Murdoch's Buyback Bid Hits Trouble.

Sometimes even billionaires don't get their way, as David H. Murdoch is discovering in his bid to take Castle & Cooke Inc. private.

Murdoch's $17-a-share bid for the Los Angeles-based real estate company is set to expire today, May 15, and as of late last week analysts and shareholders were predicting that Murdoch would need to extend that deadline and sweeten his bid, or simply walk away from the deal.

Conspiring against Murdoch, whose personal net worth has fluctuated between about $700 million and $1.1 billion over the past 12 months, are an improving Hawaiian economy and the four sons of longtime CBS Chairman Laurence Tisch. The Tisch brothers have bought a 9.6 percent equity stake in Castle & Cooke, a homebuilder and hotel developer/owner with extensive holdings in the Southeastern U.S., California, Arizona and Hawaii, over the past month.

Lead investor Daniel R. Tisch said in a statement that he and his brothers "believe that the common stock is worth more than $17 per share and that its value will be recognized by the market in the near future."

The Tisch brothers, who declined further comment last week, acquired their stake for between $16.83 and $18.05 a share.

"One would think that since (the Tisch) group has been buying shares at above the $17 offer price, they probably believe (Castle & Cooke) is worth more and will challenge the deal," said Stephen Percoco, an equity analyst at Lark Research Inc. in New Jersey.

Indeed, the market consensus is that the company is worth more than the $17 a share offered by Murdoch, who declined comment last week. Castle & Cooke shares shot up in the wake of his buyout offer, last week hitting a 52-week high of $19.38. In a report on the proposal, Sutro & Co. analyst Craig Silvers expected the deal to get done, "although at a slightly higher price than $17," and assessed the company's net asset value (outstanding assets minus long-term debt divided by shareholder equity) at around $29 a share.

Besides shareholder opposition, another obstacle standing in Murdoch' s way is the improving economic condition of Hawaii, where the bulk of Castle & Cooke's holdings are located.

After being in the doldrums for years, the performance of the company's Hawaii operations have suddenly perked up, adding fuel to shareholders' cry for a higher buyout price.

For the first quarter ended March 31, 2000, Castle & Cooke's net income more than doubled to $5.7 million (33 cents per diluted share), vs. $2.8 million (16 cents) in the prior-year quarter. That jump was largely due to a major turnaround in the company's resorts on the Hawaiian island of Lana'i, which reported $1.9 million in operating income during the first quarter. Those resorts had suffered an operating loss of, $l .7 million in the year-earlier period.

The company's luxury home and lot sales on Lana'i generated an identical operating profit of $1.9 million, compared with an operating loss of $9,000 a year ago.

Shareholders point to those results as further evidence that Castle & Cooke is worth more than Murdoch is offering. But finding definitive proof of that contention may not be so simple.

"While there have been signs of turnaround in the Hawaiian economy, things are still fragile," said analyst Percoco. "The assets Castle & Cooke owns (there) will ultimately be worth more. (But) Hawaii has had no help from Asia, since tourism from Asia is still down."

Shareholders are also miffed at the Murdoch's $17-a-share offer price because the company repurchased about 15 percent of its stock less than two years ago through a Dutch auction tender offer at $19.25 a share. (In a Dutch auction, holders offer to sell stock at various amounts, but the price at which the repurchase is made is the lowest necessary to buy back the requested amount of stock.)

Given the Dutch auction price, which took place when the Hawaiian real estate market was more subdued than it is now, "the ($17) offer price is unfair," said Houston investor Danny Breen, who holds a substantial chunk of Castle & Cooke stock.

As for Castle & Cooke's board of directors, it has appointed a special committee comprised of four independent directors to study the buyout proposal. Once the committee makes its recommendation, it would have to be approved by a majority of the shareholders.

There has been at least some question as to how independent the committee is. It is led by former Atlantic Richfield Co. CEO and current Global Crossing Ltd. co-Chairman Lodwrick Cook, a longtime personal acquaintance of Murdoch's.

"You don't get onto most boards these days without getting a recommendation from the company's executives," one anonymous investor said. "But there is no reason Lod Cook would ruin his reputation by being a pigeon."

Given the history of Murdoch's involvement with Castle & Cook, it is a good possibility that if the deal goes through, he will wait for the right time to take the company public again.

As of late last week, Murdoch -- through his wholly owned Flexi-Van Leasing Inc. -- owned about 27 percent of Castle & Cooke's outstanding shares. His $17-a-share bid for the other 73 percent would cost him about $212 million.

It marks the latest of several conversions for Castle & Cooke, which was originally a unit of the other public company controlled by Murdoch, Westlake Village-based Dole Food Co.

Dole initially sold a stake in the real estate unit in March 1993, at $15 a share. But the stock floundered, so Dole offered to buy it back at $15 a share. Castle & Cooke's board finally relented by approving a buyback in November 1994 at $15.75 a share.

Then in October 1995, Murdoch-controlled Dole announced it would again spin off Castle & Cooke as an independent public company, with shareholders getting one Castle & Cooke share for each three Dole shares they owned. Dole stock closed at $36.88 a share on the day of the announcement, putting the value of Castle & Cooke at $12.29 a share.

And now comes Murdoch's bid to buy it back at $17.

While Murdoch may be forced to sweeten that bid, some long-frustrated investors might be willing to take the money and run.

"Old-time investors (in Castle & Cooke) have been getting their heads handed to them the past couple of years," said another investor speaking on condition of anonymity. "David Murdoch is clearly in the driver's seat, because he owns more than 25 percent of the stock."