Oct 31, 2013
Dole Food Deal Passes By Slim Margin as
Hedge Funds Seek Appraisal
Dole Food Co.’s $1.2
billion sale to its chief executive and founder squeaked past a
shareholder vote on Thursday, but several large holders plan to seek a
second opinion on the deal price from a judge, according to people
familiar with the matter.
The buyout passed with the
support of 50.9% of the shares not held by CEO David Murdock, who owns
39.5% of Dole and is trying to take it private for the second time in
a decade. To pass, it needed a majority of shares not controlled by
Mr. Murdock to vote yes.
But hedge funds holding at
least 10 million shares — or more than 12% of Dole’s stock — have said
they will seek appraisal for their shares, a legal proceeding in which
a judge set a fair price, the people said. Judges in appraisal cases
have often awarded more than the offer price, especially in buyouts by
large shareholders like Mr. Murdock. But an appraisal can come in
lower than the deal price, too, and either way resolution can take
The bulk of those shares
are held by Merion Investment Management LP, which on Tuesday
disclosed an 8.3% stake in Dole. Prior to then it hadn’t disclosed a
position, meaning it owned less than 5%.
Two other hedge funds
holding as many as seven million shares between them have also
reserved their right to seek appraisal, according to one person.
Another person put the number lower, closer to 2.5 million. A
representative for Dole declined to comment, but confirmed that the
company had received such notices from several shareholders.
In all, at least 10 million
and possibly as many as 14 million shares have foregone the
$13.50-per-share buyout offer in the hopes of getting more from a
judge. Albert Fried & Co. analyst Sachin Shah said Thursday that the
company could be worth more than $17 per share, including valuable
land it owns in Hawaii.
This isn’t the first
appraisal case for Merion, whose strategy includes buying shares of
companies on the brink of a buyout and pushing for more in court.
Merion teamed with three
other funds in 2011 to seek appraisal for 5.84 million shares of
Cogent Inc., which had just been sold to 3M Co. This summer, a judge
awarded the funds 3.5 percent more than the sale price. In 2012, the
Radnor, Pa.-based fund sued for appraisal of its stake in Deltek Inc.,
which had been bought by private-equity firm Thoma Bravo LLC. That
suit was later dismissed.
Merion is currently seeking
appraisal for its 5.4 percent stake in BMC Software Inc., which it
acquired weeks before the company’s shareholders voted to approve a
$6.9 billion buyout by private-equity firms Bain Capital and Golden
Gate Capital this summer.
Between BMC and Dole,
Merion now has more than $450 million tied up in appraisals, based on
the merger prices of the two deals.
Merion is run by Andrew
Barroway, a former lawyer at Kessler Topaz Meltzer & Check LLP, which
represents plaintiffs in big merger and securities cases. Barroway did
not respond to a request for comment.
Dole’s stock price spiked
briefly on news that the deal had passed and closed at $13.55.
It’s too late for investors
to benefit from an appraisal, which requires shareholders to notify
the company before the vote.
But a person familiar with
the trading strategy said the newcomers are likely betting on a the
outcome of a separate lawsuit over the deal that is moving ahead in
In that case, shareholders
accuse Mr. Murdock, who also chairs Dole’s board, of manipulating the
stock price in the run up to his bid. The company canceled a planned
stock buyback in May, sending shares plunging to their lowest levels
in nearly a year. Dole also announced it would spend $165 million on
new ships, a big upfront cost the plaintiffs say was designed to
further depress the shares. Mr. Murdock announced his bid two weeks
And as it was telling
stockholders the shares were worth $13.50, Dole was telling its banks
that the company had net assets worth more than $23 per share,
according to the complaint, which cites nonpublic materials shown to
lenders. The company denies the allegations.
Few merger lawsuits result
in more money for shareholders. Most settle, with companies agreeing
to disclose more information about the deal process and to pay the
plaintiffs’ attorney fees.
But the law firm for the
Dole plaintiffs, Grant & Eisenhofer PA, has a string of big damages
cases to its name. The firm secured multimillion-dollar payouts in
litigation over the sale of Del Monte Foods Co. to KKR & Co. LP in
2011, of El Paso Corp.’s pipeline business to Kinder Morgan Corp. in
2012, and of Delphi Financial Group Inc. to Tokio Marine Holdings Inc.
Dole’s trading after
Thursday’s vote suggests investors are optimistic Dole will be the
next in that line.
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