Dole CEO David Murdock and former president and chief counsel Michael Carter were ordered to pay shareholders $148 million for driving down the stock price of the company to take it private on the discount.
Murdock acquired all of the common stock of Dole that he did not already own for $13.50 per or $1.2 billion in November 2013 under a single-step merger. Prior to the deal, Murdock owned 40% of the company and served as its Chairman, CEO, and de facto controller.
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Dole CEO received “improper personal benefit”
On Thursday, Delaware Chancery Court Judge Travis Laster ruled that Murdock received an “improper personal benefit” from the transaction to regain control of Dole.
Judge Laster also ruled that Carter should be held personally accountable for losses incurred by investors in connection with the buyout. According to the judge, Carter misstated the amount Dole could earn if it would sell some of its businesses and cancel the stock buyback program.
Judge Laster emphasized that the action of the executive drove down the stock value of Dole. Murdock initially offered to buy the shares of the company for $12. Dole’s Committee negotiated a price increase to $13.50 per share.
In his ruling, Judge Laster said Murdock and Carter “deprived the committee of the ability to negotiate on a fully informed basis and potentially say no to the merger.” The judge added that the executives also “deprived the stockholders of their ability to consider the merger on a fully informed basis and potentially vote it down.”
Judge Laster said, “Carter engaged in fraud” by helping Murdock take Dole private cheaply. He also emphasized that Murdock violated his fiduciary duties to shareholders by “orchestrating an unfair, self-interested transaction.”
Furthermore, the judge cleared Deutsche Bank AG of any wrongdoing in connection with the buyout. Deutsche Bank advised Murdock on the transaction.
Stuart Grant, the lawyer representing Dole shareholders who filed the case against Murdock said they are happy with the court ruling. According to him, “Dole stockholders are pleased with the judge’s decision to rein in what a controlling shareholder like Mr. Murdock can do in a management-led buyout.”
The shareholders alleged that Murdock colluded with Carter and Deutsche Bank to drive down the valuation of the company. The judge noted that Murdock did not disclose to the directors of Dole that he had been talking to the bank for more than a year regarding a management-led buyout before he made his offer to the company.