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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
CASTLE & COOKE, INC.
(Name of Subject Company)
CASTLE & COOKE, INC.
(Name of Person Filing Statement)
COMMON STOCK, NO PAR VALUE
(Title of Class of Securities)
148433105
(CUSIP Number of Class of Securities)
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EDWARD C. ROOHAN
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
CASTLE & COOKE, INC.
10900 WILSHIRE BOULEVARD
LOS ANGELES, CA 90024
(310) 208-6055
(Name, Address and Telephone Number of Person Authorized to Receive
Notice and Communications on Behalf of the Person Filing Statement)
COPY TO:
ANDREW E. BOGEN, ESQ. CHARLES F. NIEMETH, ESQ.
GIBSON, DUNN & CRUTCHER, LLP O'MELVENY & MYERS, LLP
333 SOUTH GRAND AVENUE, SUITE 4800 153 EAST 53RD STREET
LOS ANGELES, CA 90071 NEW YORK, NY 10022-4611
(213) 229-7000 (212) 326-2000
/ / Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Statement") relates to an offer by Castle Acquisition Company, Inc., a Hawaii
corporation (the "Purchaser") and a wholly-owned subsidiary of Castle & Cooke
Holdings, Inc., a Delaware corporation (the "Parent") and a wholly-owned
subsidiary of Flexi-Van Leasing, Inc., a Delaware corporation ("FLX"), which is
100% owned by David H. Murdock, to purchase all of the outstanding shares of
Common Stock of Castle & Cooke, Inc., a Hawaii corporation (the "Company").
ITEM 1. SUBJECT COMPANY INFORMATION.
(a) The name of the subject company is Castle & Cooke, Inc. The address of
the principal executive office of the Company is 10900 Wilshire Boulevard, Los
Angeles, CA 90024. The telephone number of the Company is (310) 208-3636.
(b) The title of the class of equity securities to which this Statement
relates is the common stock, no par value per share, of the Company (the "Common
Stock"). As of May 15, 2000, there were (i) 17,058,883 shares of Common Stock
issued and outstanding, (ii) 3,015,764 shares of Common Stock held in the
treasury of the Company, (iii) and 1,099,664 shares of Common Stock reserved for
issuance under then-current outstanding stock options pursuant to the Company's
stock option and incentive plans.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSONS.
(a) NAME AND ADDRESS. The name, business address and telephone number of the
Company, which is the person filing this Statement, are set forth in Item
1(a) above.
(b) TENDER OFFER. This Statement relates to the cash tender offer by the
Purchaser to purchase all issued and outstanding shares of Common Stock (each a
"Share" and collectively, the "Shares"), at a purchase price of $18.50 per
Share, net to the seller in cash, without interest (the "Offer Price"), as
described in the Offer to Purchase on the combined Schedule TO and Schedule
13E-3 (collectively, the "Schedule TO"), and the related Letter of Transmittal
of the Purchaser, each dated May 31, 2000 (the terms and conditions of which,
together with any supplements thereto, collectively constitute the "Offer"). The
Offer is being made by the Purchaser pursuant to the Agreement and Plan of
Merger, dated as of May 19, 2000 (the "Merger Agreement"), by and among the
Company, FLX, Parent and Purchaser, a copy of which is filed as Exhibit (e)(1)
hereto and incorporated herein by reference. Subject to certain terms and
conditions of the Merger Agreement, the Purchaser will be merged with and into
the Company (the "Merger"), with the Company continuing as the surviving
corporation (the "Surviving Corporation") and becoming a wholly-owned subsidiary
of the Parent. As more fully described in Item 3 below, at the effective time of
the Merger (the "Effective Time"), each Share then outstanding (other than
Shares held by (i) FLX, or any direct or indirect subsidiary of FLX, including
the Parent and the Purchaser, (ii) the Company or any subsidiary of the
Company), will be cancelled and converted into the right to receive $18.50 or
any higher price per Share paid in the Offer for any reason, including any
dissenter's rights of shareholders who did not vote in favor of the Merger
Agreement and who comply with all of the relevant provisions of Section 415-81
of the Hawaii Business Corporations Act (the "Merger Consideration").
The Offer to Purchase, the Letter of Transmittal and copies of the press
releases issued by the Company on March 29, 2000, April 12, 2000, May 16, 2000
and May 22, 2000, are filed as Exhibits (a)(1), (a)(2), (a)(5) (a)(6),
(a)(7) and (a)(8) hereto and incorporated herein by reference.
The principal executive office of FLX is located at 251 Monroe Avenue,
Kenilworth, New Jersey 07033. The telephone number of FLX is (908) 276-8000. The
principal executive office of Parent is located at 10900 Wilshire Boulevard, Los
Angeles, CA 90024. The telephone number of Parent is (310) 208-6055. The
principal executive office of Purchaser is located at 10900 Wilshire Boulevard,
Los Angeles, California 90024. The telephone number of Purchaser is (310)
208-6055.
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ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
(a) Except as described or referred to below, or incorporated by reference,
there exists on the date hereof no material contract, arrangement or
understanding and no actual or potential conflict of interest between the
Company or its affiliates and (i) the Company or its executive officers,
directors or affiliates, (ii) Purchaser or its executive officers, directors or
affiliates, or (iii) Parent or its executive officers, directors or affiliates.
(b) The information that appears under the captions "Compensation of
Directors," "Security Ownership of Directors and Executive Officers," "Certain
Transactions," "Pension Plans," "Compensation of Executive Officers," and
"Corporate Compensation and Committee Report to Stockholders" in the Company's
definitive proxy statement for its 2000 Annual Meeting of Stockholders is filed
as Exhibit (a)(4) hereto and incorporated herein by reference.
THE MERGER AGREEMENT
The summary of the Merger Agreement and the description of the conditions of
the Offer contained in Section 10 of the Offer to Purchase of FLX, Parent and
the Purchaser, dated May 31, 2000 and filed as an exhibit to the Schedule TO,
which is being mailed to shareholders together with this Statement, are
incorporated herein by reference. Such summary and description are qualified in
their entirety by reference to the Merger Agreement, which has been filed as
Exhibit (e)(1) hereto and is incorporated herein by reference.
CONFIDENTIALITY AGREEMENT
The Company entered into a confidentiality letter agreement, dated March 29,
2000, between the Company and FLX (the "Confidentiality Agreement"). The
Confidentiality Agreement contains customary provisions pursuant to which, among
other matters, FLX has agreed, subject to certain exceptions, to keep
confidential all nonpublic, confidential or proprietary information concerning
the Company which is furnished to FLX by or on behalf of the Company, including
certain information about the Company's acquisition opportunities with respect
to certain acquisition candidates (the "Confidential Information"), and to use
the Confidential Information solely for the purpose of evaluating a possible
transaction involving the Company and FLX and will not be used in any way
detrimental to the Company. FLX has further agreed that it will disclose the
Confidential Information only to (i) its representatives who need to know such
information in connection with the Offer and Merger, and (ii) such other
persons, disclosure to whom is approved in writing by the Company. Such summary
and description are qualified in their entirety by reference to the
Confidentiality Agreement, which has been filed as Exhibit (e)(2) hereto and is
incorporated herein by reference.
INDEMNIFICATION AGREEMENT
Pursuant to an indemnification agreement, dated April 11, 2000, among the
Company and the members of the Special Committee, the Company agreed to
indemnify all of the members of the Special Committee for their service on the
Special Committee in connection with the Proposal from FLX or any other
resulting transaction. Subject to certain limitations, the Company is obligated
to indemnify the Special Committee members from any reasonable expenses incurred
by them, and amounts they may be legally obligated to pay, as a result of actual
or threatened claim or claims, or any investigation or court or administrative
proceeding (whether civil or criminal), arising from the Proposal from FLX or
any other resulting transaction. The rights to indemnification provided in the
agreement are in addition to any rights provided by law, the Articles of
Incorporation and bylaws of the Company, any insurance policy, agreement or
otherwise. This summary does not purport to be complete and is qualified in its
entirety by reference to the complete text of the Indemnification Agreement,
which has been filed as Exhibit (e)(3) hereto and is incorporated herein by
reference.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company (the "Board" or the "Board of
Directors"), at a meeting held on May 19, 2000, unanimously determined that the
terms of the Offer and the Merger are fair to, and in the best interests of, the
shareholders of the Company based upon, among other things, the unanimous
recommendation and approval of the Special Committee of the Board of Directors
(the "Special Committee"). The Special Committee is comprised solely of
directors of the Company who have no position with or financial interest in
Purchaser, Parent, FLX or their affiliates, except for their positions as
Directors and interests as shareholders of the Company. At this meeting, the
Board approved the Offer and the Merger and the other transactions contemplated
by the Merger Agreement, and approved the Merger Agreement, including approval
for purposes of the "interested shareholder" provisions of the Hawaii Business
Corporations Act. William D. Dallas, a member of the Special Committee, was
unable to participate in the May 19 meetings. He has authorized the Company to
state that he agrees and joins in the resolutions of the Special Committee and
Board of Directors. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER.
