The Delaware Court of Chancery recently handed down a $148 million judgment against Dole Food’s CEO, David Murdock, and the company’s former General Counsel, C. Michael Carter, for deliberately driving down the value of the company so Murdock could “take the company private on the cheap.” Even though the amount is far less than the shareholders sought, the judgment is one of the largest imposed by the Chancery Court. In his opinion, Vice Chancellor J. Travis Laster wrote that although the Dole board’s merger committee made a “Herculean effort” to overcome Murdock and Carter’s efforts to keep investors in the dark, it was deprived of information about the company’s ability to cut costs and improve income and was unable to negotiate on a fully informed basis to reject the merger offer. Vice Chancellor Laster wrote:
But what the committee could not overcome, what the stockholder vote could not cleanse, and what even an arguably fair price does not immunize, is fraud.
It was pretty clear that the Vice Chancellor had Murdock pretty well figured out. He wrote the following about the 92-year-old who is ranked as the 190th richest American:
By dint of his prodigious wealth and power, he has grown accustomed to deference and fallen into the habit of characterizing events however he wants. Murdock was an old-school, my-way-or-the-highway controller, fixated on his authority and the power and privileges that came with it. Murdock testified that he was “the boss” at Dole, and “the boss does what he wants to do.”
While Murdock was the primary beneficiary of the scheme, Vice Chancellor Laster stated that he had help in carrying out his scheme. He concluded in his opinion that Carter helped bring everything to fruition. The Vice Chancellor wrote:
His job was to carry out Murdock’s plans, and he did so effectively, even ruthlessly. When Carter set a goal for a division, they fell into line. Carter engaged in fraud through his efforts to help Murdock take Dole private as cheaply as possible.
Vice Chancellor Laster added that the billionaire violated legal duties to shareholders by “orchestrating an unfair, self-interested transaction.” Murdock sought in the summer of 2013 to buy the 60 percent of Dole he did not already own for $12 a share. The company’s independent directors negotiated the price up to $13.50, and the deal closed in October of that year. Several lawsuits were filed and eventually consolidated in the Delaware Court of Chancery. This decision holds Murdock and Carter jointly and separately liable for damages of $148,190,590.18, representing an incremental value of $2.74 per share.
Sources: New York Times and Forbes
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