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Tuesday, June 13, 2000

Report validates
Murdock’s price for
Castle & Cooke

An adviser's appraisal of
Lanai for $160 million is far
less than is listed on the
company's books

By Russ Lynch


Castle & Cooke Inc.'s 88,000 acres on Lanai, nearly 98 percent of the island, is worth at most $160 million and possibly as little as $60 million -- hotels, luxury home developments and all -- according to an appraisal by Bear Stearns & Co. for an independent panel of the company's directors.

That was one of the factors that led the panel, and later Castle & Cooke's full board of directors, to conclude that Chairman David H. Murdock's March 29 buyout offer of $17 a share was not enough but that $18.50 a share would be fair.

Murdock, who owns 27 percent of the company's stock, sweetened his offer to $18.50 on May 22 and won the unanimous support of the company's board. He is in the process of soliciting shareholders for the other 73 percent of the company.

Some of those shareholders say the latest offer is not nearly enough.

"Our appraiser estimates Lanai's value at $253 million to $339 million," said Honolulu attorney Thomas A. Grande, representing a group of shareholders on Maui. "Obviously land value is the most important factor in valuing the stock" said Grande, who noted that Lanai is a significant part of Castle & Cooke's land assets.

Analysts retained by the dissident shareholders maintain that the company's value is more like $30 to $40 a share. Grande said he hopes to seek a preliminary injunction in court by the end of this month, not to stop Murdock's buyout effort but to delay it long enough to be sure that the price is fair.

A panel of board members not affiliated with Murdock hired Bear Stearns to decide a fair value, after Murdock's March 29 offer of $17 a share for the 73 percent of Castle & Cooke he does not already own.

Taking the upper end of the Lanai evaluation and adding values worked out for Castle & Cooke's other holdings in Hawaii and on the mainland, Bear Stearns said in mid-May that $18.50 a share would be a fair price.

Castle & Cooke's full board later signed an agreement with Murdock supporting that price.

Tender-offer materials now going out to shareholders describe the Bear Stearns study as a limited appraisal based on some unknowns. In choosing the best price the Lanai operations could expect to attract if they were sold as one business to one buyer, Bear Stearns set a value of $105 million for the two resort hotels, the luxury home sites, the golf course and the commercial properties in Lanai City. The company's undeveloped land on the island was valued at $55 million.

While $18.50 a share is well below the company's book value of about $33 value, it is a fair price, Bear Stearns said, based on selling the business today as a going concern.

Other factors in supporting the $18.50 price, the report said, are:

Bullet It is about 53 percent more than the price of Castle & Cooke shares in the market when Murdock made his initial offer of $17 a share in late March.

Bullet Despite the fact that the company paid $19.25 a share for its own stock in a July 1998 buyback, the stock did not trade as high as $18 until after news of Murdock's offer.

Bullet No entity has come forward with any higher offer and since Murdock has said he would vote his stock against any other offer, no such offer is likely.

To set a value on Lanai, Bear Stearns said it looked at recent land deals which might have similarities, such as the Nature Conservancy's decision to invest $37 million to buy and improve the 15,000-acre Palmyra Atoll and the $21 million value set in 1994 on bankrupt Hamakua Sugar Co.'s 30,000 acres of mostly agricultural land on the Big Island.

To get an estimate of the value of the Lanai hotels' -- the 249-room oceanfront Manele Bay Hotel and the 102-room Lodge at Koele inland at about the 1,800-foot level -- Bear Stearns looked at such transactions as the Hilton Hotels Corp. acquisition of Promus Hotel Corp. last fall and Starwood Lodging Trust's 1997 purchases of the Sheraton, Doubletree and Westin hotel businesses.

The Bear Stearns report said the Lanai resort hotels have yet to show a profit and Lanai as a whole faces a number of uncertainties.

One small shareholder, Daniel A. Breen III in Houston, today laughed at the statement that the undeveloped land on Lanai is worth "only $55 million."

"I don't know what the rest of the island is worth, but it's certainly worth more than $55 million," he said.

Eight lawsuits -- five in Los Angeles and three in Hawaii -- have been filed charging the company with under-valuing its own stock and seeking a higher price.

Taking over the company would give Murdock personal ownership of significant amounts of real estate, with Lanai as the prize catch.

Castle & Cooke also owns properties on Oahu which would become Murdock's, including about 750 acres in Central Oahu earmarked for development, about 250 acres of which have all the entitlements they need for residential or commercial development. On Oahu, the company also owns 2,000 acres of agricultural land and 5,500 acres of forest land.

Castle & Cooke also owns 840 acres in California and other properties in Florida, Arizona, North Carolina and Georgia.

Castle & Cooke shares closed today at $18.19, down 12 cents on the New York Exchange.

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