BACKGROUND OF THE OFFER; CONTACTS WITH PARENT
At a meeting of the Board of Directors of the Company on March 29, 2000,
Mr. Murdock stated that he wished to present a proposal, on behalf of FLX, to
acquire all of the outstanding stock of the Company (not already owned by FLX)
for a price of $17 per share (the "Proposal"). He noted that the offered price
represented a premium of 41% to the then-current trading price for the Company's
Common Stock on the New York Stock Exchange. Mr. Murdock presented a letter
setting forth the proposal as follows:
"I am pleased to present the following proposal for a transaction whereby
Flexi-Van Leasing, Inc. (or another corporation wholly owned by me) would
acquire all outstanding shares of common stock of Castle & Cooke, Inc., not
already owned by me or my affiliates for $17 per share in cash. This
represents a 41% premium over today's closing price of $12.06.
I believe that my proposal presents an excellent opportunity for Castle &
Cooke, Inc.'s shareholders to achieve liquidity for their shares at a
significant premium to current market value and at what I believe is a fair
price. In addition, I believe that if interest rates continue to rise, the
public trading value of real estate companies like Castle & Cooke, Inc. will
be adversely affected. I also believe that my familiarity with Castle &
Cooke, Inc.'s geographic, regulatory, financial and operating environments
makes me particularly well-suited to lead Castle & Cooke, Inc. in addressing
the challenges ahead. I am confident that you will conclude that my proposal
is fair and in the best interests of Castle & Cooke's public shareholders.
To facilitate a transaction, I have engaged Deutsche Bank as my financial
advisor and Skadden, Arps, Slate, Meagher & Flom LLP and Paul, Hastings,
Janofsky & Walker LLP, as my legal advisors to assist me with the proposed
transaction. In that regard, Deutsche Bank has issued a "highly confident"
letter with respect to the financing necessary to consummate the
transaction. I am prepared at the earliest possible time to enter into a
binding agreement, which would contain customary terms and conditions for
transactions of this type. I am happy to make representatives of Deutsche
Bank, Skadden Arps and Paul Hastings available to meet with the Board of
Directors to discuss my proposal at your earliest convenience.
While I am ready to move quickly, I recognize, of course, that the Board of
Directors will require some time to evaluate my proposed transaction before
it reaches a determination concerning entering into a definitive agreement
relating to my proposal. Given my involvement in the proposed transaction, I
appreciate that the Board may want to establish a special committee to
review my proposed
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transaction, and that such a committee may choose to engage legal counsel
and an investment banking firm to assist in its review.
While I appreciate and respect the Board's need to conduct an appropriate
process in evaluating my proposal, I believe that time is of the essence and
request that you give this proposal your prompt consideration. Accordingly,
I must reserve the right to terminate my proposal if a definitive agreement
has not been executed by May 15, 2000. We look forward to your careful
consideration of this important proposal and are prepared to work closely
with you over the coming weeks."
The Proposal was promptly publicly disclosed by the Company in a press
release and in a filing with the Securities and Exchange Commission (the
"Commission").
Mr. Murdock stated that in view of his financial interest in the Proposal,
it would be appropriate for the Board to appoint a special committee to act on
behalf of the Board, consisting of those Directors who are not officers or
employees of the Company, and who have no financial interest in, or position
with, FLX or any of its affiliates (other than their positions as Directors and
their ownership of Shares). A Special Committee was appointed consisting of
Messrs. Edward Carson, Lodwrick Cook, William Dallas and Edward Hogan, with
Mr. Carson as Chairman. Subject to the limitations of Hawaii law, the Special
Committee was authorized to exercise all of the powers of the Board with respect
to the Proposal and any transaction that might eventuate therefrom, including
the selection and retention of legal counsel and a financial advisor.
The Special Committee determined to engage Gibson, Dunn & Crutcher, LLP
("GDC") as legal counsel, and to contact several investment banking firms with a
view to select one as its financial advisor. Following discussions with
representatives of several such firms, the Special Committee selected Bear,
Stearns & Co. Inc. ("Bear Stearns"), subject to the negotiation of a mutually
satisfactory engagement agreement.
Following the public disclosure of the Proposal on March 29, 2000, five
purported class actions were filed in the Superior Court of Los Angeles County,
California and three purported class actions were filed in the Circuit Court of
the Second Circuit of the State of Hawaii. The complaints generally allege that
the Company's directors breached their fiduciary duties and engaged in
self-dealing by failing to maximize the value of the Shares. The complaints
further allege that the value of the Shares is materially greater than the
amount contained in the Proposal. Each complaint seeks certification of a
plaintiff class, declaratory and injunctive relief with respect to the
transactions contemplated by the Proposal, unspecified compensatory damages, and
attorneys' fees and costs. See "Additional Information--Legal Proceedings
Relating to the Offer."
At a meeting on April 11, 2000, the Special Committee met with its counsel
and representatives of Bear Stearns. There was a substantial discussion of the
process to be followed by Bear Stearns in considering the fairness of the
Proposal and advising the Special Committee as to possible alternatives that it
might consider. The Bear Stearns engagement letter was approved and signed. Also
at the meeting, the Special Committee was briefed concerning the allegations of
certain purported shareholder class actions which had been filed challenging the
proposed transaction. See Item 8, "Additional Information--Legal Proceedings
Related to the Offer." Thereafter, the Company provided Bear Stearns with full
access to senior management and provided Bear Stearns with copies of financial
information, projections, plans and information about the Company, its business
and its assets for the purposes of helping them assist the Special Committee.
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On April 13, 2000, a group (the "Tisch Group") consisting of four brothers
and certain affiliated entities disclosed in a filing with the Commission that
it had acquired ownership of approximately 8.6 % of the Shares. The Tisch Group
stated in its filing that:
"The Reporting Persons believe that the Common Stock is worth more than $17
per share and that its value will be recognized by the market in the future.
The Reporting Persons may buy additional shares of Common Stock and may sell
any shares of Common Stock at any time."
Except for the foregoing, the Tisch Group stated that it had no plans or
proposals for a transaction with the Company. On April 27, 2000, the Tisch Group
amended its filing with the Commission to disclose that its percentage ownership
of the Shares had increased to approximately 9.6%.
Following the Tisch Group's filing on April 13, 2000, the Tisch Group was
contacted by Bear Stearns, at the Special Committee's request, to indicate the
willingness of the Special Committee to consider any information it might wish
to provide in addition to that contained in its filing with the Commission. The
Bear Stearns representative was advised that the Tisch Group believed it was not
the "best buyer" for the Company, and had acquired the Shares owned by it with a
view to resale at a profit as the result of an anticipated increased price in
the Proposal. However, the Tisch Group stated that if a transaction were
approved at a price which is not materially in excess of the $17 offered by FLX,
the Tisch Group would have an interest in completing its own review of
non-public information concerning the Company and might consider possibly
submitting its own proposal for an acquisition of the Company. On May 3, 2000
the Tisch Group telephoned Bear Stearns to reiterate this last point.
