Castle & Cooke Remains in Play as Investors Bid Up Share Price

Investors have purchased millions of dollars of Castle & Cooke Inc. shares in recent days at prices above the $19.25 a share Los Angeles real estate developer David Murdock plans to pay for the company--a sign that Wall Street either expects another bid for the big Hawaiian landowner or that traders smell profit in a complicated legal play.

One major purchaser has been big investment bank Morgan Stanley Dean Witter, buying on behalf of an unnamed client, according to a person familiar with the transactions.

Shares of Los Angeles-based Castle & Cooke closed unchanged at $19.44 on the New York Stock Exchange on Tuesday after trading as high as $19.63. Trading volume was heavy.

On Thursday, Murdock, who also serves as chairman of Castle & Cooke, reached a deal to take the company private at the $19.25 price. In the process, he reached a tentative settlement of eight shareholder suits charging that he was paying too little.

Murdock, who already owns 27% of Castle & Cooke, valued the deal at $615 million, including debt.

Although some analysts and shareholders thought the agreement was the last chapter in Murdock’s efforts to buy the company, others believe Castle & Cooke remains in play.

“People assume that with the price on the table now there still remains a substantial possibility of a superseding bid,” said Alan Kahn, a New York investment manager who holds shares in the company.

“This is not uncommon in a deal like this, where there is a perception that the market price is way below the fair value of the company,” Kahn said.

Many investors are looking at a report by Bear Stearns & Co., Castle & Cooke’s investment bank, which said the firm’s assets could be worth as much as $30.75 a share. Castle & Cooke owns virtually all the Hawaiian island of Lanai as well as thousands of acres on Oahu. It also owns real estate developments in the continental U.S.

Kahn said he will withhold his shares from a tender offer underway by Flexi-Van Leasing Inc. of Kenilworth, N.J., a company owned by Murdock. Kahn declined to say how many shares he controls.

But he and several other big holders who asked not to be named said they will seek a right of appraisal in the Hawaiian courts if Murdock gains full control of the company.

They believe a court-ordered appraisal would find that Castle & Cooke is worth many more dollars a share than the Murdock offer, and would force him to pay the difference.

Hawaiian securities law mandates that the purchasing company pay the court costs in such a case, in essence giving dissident shareholders another shot at Murdock despite the settlements to the previous litigation, said Craig Silvers, an analyst with Sutro & Co. in Los Angeles.

There is some risk that the court could look at the settlement pact and decide that $19.25 was adequately determined to be a fair price, Silvers added. It could also decide that Castle & Cooke is worth even less, an outcome few expect.

One major shareholder said recent buyers are speculating that a court-ordered appraisal would provide a safety net for purchases made at or near $19.25 a share.

“They are doing the math and figure they are risking a quarter to make $2, $3 or $5 through the appraisal. I’d be very surprised if they didn’t make money,” the shareholder said.

It also isn’t clear whether Murdock will get the number of shares he needs to complete the deal.

One big question is what an investment group controlled by the Tisch family of New York will decide. The family is Castle & Cooke’s biggest holder after Murdock and controls almost 15% of the shares Murdock must yet collect.

The Tisch family declined to say whether it would tender its shares.

Murdock first offered $17 a share March 29. He raised the bid to $18.50 last month before raising it again last week.