Deal Professor  |  September 17, 2013, 8:02 pm

Dole Food’s Buyout in 2013 Looks a Lot Like One in 2003

By STEVEN M. DAVIDOFF

Once is apparently not enough for David H. Murdock, the chief executive of the Dole Food Company.

He has offered to acquire the fruit company for $13.50 a share in a buyout that has been approved by the board. The 90-year-old executive has done this before, and it’s a maneuver he knows well.

But a lawsuit brought by some shareholders in the Delaware Chancery Court is challenging the deal, contending that it is rife with conflicts as Mr. Murdock uses his previous experience at taking Dole private to his advantage.

Mr. Murdock, who dropped out of the ninth grade and is worth about $2.4 billion, according to Forbes, acquired a controlling interest in Dole in 1985. He first took part of Dole private in 2000, when he acquired real estate assets previously spun off by Dole. The real estate was mostly the Hawaiian island of Lanai, which he sold to Lawrence J. Ellison, the co-founder and chief executive of the software company Oracle, for a reported $300 million in 2012. Then in 2003, Mr. Murdock took Dole private in a $2.5 billion deal. Mr. Murdock didn’t keep the company private for long. Dole went public, raising $446 million.

It’s not just Mr. Murdock who has returned to the deal-making table.

The cast of characters seems to be a rerun of the 2003 buyout. For example, four of the directors on Dole’s seven-member board, including Mr. Murdock, were directors when the company was public the first time. Two of the directors are former or current executives of Dole, with more than a decade at the company.

And Mr. Murdock’s advisers — the law firm Paul, Hastings, Janofsky & Walker and Deutsche Bank — played the same roles in the first buyout. Even the lawyers for the special committee of independent directors, Sullivan & Cromwell, were counsel to the underwriters on Dole’s 2009 I.P.O.

The shareholder lawsuit contends that Mr. Murdock has used his connections to stack the deck in his favor, pushing the special committee of independent directors to approve a deal.

One of the special committee directors, E. Rolland Dickson, served on the special committee that approved the 2003 buyout. Not only that, but Dr. Dickson has been Mr. Murdock’s personal physician.

Other members of the four-person special committee are also thought to have outside ties to Mr. Murdock. One, Elaine L. Chao, the former secretary of labor under President George W. Bush, is married to Senator Mitch McConnell, the Senate Republican leader, and Mr. Murdock has been a big Republican donor. Ms. Chao was also on Dole’s board from 1993 to 2001, rejoining the board after Dole’s I.P.O. in 2009.

Dr. Andrew J. Conrad, the head of the committee, was appointed to the Dole board by Mr. Murdock in 2003, when the company went private the first time. He has also been an adviser to the North Carolina Research Campus, a research center for cancer, to which Mr. Murdock has donated $700 million.

While these connections and relationships might appear to present potential problems, the directors considered them and decided, according to a regulatory filing, that they “would act in an independent and disinterested manner.” So there you have it.

The plaintiffs contend that Mr. Murdock timed the buyout to come in a lull in Dole’s stock price, one caused by asset dispositions as the business rebuilds. With a $1.7 billion sale of its Asian fresh produce business and global packaged food business to the Itochu Corporation of Japan in 2012, Dole is now debt-free. Back in the 2003 buyout, it was the 2001 sale of a Honduran beverage business for $537 million in cash and the sale of Spanish and French subsidiaries.

There are differences between the current buyout and the one in 2003. This time around, Mr. Murdock took the position that he would not sell his own 39.7 percent to anyone else, a stance he did not take in 2003. In fact, at least one bidder offered to pay $14 a share before the announcement of Mr. Murdock’s bid, but there is no record of follow-up by the Dole directors.

Dole did not return calls to comment for this column. But in a filing with the Delaware court, Dole argued that the directors were disinterested and that “a special committee of independent, disinterested directors — fully empowered to negotiate with Murdock and say no — recommended the merger” and that “the special committee’s financial adviser, Lazard Frčres & Co. L.L.C., which plaintiffs do not contend is conflicted — determined the price is fair to Dole’s stockholders.”

Dole and its board also argued that the deal was fair since it “remains subject to a vote of disinterested stockholders.”

Still, there is a disturbing echo in this buyout process. Take the reason Mr. Murdock gave in 2002 for taking Dole private: “Operating Dole Food Company Inc. as a private enterprise is the best alternative given the public-market focus on short-term earnings and predictable quarterly results. This will give the company greater flexibility to make investment and operating decisions based on long-term strategic goals.”

Fast-forward to 2013. In his buyout offer to the Dole board, Mr. Murdock stated: “Operating Dole Food Company as a private enterprise is the best alternative given the public-market focus on short-term earnings and predictable quarterly results. This will give the company greater flexibility to make investment and operating decisions based on long-term strategic goals.”

Yes, it is the same language almost word for word. At least you would have thought that in the decade since he could come up with some reason he took Dole public in between. But then again, since it is all the same parties, why bother?

To be fair to Dole and Mr. Murdock, this is not the first company to go private, then public and then private again. HCA, the owner of hospitals, for example has gone private and public twice, earning the founding Frist family billions.

The idea behind a take-private by management is that there is some value inherent in the business being private rather than public. That is the idea at least, and we saw that argument being made with Dell, where a huge revamping is taking place and perhaps justified.

But in Dole’s case it appears that Mr. Murdock is simply hitting the cut and paste key. In this case, it is hard to see why this company should be private rather than public, other than the same tired reasons that it is better for the long term.

Of course, the one reason is price — shareholders will receive a good one that justifies selling. But here the special committee appears not to have acted more strongly to look at competing bids, leaving a higher bid on the table.

And so we are left with shareholders deciding. The deal requires that a majority of all shareholders other than Mr. Murdock approve it in a vote. Shareholders are typically reluctant to take risk, so approval is likely. So the third time is likely to be a charm for Mr. Murdock. One wonders if there will be a fourth, after a seemingly inevitable I.P.O. a few years from now. If that happens, Mr. Murdock can save on legal and bankers’ fees, since the documents are already prepared.

A version of this article appears in print on 09/18/2013, on page B7 of the NewYork edition with the headline: Dole Food’s Buyout in 2013 Looks a Lot Like One in 2003.

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