On May 4, 2000, representatives of Bear Stearns and GDC met with certain of
the counsel for the shareholder plaintiffs in lawsuits filed to challenge the
Proposal, and with appraisal and business valuation advisors retained by them in
connection with the litigation. At the meeting, the plaintiffs' counsel and
advisors made a presentation of matters which they requested the Special
Committee consider in connection with the Proposal. Among other things, they
described the analysis conducted by them with respect to valuation of the
Company's real estate assets. On the basis of this information, the plaintiffs'
advisors stated that the fair value of the Company's principal assets was in
excess of book value, and that a fair value in a purchase of the Company should
be in the range of approximately $34 to $40 per share. For more information on
the valuation presented by the plaintiffs' advisors, see Item 8, "Additional
Information--Legal Proceedings Relating to the Offer."
Later on May 4, 2000, the Special Committee met with counsel and Bear
Stearns to consider the results of Bear Stearns' work to date. Representatives
of Bear Stearns made a detailed presentation of the preliminary results of their
valuation analyses of the Company.
The Bear Stearns representatives reported that, except for the Tisch Group
and one other party, which indicated that it preferred its identity not be
disclosed, following public disclosure of the Proposal on March 29, 2000, the
Special Committee has not been contacted by any person expressing an interest in
receiving non-public information and possibly presenting a competing proposal to
acquire the Company. At the Special Committee's request, they had contacted a
number of companies to ascertain whether they had an interest in considering a
proposal. Those who had responded had indicated either that they had no interest
in the Company as a whole, or that while they would consider non-public
information concerning the Company if it were made available they were not
actively considering such a proposal. There ensued an extensive discussion of
the Bear Stearns analyses.
Among the matters discussed was the difficulty in arriving at a valuation
for the Company's property on Lana'i in view of, among other things:
- the substantial losses incurred in connection with the project since
inception;
- the magnitude of the Company's current carrying value of the project,
which currently stands at approximately $230 million;
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- the need for substantial ongoing cash expenditures to maintain the
infrastructure and amenities at Lana'i;
- projected ongoing losses at Lana'i for the proximate future;
- regulatory and governmental restrictions which impose significant
obstacles to any major changes in the nature of development and
operations; and
- the absence of transactions involving comparable properties, which might
serve as a basis of comparison.
The Bear Stearns representatives reported that in view of the difficulties in
valuing the Company's property on Lana'i, Bear Stearns was considering the need
to obtain a limited evaluation of that property from a qualified real estate
appraiser before it could render an opinion as to the fairness of a transaction.
At the meeting, the representatives of GDC and Bear Stearns reported on
their meeting earlier in the day with plaintiffs' counsel in the shareholder
lawsuits and the financial advisors engaged on behalf of the plaintiffs.
Following discussion, the Special Committee invited Mr. Murdock and other
representatives of FLX, including Deutsche Bank, to join the meeting and to make
a presentation in support of their views concerning valuation. In the discussion
which followed, Mr. Murdock stated that FLX was not interested in a sale of its
shares of the Company's common stock, and in its capacity as a shareholder would
oppose any acquisition of the Company by another party. Following further
discussion, the FLX representatives and Mr. Murdock left the meeting.
The Special Committee then discussed the appropriate response to
Mr. Murdock concerning the Proposal. Members of the Special Committee believed
that:
- in view of the substantial premium offered over the trading price for the
Shares, a transaction with FLX represented a superior alternative for
shareholders of the Company than remaining public;
- it was unlikely that a credible competing offer for the Company could be
obtained at a higher price than could be obtained from FLX; and
- there was a substantial risk that the Proposal would be withdrawn if
agreement for a transaction were not reached by its expiration date.
Accordingly, Mr. Carson was instructed to meet with Mr. Murdock and attempt to
reach an understanding with respect to an increased price for a transaction,
subject to:
- completion by Bear Stearns of its consideration and its ability to provide
an opinion as to fairness of the consideration from a financial point of
view; and
- negotiation of mutually agreeable terms and conditions in a definitive
acquisition agreement, which would not prevent the Special Committee from
considering other credible alternative proposals, if received.
Following discussions between Mr. Carson and Mr. Murdock the evening of May 4,
2000, Mr. Murdock and FLX indicated their willingness to offer an increased
price of $18.50 per share, subject to the conditions referred to above. During
the period May 5 through May 19, 2000, counsel for the Special Committee, in
consultation with the Company's general counsel and regular outside counsel,
engaged in negotiations with counsel for FLX concerning a definitive agreement
for the proposed transaction. Members of the Special Committee were advised of
the progress of these negotiations and provided direction to the attorneys.
On May 12, Bear Stearns advised the Special Committee that they had
concluded it would be necessary to obtain a limited appraisal of the Company's
property on Lana'i and certain properties on
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Oahu before they would be in a position to render an opinion as to fairness. On
May 15, 2000, the Special Committee met with counsel to review updated
information provided by Bear Stearns and those issues which remained unresolved
concerning the terms and conditions of the definitive agreement and FLX agreed
to extend the Proposal to May 19, 2000. On May 16, 2000 the Company publicly
announced the extension. A copy of the press release issued by the Company is
filed as Exhibit (a)(7) hereto and incorporated herein by reference.
On May 19, 2000, the Special Committee met with its counsel and Bear Stearns
regarding the results of the limited appraisal of the Company's property on
Lana'i and certain properties on Oahu which had been received by Bear Stearns,
Bear Stearns' opinion as to the fairness of the proposed transaction and the
final terms and conditions of the proposed Merger Agreement. Bear Stearns
reported to the Special Committee that it was prepared to render a written
opinion to the effect that a price of $18.50 per share is fair to the
shareholders of the Company (other than FLX and its affiliates) from a financial
point of view. Bear Stearns also reported on its review of various factors,
including the limited appraisal and the status of certain updated information.
Based upon all of the information it had received, the Special Committee
unanimously determined to recommend to the full Board that the Merger Agreement
be approved and a recommendation be made to the shareholders to tender all of
their Shares in the Offer. Mr. Dallas was unable to participate in the meeting
of the Special Committee at which these determinations were made, but has
advised the Company of his agreement with the conclusion reached at that
meeting.
Subsequently, the Board considered the report of the Special Committee and
unanimously agreed to accept a revised offer from FLX and the Purchaser
providing for a purchase price of $18.50 per share, and approved the Merger
Agreement. Mr. Dallas was unable to participate in the meeting at which these
determinations were made, but has advised the Company of his agreement with the
conclusion reached at the meeting.
On May 22, 2000, each of the Company and FLX publicly announced the
execution of the Merger Agreement. A copy of the press release issued by FLX has
been filed with the Commission as an exhibit to the Schedule TO of FLX, Parent
and Purchaser.
BEAR STEARNS ANALYSIS
On May 19, 2000, the Special Committee met to review the Offer and the final
terms of the Merger Agreement. During this meeting, Bear Stearns orally rendered
its opinion, that, as of that date, based upon and subject to the various
considerations set forth in the Bear Stearns opinion, the Offer consideration to
be received by the shareholders, other than FLX and its affiliates, in the Offer
is fair to such shareholders from a financial point of view. The written
fairness opinion, dated as of May 19, 2000 (the "Fairness Opinion,") was
provided following the meeting.
The Special Committee retained Bear Stearns to act as its financial advisor
in connection with the Offer. Bear Stearns was selected by the Special Committee
based on Bear Stearns' qualifications, expertise and reputation. Bear Stearns is
an internationally recognized investment banking, advisory and securities firm.
Bear Stearns, as part of its investment banking business, is continuously
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate or other purposes. In the ordinary course of its
business, Bear Stearns may actively trade the securities and loans of the
Company and its affiliates for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities or loans.
THE FULL TEXT OF THE FAIRNESS OPINION, WHICH SETS FORTH, AMONG OTHER THINGS,
THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND
QUALIFICATIONS AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY BEAR
STEARNS IN RENDERING THE FAIRNESS OPINION, IS ATTACHED AS EXHIBIT (A)(3) TO THIS
DOCUMENT. STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE FAIRNESS OPINION
CAREFULLY AND IN ITS ENTIRETY.
