A Delaware court has found David H. Murdock, the billionaire owner of the Dole Food Company, guilty of fraudulently driving down the company’s stock price so that he could buy the company at a lower price. The buyout allowed Murdock to take the company private.
In his ruling, Vice Chancellor J. Travis Laster found Murdock and his “right hand man,” Dole’s chief operating officer, C. Michael Carter, guilty of misrepresenting the value of the company’s stock (at 13.50 a share rather than its determined worth, $16.24). Murdock placed an initial bid of $12 based on the false information, which a committee then negotiated back up to $13.50 per share.
“Then, after Murdock made his proposal, Carter provided the committee with lowball management projections, the decision continues. “The next day, in a secret meeting that violated the procedures established by the committee, Carter gave Murdock‘s advisors and financing banks more positive and accurate data.
“To their credit, the committee and Lazard (an investment bank) recognized that Carter‘s projections were unreliable and engaged in Herculean efforts to overcome the informational deficit, but they could not do so fully.
“By taking these actions, Murdock and Carter deprived the committee of the ability to negotiate on a fully informed basis and potentially say no to the merger, Murdock and Carter likewise deprived the stockholders of their ability to consider the merger on a fully informed basis and potentially vote it down.”
As a result of their machinations, Murdock and Carter have been ordered to reimburse Dole shareholders by $148 million, which works out to $2.74 per share. Vice Chancellor Laster also noted that, “although facially large, the award is conservative relative to what the evidence could support.”