In Re Dole Food Co., Inc. Stockholder Litigation

Facts

Murdock (D) paid $13.50 per share to acquire all of the common stock of Dole Food Company, Inc. (Dole) that he did not already own. D had owned approximately 40% of Dole's common stock, served as its Chairman and CEO, and was its de facto controller. The transaction was structured as a single-step merger. D first offered $12.00 per share. D conditioned his proposal on (i) approval from a committee of the Board made up of disinterested and independent directors and (ii) the affirmative vote of holders of a majority of the unaffiliated shares. While looking good on paper D and Carter sought to undermine the Committee from the start, and they continued their efforts throughout the process. The Committee was assisted in its effort by expert legal counsel and an investment bank-Lazard Frères & Co. LLC.  Both acted with integrity. Because of the diligence of its members and their advisors, the Committee overcame most of Ds' machinations. It negotiated an increase in the price from $12.00 to $13.50 per share, which Lazard opined fell within a range of fairness. Stockholders approved the Merger, with the unaffiliated stockholders narrowly voting in favor in a 50.9% majority. Before D made his proposal, Carter made false disclosures about the savings Dole could realize after selling approximately half of its business in 2012. He also canceled a recently adopted stock repurchase program. These actions primed the market for the freeze-out by driving down Dole's stock price and undermining its validity as a measure of value. F made his proposal, and Carter provided the Committee with lowball management projections. Carter then gave D, D's advisors and financing banks a second set of books with more positive and accurate data. The Committee and Lazard recognized the fraud and fought to mitigate it. Ds deprived the Committee of the ability to negotiate on a fully informed basis. These actions were not innocent or inadvertent, but rather intentional and in bad faith. Dole is one of the world's largest producers and marketers of fresh fruit and vegetables. Through mergers, D became the Chairman and CEO of the combined company, which changed its name to Dole. In 2003, Murdock took Dole private in a leveraged buyout. D got into financial difficulty and then decided to sell a portion of Dole's equity to the public. In Dole conducted an initial public offering of approximately 41% of its shares. The IPO price was $12.50 per share, which valued Dole at approximately 5.9x estimated 2010 EBITDA. After Dole became public, D regularly considered the possibility of taking it private again. Deutsche Bank worked with D on an alleged strategic options review but was, in fact, working both sides of the aisle for Dole and D. At trial, Deutsche Bank claimed that it was no longer working for Dole when it began working on a freeze-out, but that was not accurate. Deutsche Bank began discussing a freeze-out with Murdock after the sale of Lanai. The spinoff and freeze-out were part of a two-step plan in which Murdock would take Dole private in the second step, although the second part of the strategy was 'not to share with Dole mgmt.' Once the preliminary transactions in D's plan were completed a freeze-out was the next step in the long-term plan D had been pursuing. Dole had split off its higher-margin businesses, achieved a premium valuation, and used the proceeds to pay down debt. This created an opportunity to take the remaining business private. D had been focusing on a freeze-out since 2012. The end result of the preliminaries was that Dole had sold approximately half of its business and could 'right-size' the rest. Deutsche Bank advised that Dole could achieve $50 million in annual cost savings. DeLorenzo provided the same $50 million figure, explaining that $20 million of savings would be implemented immediately at the corporate level and the remaining $30 million would be implemented at the division level, with the full run-rate of $50 million per year achieved by the end of 2013. An April 2012 analysis by Dole management estimated annual total cost savings as high as $125 million. In January 2013, Deloitte & Touche had sent Carter an analysis identifying savings of $50-90 million per year. In January 2013, Carter announced by press release that Dole's 'current expectation' was for adjusted 2013 EBITDA in the $150-$170 million range, 'including 2013 planned cost savings in the $20 million range.' He did not mention any additional cost savings. Dole's stock price dropped 13% after the announcement. Dole issued another press release. It quoted Carter as saying, '[W]e expect 2013 Adjusted EBITDA for the new Dole to be at the low end of the guidance range we announced on January 2, 2013, assuming no major market changes.' The January 24 release also lowered Dole's valuation of certain assets, including 25,000 acres of land in Hawaii, which was revised down to $175-$200 million from over $500 million just four months prior. Carter announced in another release that 'fresh fruit performance is continuing its declining trend, principally due to banana market conditions, and Dole expects that 2013 Adjusted EBITDA for these businesses will be at the low end of the previously announced guidance range of $150 - $170 million . . . .' A week after the first release that guided the market downward, D, Carter, and Potillo met with Deutsche Bank, ostensibly about a potential share repurchase program for Dole. Deutsche Bank provided Dole management with another presentation. Describing the price appreciation as a 'risk' showed where Deutsche Bank's loyalties lay. Price appreciation was a risk to D for taking the company private. It