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THE FAIRNESS OPINION WAS DELIVERED TO THE SPECIAL COMMITTEE FOR ITS USE IN
CONNECTION WITH ITS CONSIDERATION OF THE OFFER AND ADDRESSES ONLY, AS OF THE
DATE OF THE FAIRNESS OPINION, THE FAIRNESS OF THE OFFER CONSIDERATION FROM A
FINANCIAL POINT OF VIEW, TO BE RECEIVED BY THE SHAREHOLDERS OF THE COMPANY,
OTHER THAN FLX AND ITS AFFILIATES. THE FAIRNESS OPINION IS NOT INTENDED TO BE,
AND DOES NOT CONSTITUTE, A RECOMMENDATION TO THE SPECIAL COMMITTEE OF THE
COMPANY. THE FAIRNESS OPINION DOES NOT ADDRESS THE UNDERLYING BUSINESS DECISION
OF THE SPECIAL COMMITTEE TO RECOMMEND THE OFFER TO THE SHAREHOLDERS OF THE
COMPANY OR THE UNDERLYING BUSINESS DECISION OF THE COMPANY TO ENTER INTO THE
MERGER AGREEMENT, THE RELATIVE MERITS OF THE OFFER AS COMPARED TO ANY
ALTERNATIVE BUSINESS STRATEGIES THAT MIGHT EXIST FOR THE COMPANY OR THE EFFECTS
OF ANY OTHER TRANSACTION IN WHICH THE COMPANY MIGHT ENGAGE. THE SUMMARY OF THE
FAIRNESS OPINION SET FORTH IN THIS DOCUMENT IS QUALIFIED BY REFERENCE TO THE
FULL TEXT OF THE FAIRNESS OPINION.
In the course of its review and analyses for rendering the Fairness Opinion,
Bear Stearns performed the following:
- reviewed a draft form of the Agreement dated as of May 18, 2000;
- reviewed the Company's Annual Reports to Shareholders and Annual Reports
on Form 10-K for the years ended December 31, 1997-1999, its Quarterly
Report on Form 10-Q for the period ended March 31, 2000 and its Reports on
Form 8-K for the three years ended December 31, 1999 and from
December 31, 1999 to the date hereof;
- reviewed certain operating and financial information, including
projections for the five years ended December 31, 2004, provided to Bear
Stearns by management of the Company relating to the Company's business
and prospects;
- met with certain members of the Company's senior management to discuss the
Company's business, operations, historical and projected financial results
and future prospects;
- met with Mr. Murdock and representatives of the financial advisor to FLX,
Deutsche Bank Securities Inc., to discuss the Offer and their views as to
the Company's business;
- reviewed a letter dated March 29, 2000 and a draft letter dated May 19,
2000, of Deutsche Bank Securities Inc. regarding the financing of the
Offer by FLX;
- met with attorneys for the plaintiffs in certain lawsuits which have been
filed with respect to the Transaction, together with certain consultants
and advisors to such counsel;
- met with the Special Committee and discussed, among other things, the
Special Committee's view of the financial projections of the Company
furnished to Bear Stearns by the Company's management;
- reviewed the historical prices, trading multiples and trading volumes of
the outstanding shares of the Company;
- reviewed publicly available financial data, stock market performance data
and trading multiples of companies which Bear Stearns deemed generally
comparable to the Company;
- reviewed the terms of recent merger and acquisition transactions which
Bear Stearns deemed generally comparable to the Company and the Offer;
- performed discounted cash flow analyses on the various segments of the
business of the Company based on the projections for such segments of the
Company furnished to Bear Stearns by the Company;
- reviewed certain Schedule 13D's and amendments thereto filed with the
Securities and Exchange Commission with respect to the Company, including
such schedules filed by Mr. Murdock, Tweedy, Browne Company LLC and the
Tisch Group;
- reviewed certain appraisals of real properties owned by the Company or its
subsidiaries furnished to Bear Stearns by the Company;
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- reviewed limited appraisals dated May 18, 2000, with respect to the real
property owned by the Company and located on the island of Lana'i in the
State of Hawaii, and certain real property owned by the Company and
located on the island of Oahu in the State of Hawaii, which appraisals
were prepared at Bear Stearns' request by The Hallstrom Group Inc.,
Honolulu, Hawaii;
- contacted, at the Special Committee's direction, various third parties to
determine whether they had any interest in a transaction with the Company;
- conducted such other studies, analyses, inquiries and investigations as
Bear Stearns deemed appropriate.
In the course of Bear Stearns performing its review and analyses for
rendering its opinion, Bear Stearns relied upon and assumed, without independent
verification, the accuracy and completeness of the financial and other
information, including, without limitation, the projections, provided to Bear
Stearns by the Company. With respect to Company's projected financial results,
Bear Stearns assumed that they have been reasonably prepared based on the best
currently available estimates and judgments of the senior management of the
Company as to the expected future performance of the Company. Bear Stearns does
not assume any responsibility for the independent verification of any such
information or of the projections provided to it, and further relied upon the
assurances of senior management of the Company that they are unaware of any
facts that would make the information and projections provided to Bear Stearns
incomplete or misleading. In addition, except for those appraisals referred to
herein above, Bear Stearns has not performed or obtained any independent
appraisals of the assets or liabilities of the Company, nor been furnished with
any such appraisals.
In preparing the Fairness Opinion, Bear Stearns performed a variety of
financial and comparative analyses. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Bear Stearns believes that its analyses must be considered
as a whole and that selecting portions of its analyses and the factors
considered by it, without considering all analyses and factors, could create a
misleading view of the processes underlying the Fairness Opinion. No company or
transaction used in the analysis performed by Bear Stearns as a comparison is
identical to the Company or the contemplated transaction. In addition, Bear
Stearns may have given various analyses more or less weight than other analyses,
and may have deemed various assumptions more or less probable than other
assumptions, so that the range of valuation resulting from any particular
analysis described below should not be taken to be Bear Stearns' view of the
actual value of the Company. In performing its analyses, Bear Stearns made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters including, among other things, assumptions
relating to the continuation of general levels of economic activity, continued
relative stability in the capital markets and the continued viability of the
real estate industry in which the Company operates. Bear Stearns realized that
many of those assumptions were beyond the control of the Company. The analyses
performed by Bear Stearns are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the value of
businesses or assets do not purport to be appraisals or necessarily reflect the
prices at which businesses or assets may actually be sold. Bear Stearns is not a
real estate appraisal firm, and its engagement did not contemplate appraisals of
the Company's real estate holdings. The analyses performed were prepared solely
as part of Bear Stearns' analysis of the fairness of the consideration to be
received by the shareholders of the Company, other than FLX and its affiliates,
and were provided to the Special Committee in connection with the delivery of
the Fairness Opinion.
The following is a summary of material analyses performed by Bear Stearns in
connection with the preparation of the Fairness Opinion, and reviewed with the
Special Committee at a series of meetings culminating in a meeting held on
May 19, 2000. In analyzing the Company, Bear Stearns (a) analyzed (i) the Offer
premium relative to the Company's Common Stock price, (ii) the historical
trading prices of the Company's Common Stock, (iii) the recent performance of
the Company's Common Stock compared to that of other companies in the real
estate industry and (iv) potential future trading values of the
10
Company's Common Stock, and (b) separated the Company's businesses into five
primary business segments and applied analyses to each segment, which included
comparable companies analysis, merger and acquisition comparable transactions
analysis, capitalization of stabilized cash flow analysis, discounted cash flow
analysis and third party real estate appraisals in select instances. The five
segments analyzed were:
- Mainland Residential
- Hawaii Residential
- Mainland Commercial
- Hawaii Commercial
- Lana'i
PREMIUM, HISTORICAL STOCK PRICE AND COMPARATIVE STOCK PRICE ANALYSES
(a) PREMIUM ANALYSIS. Bear Stearns observed that, based on the proposed
transaction price to the public shareholders of $18.50 per share, the following
premiums were applicable as of March 29, 2000:
TRANSACTION PREMIUM
PERIOD PRIOR TO TRANSACTION ANNOUNCEMENT BASED ON THE OFFER
- ---------------------------------------- -------------------
One-Day Prior............................................. 51%
One-Month Prior........................................... 45
20 Trading Days Average................................... 44
One-Year Average.......................................... 31
52-Week High.............................................. 4
52-Week Low............................................... 57
Bear Stearns reviewed publicly available premiums paid in 30 going private
transactions between January 1, 1998 and April 24, 2000. Such analysis compared
the average premiums paid in each transaction over the 20 day stock price
trading average, one day preceding the public announcement of each transaction.
