Vice Chancellor J. Travis Laster ruled in a Delaware court on Thursday that the CEO of produce giant Dole, David Murdock, along with Chief Operating Officer C. Michael Carter, intentionally defrauded investors by undervaluing the company in order for Murdock to purchase the remaining shares at a discounted rate. The 92 year-old billionaire had already owned 40 percent of Dole’s stock prior to a management-led buyout that turned the company private in 2013. Laster believed that the executives fraudulently created grim sales forecasts, as well as drove the stock price down by understating the cost savings of Dole’s 2012 sale of its Asian operations, as well as cancelling a planned stock buyback. These activities led to Murdock purchasing the remaining shares for $13.50 each in a $1.2 billion purchase. Laster ruled that the executives undervalued the shares by $2.74 apiece, ordering that they pay the difference, a total of $148.2 million to the investors, many of them pension funds, that filed the class-action lawsuit.
The award is thought to be the second largest recovery in a mergers and acquisitions case trailing only the $200 million settlement agreed upon in 2006 over the buyout of Kinder Morgan. It is also the second largest amount awarded by the Chancery Court, only eclipsed by the $2 billion awarded to Southern Peru Copper in 2012. Although the ruling is substantial, it was a mere fraction of the damages that plaintiffs were seeking. Plaintiffs were asking for $25 per share, noting the vast property assets the Southern California-based company owns in Hawaii. Judge Laster appeared to concur with the plaintiffs despite the award, writing “Although facially large, the award is conservative to what the evidence could support.” Despite plaintiffs seeking much higher damages, their lawyer, Stuart Grant, called the ruling a “decisive victory.” Grant said “It wakes insiders and investment banks on their proper roles in a management-led buyout, and shows that management can’t dictate the terms and the flow of information.”
Deutsche Bank was also involved in the case, as the company had been longtime advisors for Murdock and Carter, as well as brokering the buyout in its early phases. Although Laster found the bank, along with another Dole executive not liable for any damages, Laster did criticize Deutsche Bank for serving as both a broker and advisor, calling the company’s ability to differentiate between the two roles to be “a fiction.” Grant noted that ruling will caution companies from serving both roles in the future, saying “Even without holding the investment bank liable, there is a strong message to investment banks about how they use confidential information.”
The nine-day trial over the matter occurred in February, with many in the corporate world watching the case closely. Delaware, whose corporate-friendly state laws have led over half of America’s corporations to file charters in the state, is one of the few places to allow “appraisal lawsuits.” Heavily criticized by corporate lawyers and other analysts, 78 lawsuits of this type have been filed in Delaware court over the past two years, seeking over $2 billion in claims. Investor suits in general have risen sharply in the past decade as well. 93 percent of mergers and acquisitions led to lawsuits last year, up from just 44 percent in 2007. It is rare that these suits make their way through the courts, however, as they are almost always resolved through settlements.
Reuters – Jonathan Stempel
The News Journal (Delaware) – Jeff Mordock and Jessica Masulli Reyes
Wall Street Journal – Liz Hoffman