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Insurers Don’t Want to Pay $148M Dole Penalty

(CN) - A group of insurance companies say they aren't liable for a $148 million judgment against Dole Food CEO David Murdock and others for bilking shareholders in a 2013 reverse merger.

Arch Insurance, Liberty Mutual Insurance, Continental Casualty Insurance, Navigators Insurance, RSUI Indemnity and Berkley Insurance claim in a lawsuit filed last week that they insured Murdock, "his right-hand man" C. Michael Carter and DFC Holdings LLC.

DFC is the company Murdock used to buy Dole Food Company Inc. during the time when the going-private merger took place, according to the complaint.

Last year, a Delaware Chancery Court judge found that Murdock and Carter, former Dole president and COO, engaged in fraud and other improper conduct by driving down the value of Dole stock in order to buy the company at a lower price.

The $148 million judgment, payable to the Dole stockholders, represents "the difference between the depressed price and the 'fairer' price the court determined defendants should have paid in the first place absent fraud," the insurers' lawsuit states.

Murdock paid $13.50 per share to the Dole public shareholders in the 2013 management-led buyout, while the Delaware Chancery Court's Aug. 27, 2015, decision found that the fair price that should have been paid was $16.24 per share, if not for the fraud.

Murdock was able to push through the $1.2 billion merger with the help of Carter, who provided low-ball management projections to a special committee of Doles' board of directors about the company's value, the insurers claim. Carter also allegedly canceled a stock buy-back program, while conversely painting a rosier financial picture for the advisors and financing banks.

Vice Chancellor Travis Laster wrote in last year's ruling that "Murdock and Carter's pre-proposal efforts to drive down the market price and their fraud during the negotiations reduced the ultimate deal price by 16.9%."

Instead of appealing the ruling, Murdock and Carter reached a settlement by agreeing to "pay more than 100% of what the court ordered...to enable Mr. Murdock and his companies to benefit from their fraud by demanding that insurers pay the settlement," according to last week's lawsuit.

Murdock and Carter's settlement agreement with Dole shareholders contains "unusual and convoluted provisions" to "assist in the defendants' demand for insurance to fund their fraudulent purchase of Dole," the Jan. 13 complaint states.

The insurance companies seek a declaration from the Delaware Superior Court that applicable law and public policy "bar defendants from using insurance to fund the difference between the stock price paid to stockholders in the merger and the 'fairer' price the court determined."

They also claim in their lawsuit that if they do have to make any payments in connection with the fraud litigation, they are entitled to recover those payments from defendants under a subrogation provision.

The insurers are represented by Robert Katzenstein of Smith, Katzenstein & Jenkins in Wilmington, Del.

Murdock is worth $2.9 billion, according to Forbes. He was Dole's controlling shareholder when he took the fruit-and-vegetable giant private in 2013.

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