Bear Stearns noted that the Offer premium of 44% over the prior 20 trading day
average is well above the average 28% premium for the going private transactions
reviewed.
(b) HISTORICAL STOCK PRICE ANALYSIS. Bear Stearns analyzed the prices at
which Common Stock traded since December 28, 1995, when the Company was spun off
from Dole and the stock began trading on the NYSE, through to March 28, 2000.
Bear Stearns noted that the all-time high price for the Common Stock of the
Company was $21.38 on July 8, 1998 and the all-time low price for the Common
Stock was $11.81 on February 1, 2000. Bear Stearns noted that 52% of Common
Stock trades during the latest twelve months preceding the public announcement
of the initial offer from FLX, dated March 29, 2000, were for a price below
$14.00, 44% were trades for a price between $14.00 to $17.00 and 4% were trades
above $17.00 per share.
(c) COMPARATIVE STOCK PRICE PERFORMANCE. As part of its analyses, Bear
Stearns reviewed the recent stock price performance of the Company and compared
such performance with that of other companies involved in the commercial
property, REIT, lodging, home building and land development industries.
Commercial property companies include, Brandywine Realty Trust, Mack Cali Realty
Corp., Center Trust Inc., Highwoods Properties Inc., Koger Equity Inc., Kimco
Realty Corp., Kranzo Realty Trust, Keystone Property Trust, Corporate Office
Properties Trust, Prime Group Realty Trust, Parkway Properties Inc., Pan Pacific
Retail Properties Inc. and PS Business Park Inc. REIT companies consist of the
Morgan Stanley REIT Index. Lodging companies include, Choice Hotels
International Inc., Four Seasons Hotels, Hilton Hotels Corp., Starwood Hotels &
Resorts Worldwide Inc., Marriott International Inc. and Prime Hospitality Corp.
Home building and land developers include Avatar Holdings Inc, Beazer Homes USA
Inc, Catellus Development Corp., Centex Corp., D R Horton Inc., Kaufman & Broad
Home Corp, Lennar Corp., Newhall Land & Farming Co., Pulte Corp., Schuler
Homes Inc., Standard Pacific Corp., Toll
11
Brothers Inc and Del Webb Corp. Bear Stearns noted that during the observed
period the Common Stock under-performed all of the comparable industry indexes
and the S&P 500.
(d) POTENTIAL FUTURE TRADING VALUE ANALYSIS. Bear Stearns computed the
present value per share of Common Stock under several future trading periods and
based on an assumed 7.5 times to 8.5 times EBITDA multiple. Such analysis was
based upon the Company's expected EBITDA in fiscal years 2002, 2003 and 2004
utilizing the Company's projections. Bear Stearns computed implied future values
per share for 2002 through 2004 and discounted such values to arrive at present
values using discount rates of 11%, 12%, 13% and 14%. The potential trading
value analysis implied a range of values per share of Common Stock of $15.36 to
$27.92. Bear Stearns noted that the consideration of $18.50 to be paid to
holders of the Common Stock in the Offer is within the range indicated by this
analysis.
ANALYSIS OF VARIOUS SEGMENTS
MAINLAND RESIDENTIAL SEGMENT
(a) COMPARABLE COMPANIES ANALYSIS. Bear Stearns developed a set of
comparable public companies and compared certain information to the Company's
Mainland Residential segment. The set of comparable companies was developed
after reviewing the following factors, among others: business comparability and
market segmentation, relative size of market capitalization and liquidity,
growth parameters and other relevant business and financial characteristics.
This set of comparables includes homebuilders and land developers and consists
of the following companies:
HOMEBUILDERS LAND DEVELOPERS
- ------------------------------------------------------------------ -------------------------------------
- - Beazer Homes USA Inc. - Pulte Corp. - Avatar Holdings Inc.
- - Centex Corp. - Schuler Homes Inc. - Catellus Development Corp.
- - D R Horton Inc. - Standard Pacific - Newhall Land & Farm Corp.
- - Kaufman & Broad Home Corp. - Toll Brothers Inc.
- - Lennar Corp. - Del Webb Corp.
This comparable companies analysis included information such as share price
as a multiple of latest twelve months ("LTM") earnings per share ("EPS"),
projected 2000 EPS and book value and enterprise value as a multiple of LTM and
projected 2000 earnings before interest, taxes, depreciation and amortization
("EBITDA"). When deriving multiples on projected measures of financial
performance, Bear Stearns based the estimates of future financial performance on
Wall Street research analyst estimates. The following table sets forth the
comparable companies analysis for the Mainland Residential segment:
ENTERPRISE
VALUE/EBITDA P/E
------------------- ------------------- PRICE/
LTM 2000P LTM 2000P BOOK
-------- -------- -------- -------- --------
Home Builders Harmonic Mean............... 5.3x 5.2x 5.4x 5.1x 0.9x
Land Developers Harmonic Mean............. 12.0x 8.9x 10.6x 13.5x 3.1x
Home Builders and Land Developers Harmonic
Mean.................................... 6.1 5.8x 5.9x 5.9x 1.5x
12
(b) MERGER AND ACQUISITION COMPARABLE TRANSACTIONS. Bear Stearns reviewed
the publicly available financial terms of relevant precedent transactions in the
Mainland Residential segment. The following table sets forth the applicable
comparable transactions:
DATE
ANNOUNCED TARGET ACQUIROR
--------- ------------------------------ ------------------------------
Homebuilder 12/19/97 Continental Homes Holding D R Horton Inc.
2/17/00 US Home Corp Lennar Corp
6/10/97 Pacific Greystone Corp Lennar Corp
10/4/99 Newmark Homes Technical Olympic USA
Timeshare 1/24/00 Fairfield Communities Inc. Carnival Corp
10/9/99 Vistana Inc. Starwood Hotels & Resorts
Worldwide Inc.
For each of these transactions, Bear Stearns analyzed various multiples
based on the purchase price paid by the acquiror, including Enterprise Value/LTM
EBITDA, Enterprise Value/LTM EBIT and Equity Value/LTM Net Income. The following
table sets forth the comparable transactions analysis for the Mainland
Residential segment:
ENTERPRISE
VALUE/LTM EQUITY VALUE/
------------------- LTM
SEGMENT EBITDA EBIT NET INCOME
- ------- -------- -------- -------------
Homebuilders Harmonic Mean................... 6.6x 7.0x 7.9x
Time Share Harmonic Mean..................... 7.3x 9.0x 14.9x
Homebuilders and Time Share Harmonic Mean.... 6.8x 7.5x 9.3x
(c) DISCOUNTED CASH FLOW ANALYSIS. Bear Stearns performed a discounted cash
flow analysis based on an analysis of the present value of future cash flows
potentially realizable from the continuing operation of the Mainland Residential
segment. This analysis was based on estimates and guidance provided by the
Company's management for estimated Mainland Residential segment operating
results through the end of fiscal year 2004. Bear Stearns computed the present
value of the free cash flows of the Company's Mainland Residential segment for
the five fiscal years from 2000 through 2004 by applying a range of discount
rates of 12% to 14% per year. These discount rates were based on the weighted
average cost of capital ("WACC") for homebuilders using the Capital Asset
Pricing Model ("CAPM"). However, Bear Stearns noted that over the past several
years, homebuilders have significantly underperformed the market and have very
low betas. Therefore, Bear Stearns calculated the Mainland Residential segment's
WACC, assuming a market beta. Bear Stearns also computed the present value of
the terminal value of the Mainland Residential segment at the end of fiscal year
2004 by applying a range of EBITDA multiples of 5 times to 7 times the Mainland
Residential segment's estimated fiscal year 2004 EBITDA and applying these
terminal values to a range of discount rates of 12% to 14% per year. The range
of terminal EBITDA multiples was determined by analyzing the current and
historical EBITDA multiples of the Company and comparable companies and
transactions and factoring in the expected growth prospects of the Company at
the end of fiscal 2004. Because the Mainland Residential segment shows no EBITDA
growth from 2002 to 2004, the terminal value multiple was in line with
comparable homebuilder average EBITDA multiples.
