Shares of Los Angeles-based real estate and resort developer Castle & Cooke Inc. shot up nearly 40% on Thursday after David H. Murdock--the company's chief executive officer and largest shareholder--offered to buy the portion of the firm he does not already own for about $212 million in cash.
Murdock's $17-a-share offer represented a hefty premium to Castle & Cooke's most recent share price. But industry analysts said the company's underlying properties are worth much more--possibly as much as $30 a share--as the value of its substantial Hawaiian holdings rebound after a long slump.
"The economy is getting better in Hawaii, and home prices will start going up," said Craig M. Silvers, a securities analyst at Sutro & Co. in Los Angeles. "They're going to make a lot of money."
Industry observers say Murdock's offer could trigger similar proposals for other publicly owned real estate companies, whose shares have remained depressed despite soaring property values and rents.
Murdock made the all-cash offer late Wednesday through his wholly owned company, Flexi-Van Leasing Inc. of Kennilworth, N.J. Murdock, through Flexi-Van and its affiliates, already owns a 27% stake in Castle & Cooke. The offer will expire by May 15 if a definitive agreement is not reached.
On Thursday, Castle & Cooke shares rose $4.81 to close at $16.88 on the New York Stock Exchange.
The board of Castle & Cooke responded by saying it will form a committee of independent directors to review the offer. The Castle & Cooke board is also in the process of hiring an investment banker and legal experts, according to a company spokesman.
Murdock was not available for interviews Thursday.
Castle & Cooke's holdings include more than 100,000 acres of land, 4 million square feet of commercial space and residential projects across the Southeastern U.S., Arizona and California. But the bulk of Castle & Cooke's holdings remain in Hawaii, where it owns first-class hotels, including the Manele Bay Hotel, and golf courses on the island of Lanai. In addition, it owns 12,000 acres on the island of Oahu.
After a long recession, Hawaii is slowly bouncing back, which bodes well for Castle & Cooke's large land holdings that have been earmarked for residential development, Silvers said.
Despite the growing value of Castle & Cooke's real estate portfolio, no rivals are expected to emerge to top Murdock's offer, because he already controls a substantial chunk of the company, Silvers said. "They have a lock on it."
Castle & Cooke was spun off from another Murdock-controlled company, Dole Food Co., in 1995, after the slumping real estate operations were blamed for dragging down the entire company. In a previous spinoff, Dole sold a minority stake in its real estate operations in 1993 but repurchased them a year later after the real estate stock proved to be a laggard.
Silvers said there is always a chance that the real estate operations might be on the market again in a few years.
Perhaps "the pattern will repeat . . . and in a couple of years [Murdock will] sell it back," Silver said.
Bloomberg News was used in compiling this report.