was not a risk for Dole or its stockholders, who would benefit from the higher price. The Board discussed the potential share repurchase program. The Board had nine members. Three were members of management: D, Carter, and DeLorenzo. A fourth was D's son Justin. The other five were outside directors: Conrad, Weinberg, Lansing, Dickson, and Elaine Chao. The four outside directors other than Weinberg would later serve on the Committee. The bankers involved with D advised Carter and Potillo to buy shares in the open market or wait for the stock price to decline. The bankers described the self-tender as 'ridiculous and terrible corporate finance' to the point where 'reputational risk of such is a real issue . . . .' D kept pressing for a self-tender, and he called Conrad and Weinberg repeatedly about it. Eventually, Conrad told D bluntly that he thought D was trying to get a majority of the shares and that Conrad would not let him do it through a self-tender. D became furious and berated Conrad on a voice mail. The outside directors met in executive session. They discussed the self-tender and open market repurchases. They also considered possible defensive measures against D but decided not to implement any. Carter used the pretext of funding new ships to cancel the repurchase program. The Board approved the new ships, and Carter issued a press release announcing the decision on May 28, 2013. Carter also announced that share repurchases had been 'suspended indefinitely.' Dole's stock price tumbled 10%. Carter had not informed the Board about his decision to suspend the repurchase plan, nor had he suggested any connection between the ships and the repurchase plan. Secretly, D was making his final preparations for the freeze-out. On June 10, 2013, D delivered his initial proposal to the Board. The stock had most recently traded at $10.20. D offered $12.00 per share. D stated that he was 'a buyer, not a seller,' so the Board would not be able to seek a higher price per share from a third party interested in buying the entire Company. The Board formed the Committee, comprising Conrad, Chao, Dickson, and Lansing. Carter started to play games and assert authority to get favorable results from the Committee. While Carter was fighting the Committee, D was preparing a hostile tender offer if the Committee did not respond favorably by the July 31 deadline. D's reserve price for the tender offer was between $13.00 and $13.50 per share. Carter then used his control over Dole's management to provide false information to the Committee. Carter took charge of revising the December Projections. Carter instructed the division heads to create modified projections from the top down. Rather than generating a complete set of projections with supporting profit-loss statements, Carter and his team created only high-case and low-case adjusted EBITDA forecasts. Carter told the division heads to reverse engineer the supporting budgets after the meeting. Carter presented the new projections to the Board and the Committee. The new Projections were significantly lower than the prior Projections. As an example, the projections contained only $20 million out of the $50 million in post-ITOCHU cost savings that Deutsche Bank had validated, and DeLorenzo had originally predicted. There were other reductions as well. Carter then provided the second set of books with more positive information to D's bankers when he met with them separately the next day. For instance, Carter discussed the projected $50 million in post-ITOCHU Transaction cost savings with the bankers. The Committee and its advisors never found out about the full scope of the Lender Meeting. The Lender Meeting was an obvious violation of the procedures that the Committee had established. The Lender Meeting was not the only time that Carter flouted the Committee's instructions. The Committee decided to prepare their own forecasts. They used the December Projections as a starting point and made their own adjustments. The Committee and its advisors also received incoming calls from interested parties. Chiquita was serious about acquiring all of Dole, including D's stake. The Committee and its advisors asked D to entertain an offer from Chiquita. D refused, confirming that he was only a buyer, not a seller. After pressure from the Committee, D increased his offer to $13.25 per share, stating 'That's it, I'm not going to pay any more.' The Committee countered at $14, and D offered $13.50. The Committee decided to accept D's price. While negotiations over the Merger Agreement were ongoing, Carter started Dole's annual budgeting process and instructed Dole's divisions to correct certain unreasonable assumptions made weeks earlier for purposes of the July Projections. The memo emphasized that the materials attached to the email for use in preparing the new projections were 'not to be circulated outside of this distribution group.' Carter lied to the Committee to cover up the new budgeting process. During the go-shop period, Lazard contacted over sixty parties. After the Merger closed, Dole bought almost exactly the amount of farms that Carter had predicted at the Lender Meeting. A Deutsche Bank report stated that the farms were expected to increase EBITDA by 'around $23 million once the acquisitions are fully integrated.' After the Merger closed, Dole achieved more than the $50 million in cost savings predicted after the ITOCHU Transaction. Carter testified that Dole ultimately achieved approximately $70 million in cost reductions, with only $5.5 million attributed to Dole no longer operating as a public company. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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