13
SUMMARY OF ANALYSES REGARDING MAINLAND RESIDENTIAL SEGMENT
The table below displays the enterprise value ranges for each of the
analyses performed:
ENTERPRISE VALUE
-------------------
LOW HIGH
-------- --------
($ IN MILLIONS)
Discounted Cash Flow Analysis............................... $106 $137
Comparable Companies Analysis............................... $ 72 $183
M&A Comparable Transactions Analysis........................ $ 70 $121
In examining each of the comparable companies, merger and acquisition
comparable transactions and discounted cash flow analyses, Bear Stearns noted
that the mainland homebuilding segment was expecting moderate growth over the
next several years and therefore weighted the discounted cash flow analysis more
heavily, as it takes into account higher expected future earnings. However, as
stated above, the comparable companies and transactions analysis was relied on
to determine the terminal value of the Mainland Residential segment. As a
result, this analysis implied a range of enterprise values for the Mainland
Residential segment from $100 million to $130 million.
HAWAII RESIDENTIAL SEGMENT
As the Hawaii Residential segment includes a considerable amount of
unentitled and unzoned land on Oahu, Bear Stearns analyzed the current
development projects separately from this unentitled and unzoned land. To
analyze the current development projects, Bear Stearns used comparable
companies, mergers and acquisition comparable transactions and discounted cash
flow analyses. To assist in analyzing the unentitled and unzoned land, Bear
Stearns obtained a limited real estate appraisal from The Hallstrom Group Inc.,
Honolulu, Hawaii.
(a) COMPARABLE COMPANIES ANALYSIS. Bear Stearns used the same set of
comparable public companies it developed for the Mainland Residential segment
analysis (see Mainland Residential segment analysis for full discussion) and
compared certain information to the Company's Hawaii Residential segment.
(b) MERGER AND ACQUISITION COMPARABLE TRANSACTIONS. Bear Stearns reviewed
the publicly available financial terms of the precedent transactions used for
the Mainland Residential segment analysis (see Mainland Residential segment
analysis for full discussion).
(c) DISCOUNTED CASH FLOW ANALYSIS. Bear Stearns performed a discounted cash
flow analysis based on an analysis of the present value of future cash flows
potentially realizable from the continuing operation of the Hawaii Residential
segment. This analysis was based on estimates and guidance provided by the
Company's management for estimating the Hawaii Residential segment operating
results through the end of fiscal year 2004. Bear Stearns computed the present
value of the free cash flows of the Company's Hawaii Residential segment for the
five fiscal years from 2000 through 2004 by applying a range of discount rates
of 12% to 14% per year. These discount rates were based on the WACC for
homebuilders using the CAPM. However, Bear Stearns noted that over the past
several years, homebuilders have significantly underperformed the market and
have very low betas. Therefore, Bear Stearns calculated the Hawaii Residential
segment's WACC, assuming a market beta. Bear Stearns also computed the present
value of the terminal value of the Hawaii Residential segment at the end of
fiscal year 2004 by applying a range of EBITDA multiples of 5 times to 7 times
the Hawaii Residential segment's estimated fiscal year 2004 EBITDA and applying
these terminal values to a range of discount rates of 12% to 14% per year. The
range of terminal EBITDA multiples was determined by analyzing the current and
historical EBITDA multiples of the Company and comparable companies and
transactions and factoring in the expected growth prospects of the Company at
the end of fiscal 2004.
14
SUMMARY OF ANALYSES REGARDING CURRENT DEVELOPMENT PROJECTS OF HAWAII
RESIDENTIAL SEGMENT
The table below sets forth the enterprise value ranges for each of the
analyses performed on the current development projects of the Hawaii Residential
segment:
ENTERPRISE VALUE
-------------------
LOW HIGH
-------- --------
($ IN MILLIONS)
Discounted Cash Flow Analysis............................... $155 $194
Comparable Companies Analysis............................... $ 51 $130
M&A Comparable Transactions Analysis........................ $ 64 $109
In examining each of the comparable company, merger and acquisition
transactions and discounted cash flow analyses, Bear Stearns noted the very high
level of growth in management's forecasts and therefore weighted the discounted
cash flow more heavily. As stated above, the comparable companies and
transactions analysis was relied on to determine the terminal value of the
Hawaii Residential segment. However, Bear Stearns noted that an investor may
view achieving all of the growth projected in the forecast period as unlikely
and would therefore be unwilling to value this segment at such a high value
relative to near term earnings potential. As a result, Bear Stearns discounted
the results of the discounted cash flow analysis and valued the current
operations of the Hawaii Residential segment at a range of enterprise values
from $135 million to $160 million.
LIMITED APPRAISAL OF UNENTITLED AND UNZONED LAND IN THE HAWAII RESIDENTIAL
SEGMENT. In addition, Bear Stearns obtained a limited real estate appraisal from
The Hallstrom Group Inc. for the 10,072 acres of unentitled and unzoned land on
the island of Oahu, of which 5,520 acres is conservation land and 4,552 acres is
agricultural land. The appraisal resulted in a valuation of $45 million and
noted that "the highest and best use of the selected Oahu properties are
conservation (5,520 acres) or agriculture (4,552 acres), with certain of the
agriculture holdings having some urban potential over the next five to 20-plus
years." However, any cash flow from the development and sale of this land would
require governmental approvals and a time period of many years. Further, this
appraisal assumes that the Company can achieve the required entitlements and
other approvals from governmental authorities to develop currently owned
unentitled land. Given this uncertainty and extremely long-term outlook, Bear
Stearns has estimated this unentitled and unzoned land to have a valuation
ranging from $20 million to $45 million.
SUMMARY VALUATION OF THE THE TOTAL HAWAII RESIDENTIAL SEGMENT. Bear Stearns
noted that the combined enterprise valuation range, including current operations
and unentitled and unzoned land, of the Hawaii Residential segment is from
$155 million to $205 million.
MAINLAND COMMERCIAL SEGMENT
(a) COMPARABLE COMPANIES ANALYSIS. Bear Stearns developed a set of
comparable public companies and compared certain information to the Company's
Mainland Commercial segment. The set of comparable companies was developed after
reviewing the following factors, among others: business comparability and market
segmentation, relative size of market capitalization and liquidity, growth
parameters and other relevant business and financial characteristics. Bear
Stearns noted that nearly all of the public companies in the commercial real
estate sector are real estate investment trusts ("REIT") and therefore have
15
different accounting, tax and operating structures. This set of comparable
companies includes office and retail real estate companies and consists of the
following companies:
OFFICE RETAIL
- ------------------------------------------------------------- -----------------------------
- - Brandywine Realty Trust - Mack Cali Realty Corp. - Center Trust
- - Corporate Office Properties - Parkway Properties Inc. - Kimco Realty Corp.
- - Highwoods Properties Inc. - Prime Group Realty Trust - Kranzco Realty Trust
- - Keystone Property Trust - PS Business Parks - Pan Pacific Retail
Corp. Properties
- - Koger Equity Inc.
This set of comparables includes information such as share price as a
multiple of latest twelve months Funds From Operations ("FFO"), projected 2000
FFO and book value and enterprise value as a multiple of latest twelve months
and projected 2000 EBITDA. When deriving multiples on projected measures of
financial performance, Bear Stearns based the estimates of future financial
performance on Wall Street research analyst estimates. Bear Stearns noted that
this segment should be valued in the mid-range of comparable companies due to
underlying property characteristics, such as relatively strong asset and average
tenant quality, relative age and occupancies, limited required capital
expenditures and average lease terms. The following table sets forth the
comparable companies analysis for the Mainland Commercial segment:
ENTERPRISE
VALUE/EBITDA P/FFO
------------------- ------------------- PRICE/
LTM 2000P LTM 2000P BOOK
-------- -------- -------- -------- --------
Office Harmonic Mean......................... 10.7x 9.5x 7.7x 7.2x 1.2x
Retail Harmonic Mean......................... 10.8x 9.7x 6.3x 6.1x 0.8x
Office and Retail Harmonic Mean.............. 10.6x 9.5x 7.3x 6.9x 1.1x
16
(b) MERGER AND ACQUISITION COMPARABLE TRANSACTIONS. Bear Stearns reviewed
the publicly available financial terms of relevant precedent transactions in
this segment. The following table sets forth the comparable transactions for the
Mainland Commercial segment:
DATE
ANNOUNCED TARGET ACQUIROR
--------- -------------------------------- --------------------------------
Retail 5/29/98 Mid-America Realty Investments Bradley Real Estate Inc.
