Except in the case of the proxy, the ingredients we kept encountering were the related party transactions between Dole, its Chairman of the Board, David Murdock, and a company called Castle & Cooke, Inc. As sweet deals go, this recipe is hardly new. But because Dole was privately held for a number of years (more on that in a minute) and Murdock owns a majority of the stock, the company has only filed three proxies disclosing details of the deals since a 2009 IPO, which transformed it into a publicly-held company again.
Here’s the juiciest section of the related party transactions, from page 51 of the proxy:
“David H. Murdock, the Company’s Chairman of the Board, owns, inter alia, Castle & Cooke, Inc. (Castle), a transportation equipment leasing company, a warehouse company and a hotel. During fiscal year 2011, the Company paid Mr. Murdock’s companies an aggregate of approximately $8.7 million, primarily for the rental of truck chassis, generator sets and warehousing services. In addition, the Company paid Mr. Murdock’s companies an aggregate of approximately $0.1 million in fiscal year 2011 for landscape maintenance services. Castle purchased approximately $0.5 million of products from the Company during fiscal year 2011 and paid the Company approximately $0.1 million under a trademark licensing agreement. The Company also paid $0.7 million in fiscal years 2011 in rental payments under a sublease with North Carolina State University, the lessee of the property under a lease with Castle.”
Now, to most of us, $8.7 million is a lot of money; yet that number has actually dipped a bit from the two prior years. According to last year’s proxy, in fiscal 2010 Dole paid Murdock’s companies $9 million, in addition to $100,000 for landscape maintenance services and $600,000 for the North Carolina State University sublease rental payments. And the 2010 proxy – reporting on fiscal 2009 – disclosed that Dole paid Murdock’s companies $9.8 million plus another $800,000 for the landscaping and sublease payments.
There’s also an aircraft least agreement under which Dole pays for about 2/3 of the costs of an aircraft, and Castle & Cooke pays for the other 1/3. And there has been some crossover whereby current and former directors of Dole, including Murdock’s son, Justin, have served or are still serving as officers and directors of privately-held entities controlled by David Murdock.
As we mentioned earlier, the relationships between Murdock and Dole go back decades. And the existence of Castle & Cooke precedes 1932, when it bought a 21% ownership stake in the Hawaiian Pineapple Company (now “Dole, Inc.”) from founder James Dole during the Great Depression.
Murdock joined Dole as Chairman and CEO in July 1985, and he served as its CEO until June 2007. During that same period of time, he became the Chairman, CEO, and a director of Castle & Cooke, which merged with Murdock’s Flexi-Van Corporation in 1985. He also served a brief stint as Dole’s President from February 2004 to July 2004. Murdock acquired Dole in 2003, which caused the stock to be delisted until the IPO that took it public again in 2009. Even now, the proxy disclosed that Murdock “holds through his various affiliates approximately 58.1% of the Company’s common stock.”
We’ll never know how much money Dole paid Murdock’s companies during those six years when Dole was privately held, and since that period of time doesn’t involve investors, we won’t spend much time even thinking about it. But now that it’s publicly traded again, one has to wonder whether these multi-million-dollar transactions are competitively priced, or do they favor Murdock at the expense of Dole’s bottom line and its investors’ interests? Those decisions should be viewed critically by an independent board of directors, but in light of Murdock’s control over the company, we’re dubious that the questions at a board meeting are all that tough.
Spot what the rest of the market overlooks in company disclosures with the help of footnotedPro, our subscription service for professional investors. To inquire about a trial subscription, or for more information, please email us.