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 It was certainly unusual, and could lead to one of the biggest
judgments ever in Delaware's Court of Chancery, a leading venue for
corporate disputes.
Dole faces two kinds of legal actions that have been combined
because they both allege the buyout price was too low. A small group
of hedge funds have brought a so-called appraisal action, which is
being tried alongside a shareholder class action lawsuit.
While appraisal actions sometimes go all the way to trial,
shareholder class actions almost never do, usually ending with quick
settlements.
Increasingly, companies see the lawsuits simply as part of the cost
of corporate dealmaking.
But Murdock, a high school dropout and self-made billionaire, is
having none of that. He fought the actions all the way through a
two-week trial that began in February in Delaware, where
California-based Dole is incorporated. During the proceeding,
Murdock even took the stand to face two days of aggressive
questioning, despite his age and poor hearing.
The shareholders have not backed down either. They are led by
plaintiffs' attorney Stuart Grant, who has wrested multimillion
dollar settlements from News Corp and Goldman Sachs, among others,
in some of the few cases that have actually generated big wins for
shareholders.
In the Dole case, investors are seeking to nearly double the $13.50
a share Murdock paid for the company, one of the world's largest
producers of fresh fruit and vegetables. If they prevail, Dole and
Murdock could have to put up as much as $1 billion -- on top of the
$1.2 billion already spent on the buyout. That possibility has
prompted Moody's to warn that it could cut Dole's already junk
credit rating, just as the company needs cash to pay for new ships
and investments in plantations.
A ruling from Vice Chancellor Travis Laster is expected imminently.
AMERICA'S OLDEST CEO
At the time of the November 2103 buyout, which shareholders approved
by a slim margin, Murdock was chairman and CEO of the fruit importer
and owned 40 percent of its stock. In court, Grant painted Murdock -
America's oldest CEO, according to information service FactSet - as
scheming to drive down the stock price to the point where he could
take the company private on the cheap, then bullying his board to
accept the deal.
Murdock has denied the allegations.
"We did a fair and honest transaction that is being made to look now
like I was a dirty skunk that did all of this
damage," he testified.
Murdock told the court he paid generously for Dole, and that he
pursued the deal not for personal gain but to combine the food
producer with a North Carolina research center he established to
unlock the secrets of nutrition and longevity.
During the trial Murdock testified about his unusual memory, saying
he could recite dozens of poems, and claimed he could still run as
fast as ever.
The appraisal action part of the case was brought by
funds affiliated with Merion Capital, Hudson Bay Capital, Magnetar
Capital and Fortress Investment Group. Together the funds scooped up
nearly 20 percent of Dole stock just before the deal closed, with an
eye to pursuing legal action. Kevin Abrams of Wilmington-based
Abrams & Bayliss is representing a majority of the appraisal
petitioners, and Grant represents some as well.
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Appraisal actions were to protect long-term investors who had merger
deals forced upon them. However, Delaware court rulings have allowed
short-term investors to seek appraisals even if they purchased the
stock after the deadline to vote on a deal. In recent years,
investors have bought stock in companies being acquired just prior
to deals closing, specifically so they can bring appraisal actions.
The cases can bring generous settlements or judgments. And even if
the deal price is found to be fair, interest on the stock being
appraised nevertheless accrues at 5.75 percent, generating a
relatively good return whether or not the action has merit.
In recent years appraisal cases have boomed. Hedge funds focused on
"appraisal arbitrage" have generated up to 20 percent annual
returns, often through private letters and quick settlements that
never reach the court.
Critics deride the suits as a get-rich-quick ploy by "M&A pirates."
BATTLING THE LAWS
Dole has also taken the fight outside the courtroom, lobbying
Delaware officials to amend laws that Murdock believes incentivize
shareholder actions - even if the changes come too late to help
Dole.
In December 2013, hours after Dole signed a 15-year lease deal with
the Port of Wilmington, assuring steady revenues for Delaware and
some 850 jobs in the state, Andrew Lippstone, the governor's general
counsel, wrote to Dole's general counsel Genevieve Kelly. According
to documents obtained from an open records request, he passed along
a list of Delaware legal experts who proposed changes to the state's
corporate law. "Happy to discuss next steps at your convenience."
Soon after that, the company began pushing for changes to Delaware's
corporate laws. Dole wanted to discourage the hedge funds from
"buying lawsuits," as the company saw it, by limiting appraisal to
long-term investors and cutting the interest incentive.
Kelly threatened to retaliate if Dole did not get the changes it
wanted. In a September email to the governor's chief of staff, she
wrote that hedge funds pursuing appraisal "show companies why there
is a need to re-incorporate in more business friendly states."
Kelly got more specific in an email to Reuters: "we have
communicated that Dole will incorporate elsewhere if changes are not
made."
Lawmakers have said they anticipate action next year, most likely
aimed at modifying the appraisal interest. The change will come too
late to benefit Dole, but it would likely undercut the "appraisal
arbitrage" that has attracted so many hedge funds.
Meanwhile, Murdock is optimistic he will prevail in court. "I've
been in a lot of fights," he testified during the case. "You'd be
the first one I ever lost, if I lose."
(Reporting By Tom Hals; Editing by Amy Stevens and Sue Horton)
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