11/13/97 Horizon Group, Inc. Prime Retail, Inc.
8/25/97 Arbor Property Trust Vornado Realty Trust
3/26/96 DeBartolo Realty Corp. Simon Property Group Inc.
10/30/95 Tucker Properties Corp. Bradley Real Estate Inc.
3/14/95 McArthur/Glen Realty Corp. Horizon Outlet Centers Inc.
Office 9/8/97 Shidler Group-Mid-Atlantic Royale Investments Inc.
9/15/97 Beacon Properties Corp. Equity Office Properties Trust
4/29/96 Crocker Realty Trust Inc. Highwoods Properties Inc.
REIT Leveraged Buyout ("LBO")/ 12/2/98 Irvine Apartment Communities TIC Acquisition L.L.C.
Management Buyout ("MBO") 3/4/99 Berkshire Realty Co. Inc. Aptco L.L.C.
4/5/99 SunStone Hotel Investors Inc. SHP Acquisition L.L.C.
6/7/99 Burnham Pacific Properties Inc. Schottenstein Stores Corp.
9/24/99 Walden Residential Properties Oly Hightop
Inc.
Multi-Family/Apartment 7/8/98 Merry Land & Investment Co Inc. Equity Residential Prop. Trust
Communities 3/9/98 Avalon Properties Inc. Bay Apartment Communities Inc.
12/2/98 Irvine Apartment Communities Irvine Co.
12/23/97 Ambassador Apartments, Inc. Apartment Investment and
Management Co.
12/17/97 Oasis Residential, Inc. Camden Property Trust
8/28/97 Evans Withycombe Residential, Equity Residential Prop. Trust
Inc.
8/4/97 Columbus Realty Trust Post Properties, Inc.
1/16/97 Wellsford Residential Property Equity Residential Prop. Trust
Trust
12/16/96 Paragon Group Inc. Camden Property Trust
10/1/96 South West Property Trust Inc. United Dominion Realty Trust
Inc.
7/18/96 ROC Communities Inc. Chateau Properties Inc.
10/12/95 Real Estate Investment Trust of BRE Properties
California
2/27/95 America First Real Estate Mid-America Apartment
Investment Trust Communities Inc.
8/3/94 Holly Residential Properties Wellsford Residential Prop.
Inc. Trust
12/7/94 Security Capital Pacific Trust Property Trust of America
Other 6/17/94 Health Equity Properties Inc. Omega Healthcare Investors Inc.
4/26/95 Copley Properties Inc. EastGroup Properties
10/31/96 Bay Meadows/California Jockey Patriot American Hospitality
Club Inc.
For each of these transactions, Bear Stearns analyzed various multiples
based on the purchase price paid by the acquiror, including: Enterprise
Value/LTM EBITDA, Enterprise Value/LTM EBIT and Equity
17
Value/LTM FFO. The following table sets forth the comparable transactions
analysis for the Mainland Commercial segment:
ENTERPRISE
VALUE/LTM
------------------- EQUITY VALUE/
EBITDA EBIT LTM FFO
-------- -------- -------------
Retail Harmonic Mean........................................ 11.1x 18.8x 8.9x
Office Harmonic Mean........................................ 18.7x 25.6x 9.1x
REIT LBO/MBO Harmonic Mean.................................. 12.5x 18.5x 9.1x
Multi-Family/Apartment Communities Harmonic Mean............ 11.0x 15.7x 8.1x
Other....................................................... 11.7x 17.3x 11.4x
Mainland Commercial Comparable Transactions Harmonic Mean... 11.7x 17.4x 8.8x
(c) DISCOUNTED CASH FLOW ANALYSIS. Bear Stearns performed a discounted cash
flow analysis based on a review of the present value of future cash flows
potentially realizable from the continuing operation of the Mainland Commercial
segment. This analysis was based on estimates and guidance provided by the
Company's management for estimated Mainland Commercial segment operating results
through the end of fiscal year 2004. Bear Stearns computed the present value of
the free cash flows of the Company's Mainland Commercial segment for the five
fiscal years from 2000 through 2004 by applying a range of discount rates of 10%
to 12% per year. Such discount rates take into account the quality of the
Mainland Commercial segment's underlying properties and the risk associated with
attracting tenants to various new properties. Bear Stearns also computed the
present value of the terminal value of the Mainland Commercial segment at the
end of fiscal year 2004 by applying a range of Adjusted Net Operating Income
("NOI") multiples of 9.5 times to 10.5 times the Mainland Commercial segment's
estimated fiscal year 2004 NOI and applying these terminal values to a range of
discount rates of 10% to 12% per year. The range of terminal NOI multiples was
determined by analyzing the current and historical NOI multiples of the Company
and comparable companies and transactions and factoring in the stabilized cash
flows prospects of the Company at the end of fiscal 2004.
(d) Capitalization Rate Analysis. Bear Stearns performed a capitalization
rate analysis since the Company projects stabilized NOI in 2001 due to projected
fully leased underlying properties. Bear Stearns computed the present value of
this segment by applying a range of capitalization rates of 9.5% to 10.5% to
2001 NOI and applying these values to a range of discount rates of 9.5% to
10.5%. The capitalization and discount rates applied are based on the industry
and reflect a mix of underlying property quality in the Mainland Commercial
segment.
SUMMARY OF ANALYSES REGARDING MAINLAND COMMERCIAL SEGMENT
The table below sets forth the enterprise value ranges for each of the
analyses performed:
ENTERPRISE VALUE
-------------------
LOW HIGH
-------- --------
($ IN MILLIONS)
Discounted Cash Flow Analysis............................... $186 $219
Comparable Companies Analysis............................... $165 $259
M&A Comparable Transactions Analysis........................ $159 $343
Capitalization Rate Analysis................................ $209 $233
In examining each of the comparable companies, merger and acquisition
comparable transactions, discounted cash flow and capitalization rate analyses,
Bear Stearns weighted the capitalization rate analysis more heavily. This
resulted in a range of enterprise values for the Mainland Commercial segment
from $210 million to $235 million.
18
HAWAII COMMERCIAL SEGMENT
(a) COMPARABLE COMPANIES ANALYSIS. Bear Stearns used the same set of
comparable public companies it developed for the Mainland Commercial segment
analysis (see Mainland Commercial segment analysis for full discussion) and
compared certain information to the Company's Hawaii Commercial segment. Bear
Stearns noted that this segment should be valued toward the lower range of
comparable companies due to the overall softness of the commercial and retail
market, the lesser quality of the assets and the above-average risk of the
underlying projected cash flows.
(b) MERGER AND ACQUISITION COMPARABLE TRANSACTIONS. Bear Stearns reviewed
the publicly available financial terms of the precedent transactions used for
the Mainland Commercial segment analysis (see Mainland Commercial segment
analysis for full discussion).
(c) DISCOUNTED CASH FLOW ANALYSIS. Bear Stearns performed a discounted cash
flow analysis based on a review of the present value of future cash flows
potentially realizable from the continuing operation of the Hawaii Commercial
segment. This analysis was based on estimates and guidance provided by the
Company's management for estimating the Hawaii Commercial segment operating
results through the end of fiscal year 2004. Bear Stearns computed the present
value of the free cash flows of the Company's Hawaii Commercial segment for the
five fiscal years from 2000 through 2004 by applying a range of discount rates
of 11% to 13% per year. Such discount rates take into account the quality of the
Hawaii Commercial segment's underlying properties and the risk associated with
attracting tenants to various vacant properties. Bear Stearns also computed the
present value of the terminal value of the Company at the end of fiscal year
2004 by applying a range of NOI multiples of 9.5 times to 10.5 times the Hawaii
Commercial segment's estimated fiscal year 2004 NOI and applying these terminal
values to a range of discount rates of 11% to 13% per year. The range of
terminal NOI multiples was determined by analyzing the current and historical
NOI multiples of the Company and comparable companies and transactions and
factoring in the stabilized cash flows prospects of the Company at the end of
fiscal 2004. Bear Stearns noted that this segment should be discounted back at a
higher rate than the comparables due to the overall softness of the commercial
and retail market, the lesser quality of the assets and the above-average risk
of the underlying projected cash flows.
