In re Dole Food Co., Inc. S’holder Litig.
Dole Shareholders Win Decisive Victory at Trial
On August 27, 2015, following two years of vigorous prosecution of stockholders’ claims by Robbins Geller and co-counsel, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery issued his post-trial ruling in the litigation challenging the 2013 buyout of Dole Food Company, Inc. by its billionaire Chief Executive Officer and Chairman, David H. Murdock. In a blistering 108-page decision, Vice Chancellor Laster ruled that Murdock and fellow director C. Michael Carter – who also served as Dole’s General Counsel, Chief Operating Officer and Murdock’s top lieutenant – are liable to Dole’s former stockholders for over $148 million, the largest post-trial award ever in a class action challenging a merger transaction.
As explained in the court’s ruling, Murdock and Carter’s misconduct was “not innocent or inadvertent, but rather intentional and in bad faith.” After Murdock appointed himself as CEO and Carter as COO in December 2012, they executed a calculated plan to deliver the company to Murdock at an unfair price. As an initial step, Carter began issuing public earnings guidance for the first time in Dole’s history in early January 2013.
Rather than giving the market a fair assessment of the company’s financial outlook, Carter intentionally understated Dole’s business prospects and expected earnings. Then, in May 2013, Carter suddenly cancelled a recently adopted share repurchase program that had lifted the company’s stock price. As the court explained, these actions “primed the market for the freeze-out by driving down Dole’s stock price” in advance of a buyout proposal from Murdock.
On June 10, 2013, Murdock delivered a letter to the board of directors offering to buy the remainder of Dole’s stock that he did not already own and take the company private. In response, Dole formed a subcommittee of outside directors that would evaluate Murdock’s offer and negotiate the terms of a potential buyout. But rather than letting the committee members do their job, Carter undermined their efforts at every opportunity.
As is typically done by directors considering a potential merger transaction, the committee requested current financial projections for Dole so they could independently assess the value of the company and fairness of Murdock’s offer. In what proved to be fatal to the legitimacy of the negotiations, Carter knowingly provided “lowball” forecasts to mislead the committee for Murdock’s benefit. Specifically, Carter’s projections understated by tens of millions of dollars the annual earnings impact of certain cost-savings initiatives and farm purchases that the company had planned to undertake.
While Carter provided intentionally understated financial information to the committee, he gave more positive and accurate data to Murdock’s lenders. In a secret meeting that violated the committee’s instructions on financial due diligence, Carter and senior members of Dole’s international management team advised Murdock’s lenders that the company could “upsize” the financial projections provided to the special committee by $18-$19 million and gave candid information about the cost-savings initiatives and farm purchases. Although the committee later learned of the meeting, Dole’s management team had already dispersed throughout the world, leaving the committee unable to obtain equivalent information for itself. Only through litigation did the committee and its advisors learn the full scope of the meeting, including the more accurate information about Dole’s financial prospects and business plan.
When the committee was nearing a final agreement with Murdock, Carter attempted to conceal his fraudulent conduct. As the court explained, in early August 2013, while negotiations were ongoing, Carter initiated the company’s annual budgeting process and instructed Dole’s divisions to correct the inaccuracies contained in the financial projections that were provided to the committee just weeks earlier. Pursuant to Carter’s instructions, Dole’s controller sent a memo and budgeting materials to senior management, which emphasized that the revised financial information was “not to be circulated outside of this distribution group.”
Nonetheless, on August 11, 2013, the committee’s advisors learned that senior management had scheduled a meeting to discuss the revised budget and told the committee to hold off on approving the buyout. When he was then asked about the upcoming budget meeting, Carter falsely claimed that there were no changes to the budget, and that there was no reason to delay the approval of the buyout. The committee was also unaware that Carter had been secretly advising Murdock on negotiations over the terms of the merger agreement and had helped plan a potential hostile offer in the event that the committee rejected his proposal. Lacking material information, the committee met that afternoon and approved the sale to Murdock.
As the court explained in its ruling, Murdock’s buyout was not merely unfair to stockholders, it was the product of pervasive “fraud, misrepresentation . . . [and] gross and palpable overreaching.”
“This excellent result, after years of litigation and trial, demonstrates our Firm’s resolve to vindicate the rights of investors,” commented Robbins Geller partner Randall J. Baron, plaintiffs’ co-lead counsel. “The Dole case epitomizes why management buyouts need to be highly scrutinized. Because members of management control the company, they can easily abuse their positions for purely self-interested reasons.”
In re Dole Food Co., Inc. S’holder Litig., C.A. No. 8703-VCL (Del. Ch.).