Microsoft’s Gates Takes Stake in Castle & Cooke
Six years ago, Bill Gates was married on the picturesque Hawaiian island of Lanai. Now, he’s suddenly the highest-profile player in a battle over the property.
In a Securities and Exchange Commission filing Monday, the billionaire co-founder of Microsoft Corp. revealed that he holds a 6.3% stake in Los Angeles-based real-estate developer Castle & Cooke Inc., which owns most of Lanai. The 1.07-million-share stake is held through Gates’ personal investment vehicle, Cascade Investment.
Castle & Cooke Chairman David Murdock is seeking to buy the company, whose holdings also include real estate in the South and Southwest United States. Murdock has bid $19.25 a share in a deal that would total $615 million.
However, some Castle & Cooke shareholders have said that the offer is far too low, and that Murdock would end up getting the Hawaiian property for a pittance relative to its long-term value. Murdock has already raised his bid twice.
On Monday, Murdock-controlled Flexi-Van Leasing Inc., the entity he’s using to make the tender offer, said holders of 7.1 million Castle & Cooke shares have agreed to Murdock’s offer. But that leaves him shy of his goal by about 2.3 million shares, as some angry holders have refused to let go of their stock.
With shares tendered, Murdock already has 68% of the company, but needs 90% to avoid the lengthy process of issuing proxy statements to all shareholders and holding a vote on the offer.
The disclosure of Cascade’s stake in Castle & Cooke momentarily sent the stock as high as $19.94 about 9 a.m. PST Monday, but the shares quickly settled back to close unchanged at $19.19. Trading volume surged to nearly 500,000 shares on the New York Stock Exchange.
Cascade’s motivation isn’t clear, and officials there didn’t return calls Monday. Cascade’s so-called 13G filing did not divulge when it acquired its stake, nor did it reveal the firm’s intentions.
Two weeks ago Castle & Cooke stock was consistently trading above Murdock’s bid price, in heavy trading. Rumors circulated that a potential rival bidder was accumulating shares.
Even if Cascade was the buyer at that time, it isn’t certain that Gates was directly involved in the decision. Wealthy individuals often cede day-to-day handling of their portfolios to outside money managers, and Gates has been preoccupied with Microsoft’s antitrust troubles.
Then again, “you can’t escape the coincidence” given the timing of the Castle & Cooke deal and Gates’ history with the island, said one investor who asked to remain anonymous.
If Gates has directed the purchases, what might be his reasoning? There are several theories among analysts and money managers.
It’s possible that Gates wants to help Murdock buy Lanai because he feels nostalgia for the property, though several observers said that’s the least likely explanation.
Others speculate that Gates is simply trying to turn a profit alongside other investors. Some Castle & Cooke shareholders are betting that an unusual Hawaiian securities law--which could cause a court-supervised appraisal of the company--could eventually force Murdock to pay a higher price.
However, Craig Silvers, an analyst at Sutro & Co. in Los Angeles, doubts that Gates is in this for a quick profit. Even if Murdock upped his offer by a few dollars a share, Gates would make a profit of only a few million dollars, small in relation to his overall wealth, Silvers said.
Another theory holds that Gates is planning to make a competing bid to acquire Castle & Cooke and wrest the island away from Murdock. However, if that were the case, Gates likely would have done so by last week, when the original tender offer expired, said one shareholder.
Finally, there is speculation that Gates is seeking leverage to swing a deal with Murdock--such as being able to buy an ownership stake in the island.
“Maybe Bill Gates wants something and his bargaining chip is the million shares,” Silvers said.
A Castle & Cooke spokesman could not be reached for comment.
Cascade has investments in a variety of companies. It holds 7.8% of ship manufacturer Newport News Shipbuilding and 7.8% of Wisconsin Central Transportation, a railroad. Cascade also holds 5% stakes in Otter Tail Power, an electric utility, and Avista, a utility owner and fuel-cell developer.
