(CN) – Dole Food CEO David Murdock and his “right-hand man” COO Michel Carter must pay $148 million for misleading shareholders, and for pushing the board to approve a buyout that significantly undervalued the company, a judge ruled.
Murdock was Dole’s controlling shareholder when he took the fruit-and-vegetable giant private in 2013.
The $1.2 billion cash deal passed with just 50.9 percent of the shareholder vote, against objections from many investors and analysts that the $13.50 per share merger consideration price undervalued the company.
Four hedge funds that shared this belief purchased millions of Dole shares ahead of the transaction, then sought an appraisal in Delaware Chancery Court.
Vice Chancellor Travis Laster ruled Thursday for the hedge funds, led by Hudson Bay Master Fund and Ripe Holdings, and awarded damages representing an additional value of $2.74 per share.
Though Dole’s board had managed to negotiate an increase from Murdock’s initial offer of $12 per share to $13.50 per share, Laster noted that “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.”
As Murdock’s “right-hand man,” COO Carter gave the board false information about what savings the company would realize upon selling half of its business in 2012, the chancellor found.
He also drove down Dole’s stock price by canceling a stock-repurchase program on pretextual grounds, making it an unreliable measure of the company’s value, according to the ruling.
Carter’s job was “to carry out Murdock’s plans, and he did so effectively, even ruthlessly,” Laster found. “When Carter set a goal for a division, they fell into line. Dole’s executives could not envision anyone failing to carry out Carter’s instructions.”
After Murdoch made his buyout offer, Carter provided the board with false management projections – then in a secret meeting, gave Murdoch’s advisors the accurate data.
“To their credit, the committee and [its financial advisor] Lazard Frères & Co. recognized that Carter’s projections were unreliable and engaged in Herculean efforts to overcome the informational deficiency, but they could not do so fully,” Laster said. “Critically for purposes of the outcome of this litigation, the committee never obtained accurate information about Dole’s ability to improve its income by cutting costs and acquiring farms.”
Murdock and Carters’ actions deprived the board and shareholders of making a fully informed decision with regard to the buyout offer, and potentially vote it down.
Given these circumstances, shareholders “are not limited to a fair price,” Laster said. “They are entitled to a fairer price designed to eliminate the ability of the defendants to profit from their breaches of the duty of loyalty.”
The judge ordered Murdock and Carter to pay $148,190,590.18. “Although facially large, the award is conservative relative to what the evidence could support,” he added.
Stuart Grant, an attorney for the funds, told the Associated Press: “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.”
A Dole Food spokeswoman said the company had no comment on the ruling.
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