fruit-and-vegetable giant in Murdock’s hands.
Vice Chancellor Travis Laster noted that a board committee was able to overcome most of the two men’s “machinations,” negotiating an increase in Murdock’s initial $12 per share offer to a deal price of $13.50, which received a narrow 50.9 percent approval from stockholders.
“But what the committee could not overcome, what the stockholder vote could not cleanse, and what even an arguably fair price does not immunize, is fraud,” wrote Laster, whose damage award represents an incremental value of $2.74 per share.
Morgan Evans, a Dole Food spokeswoman, said the company had no comment on the ruling.
Attorneys for Murdock and Carter did not immediately respond to email messages seeking comment.
Stuart Grant, an attorney representing shareholders in the litigation, noted that the judge concluded that shareholders were entitled not only to a fair price, but to “a fairer price designed to eliminate the ability of the defendants to profit from their breaches of the duty of loyalty.”
“We are extremely pleased not only with the large financial recovery, but the forceful way in which the court excoriated the defendants for the brazen way they tried to hijack Dole for their own advantage in taking the company private,” Grant said in a prepared statement.
Among other things, Laster said that before Murdock made his initial buyout proposal, Carter made false disclosures about how much money Dole could save by selling roughly half its business in 2012, and canceled a stock repurchase program. Then, after Murdock made his proposal, Carter provided the board committee with lowball management projections, followed by a secret meeting the next day in which Murdock’s advisers and financers were given more positive and accurate data.
“His job was to carry out Murdock’s plans, and he did so effectively, even ruthlessly,” Laster said of Carter’s role after taking over day-to-day management of the company in early 2013.
The efforts to undermine the committee continued throughout the deal process, the judge said.
“The projections Carter provided were knowingly false,” Laster wrote in his 106-page opinion. “Carter intentionally tried to mislead the committee for Murdock’s benefit.”
Laster declined to hold Murdock’s financial adviser and lead financing source, Deutsche Bank, liable for its actions.
“Deutsche Bank acted improperly by favoring Murdock and treating him as the bank’s real client in transactions before the merger, even when Deutsche Bank was officially representing Dole, but Deutsche Bank did not participate knowingly in the breaches that led to liability, and Deutsche Bank’s role as Murdock’s advisor did not lead causally to damages,” the judge concluded.
Murdock maintains a residence in Kannapolis and is actively involved in the NCRC operations. He also founded the Murdock Institute.