In re Dole Food Company, Inc. Stockholder Litigation, Consolidated C.A. No. 8703-VCL
In re Appraisal of Dole Food Company, Inc., Consolidated C.A. No. 9079-VCL
In a much anticipated post-trial decision, the Delaware Court of Chancery found two directors of Dole Food Company, Inc. liable under the entire fairness standard. Chairman, Chief Executive Officer, and controlling stockholder David H. Murdock and director, President, Chief Operating Officer, and General Counsel C. Michael Carter were deemed to have driven down Dole’s stock price prior to a merger by which Murdock took Dole private and to have undermined the work of a special committee constituted to consider Murdock’s proposal. The Court awarded damages of $148 million. The Court found, however, that Deutsche Bank, who was Murdock’s financial advisor and a lender to Murdock, was not liable on an aiding and abetting claim.
By way of background, the Court found that, to prime Dole for Murdock’s freeze-out plans, Carter sought to depress Dole’s stock price by intentionally furnishing the market with a “subterranean” estimate of Dole’s estimated cost savings in connection with another transaction and by cancelling a stock repurchase program. Murdock subsequently delivered his initial proposal of $12.00 per share to Dole’s board of directors (the “Board”), which represented a premium over Dole’s depressed trading price of $10.20. Guided by the Court’s earlier decision in In re MFW Shareholders Litigation (subsequently affirmed by the Delaware Supreme Court), Murdock expressly conditioned his offer on approval of a committee of disinterested and independent Dole directors and the affirmative vote of holders of a majority of the unaffiliated shares. The Board then formed a committee to evaluate Murdock’s offer. But, Murdock and Carter were found to have undermined the committee from the start. In the Court’s eyes, Carter’s most egregious misconduct was intentionally supplying the committee with “lowball” projections and withholding from the committee financial information and business plans that he was sharing with Murdock’s advisors. Murdock and Carter’s interference, the Court found, rendered the committee incapable of making a fully informed decision on Murdock’s proposal. The merger ultimately was approved by 50.9% of the unaffiliated stockholders at a price of $13.50 per share.
The Court applied the entire fairness standard of review because, “despite mimicking MFW’s form, Murdock did not adhere to its substance” through his and Carter’s attempts to undermine the committee and its process. Significantly, the Court lauded the special committee and its advisors for carrying out their tasks with integrity and diligence, which allowed them to overcome “most of Murdock’s and Carter’s machinations.” But, even assuming the ultimate deal price of $13.50 per share fell within a range of reasonableness, the Court held that Dole stockholders were entitled to a “fairer” price “designed to eliminate the ability of [Murdock and Carter] to profit from their breaches of the duty of loyalty.” The Court found that the “fairer” price was an additional $2.74 per share or approximately $148 million.
As for Deutsche Bank, Murdock’s financial advisor, the Court found it was not liable under an aiding and abetting theory because it did not knowingly participate in the critical fiduciary breaches that caused harm to Dole. Although the Court found that Deutsche Bank assisted Murdock in preparing his bid at a time when Deutsche Bank was also advising Dole on another transaction, it determined that Deutsche Bank’s planning assistance to Murdock was not causally related to the harm that Dole suffered. Instead, the Court held that the “critical breaches” that resulted in injury to Dole were the actions by Murdock and Carter that depressed Dole’s stock price and concealed information from the special committee. The Court concluded that Deutsche Bank was not aware of and did not participate in those acts and therefore could not be liable for aiding and abetting.
This opinion serves as stark notice that MFW is not a panacea. The MFW conditions must be adhered to not just in form, but also in substance, as a controlling stockholder transaction must truly mimic an arms’-length, third-party deal to be afforded deferential review by the Court. Further, a fully functioning, diligent committee of independent directors cannot fully cleanse a process that is undermined by misinformation and misdirection. The opinion also provides guidance to financial and other advisors who may be concerned about potential aiding and abetting liability. It stands in contrast to the Court of Chancery’s decision in In re Rural Metro Corporation Stockholders Litigation, in which the financial advisor was found to have aided and abetted breaches of fiduciary duty.