(d) CAPITALIZATION RATE ANALYSIS. Bear Stearns performed a capitalization
rate analysis and used the Hawaii Commercial segment's 1999 NOI as the basis for
stabilized free cash flow. Bear Stearns noted, that while the Company's
projections show EBITDA increasing significantly from 2000-2003, during the
course of its due diligence and in discussions with management, management
acknowledged that their projections for this segment are aggressive and assume
significant lease-up of select properties that they have been unable to find
tenants for. Therefore, 1999 NOI was used as the appropriate base year for
calculating a capitalization rate value. Bear Stearns computed the value of this
segment by applying a range of capitalization rates of 9.0% to 10.0% to the NOI
amount in 1999. The capitalization rates applied are based on the industry and
reflects the quality of the underlying properties and markets.
SUMMARY OF ANALYSES REGARDING HAWAII COMMERCIAL SEGMENT
The table below sets forth the enterprise value ranges for each of the
analyses performed:
ENTERPRISE VALUE
-------------------
LOW HIGH
-------- --------
($ IN MILLIONS)
Discounted Cash Flow Analysis............................... $128 $150
Comparable Companies Analysis............................... $ 89 $139
M&A Comparable Transactions Analysis........................ $101 $217
Capitalization Rate Analysis................................ $110 $120
19
In examining each of the comparable companies, merger and acquisition
comparable transactions, discounted cash flow and capitalization rate analyses,
Bear Stearns weighted the capitalization rate analysis more heavily. As a
result, this analysis implied a range of enterprise values for the Hawaii
Commercial segment from $110 million to $120 million.
LANA'I SEGMENT
Bear Stearns reviewed the Lana'i segment as one business comprised of the
resorts, homebuilding and amenities. Bear Stearns noted that this is an
extremely long-term asset with limited near-term cash flows and that there was a
large degree of uncertainty in determining the value of Lana'i due to several
issues relating to the segment. Bear Stearns noted general issues pertaining to
the island as a whole, which include difficulty of access to the island,
inability of the island's small airport to handle trans-oceanic commercial jets,
extremely limited shopping venues and limited amenities other than golf courses
and sport shooting. Bear Stearns also noted that the use of fresh water on the
island is highly regulated and such regulations could impede further development
of the Lana'i segment. Bear Stearns noted that while the resorts may have a
luxurious profile, the Company has been unable to generate positive cash flow,
even with its new marketing relationship with Starwood Hotels & Resorts. Bear
Stearns noted that the homebuilding products have been substantially below
expectations and that management's expectations for improvement would require an
increase in lot sales substantially above historical results. Bear Stearns noted
that the unentitled agricultural and converation land holdings have limited
valued due to their current classification and entitlement process. Bear Stearns
noted that a majority of the issues described above are evidenced by the absence
of earnings in this segment historically.
Bear Stearns performed the following analyses on the Lana'i segment and
noted that the resulting broad range of values exhibits the difficulty in
valuing this segment:
(a) COMPARABLE COMPANIES ANALYSIS. Bear Stearns developed a set of
comparable public companies and compared certain information to the Company's
Lana'i segment. While Bear Stearns did not believe the Lana'i segment was
particularly comparable to any public company, Bear Stearns did examine a set of
lodging companies which consists of the following:
- - Choice Hotels - Hilton Hotels - Prime Hospitality
- - Four Seasons Hotels - Marriott Intl. Inc. - Starwood Hotels & Resorts
This set of comparable companies includes information such as, share price
as a multiple of latest twelve months EPS, projected 2000 EPS and book value and
enterprise value as a multiple of latest twelve months and projected 2000
EBITDA. When deriving multiples on projected measures of financial performance,
Bear Stearns based the estimates of future financial performance on Wall Street
research analyst estimates. The following table sets forth the comparable
companies analysis for the Lana'i segment:
ENTERPRISE
VALUE/EBITDA P/E
------------------- ------------------- PRICE/
SEGMENT LTM 2000P LTM 2000P BOOK
- ------- -------- -------- -------- -------- --------
Lodging Companies Harmonic Mean.............. 8.9x 8.1x 14.6x 12.9x 1.6x
20
(b) MERGER AND ACQUISITION COMPARABLE TRANSACTIONS. Bear Stearns reviewed
the publicly available financial terms of relevant precedent transactions in
this segment. The following table sets forth the comparable transactions for the
Lana'i segment:
DATE
ANNOUNCED TARGET ACQUIROR
--------- ---------------------------- -------------------------------
Select Transactions 9/7/99 Promus Hotel Corp. Hilton Hotels
2/18/97 Renaissance Hotel Group Marriot International
4/14/97 Wyndham Hotel Corp. Patriot American Hospitality
Inc.
9/3/97 Doubletree Corp. Promus Hotel Corp
9/9/97 Westin Hotels Starwood Lodging Trust
10/20/97 ITT Corp. Starwood Lodging Trust
12/2/97 Interstate Hotels Corp Patriot American Hospitality
Inc.
8/28/96 Red Lion Hotels Inc. Doubletree Corp
2/21/98 Inter-Continental Bass PLC
For each of these transactions, Bear Stearns analyzed various multiples
based on the purchase price paid by the acquiror, including: Enterprise
Value/LTM EBITDA, Enterprise Value/LTM EBIT and Equity Value/LTM Net Income. The
following table sets forth the comparable transactions analysis for the Lana'i
segment:
ENTERPRISE VALUE/
LTM EQUITY VALUE/
------------------- LTM
EBITDA EBIT NET INCOME
-------- -------- -------------
Lana'i Segment M&A Comparable Transactions Harmonic Mean.... 14.4x 19.1x 24.2x
(c) SELECT NON-ECONOMIC TRANSACTIONS. Bear Stearns analyzed several recent
large land acquisitions by government and charitable organizations. Such
acquisitions tie to environmental value rather than economic value. Bear Stearns
noted that due to the uniqueness of such transactions and situations,
traditional valuation techniques cannot be employed. However, while management
stated that no such opportunity currently exists for the Company's Lana'i
segment, Bear Stearns noted that it is conceivable that a government or
environmental entity may have an interest in acquiring the island of Lana'i. In
addition, Bear Stearns noted that there is a potential trophy premium to unique
properties such as these. The following table sets forth a review of selected
non-economic transactions for the Lana'i segment:
DATE PROPERTY NAME ACRES PRICE BUYER DESCRIPTION OF PROPERTY/TRANSACTION
- ---- ----------------- -------- --------------- --------------------- -----------------------------------
($ IN MILLIONS)
5/00 Palmyra Island 15,000 $ 37 The Nature An island 1,000 miles south of
Conservancy Hawaii. Home to migrating birds.
15,000 acres is composed of 680
acres of dry land on 52 islands and
14,320 acres of coral reef.
2/00 Headwaters Forest 10,000 $480 State and Federal The owner, Pacific Lumber, rejected
Government the proposal. Headwaters Forest is
an old redwood forest located in
Humboldt County, California.
21
DATE PROPERTY NAME ACRES PRICE BUYER DESCRIPTION OF PROPERTY/TRANSACTION
- ---- ----------------- -------- --------------- --------------------- -----------------------------------
($ IN MILLIONS)
2/00 Sterling Forest 2,200 $ 10 State and Land adjacent to state park and has
Environmental a conference center and limited
Trusts infrastructure. The vast majority
of the land is developed.
3/98 Sterling Forest 15,800 $ 55 Charity groups, State Located 40 miles northwest of New
and York City, it was acquired to
Federal Government protect a watershed for the
reservoir system which provides
water to two million people in
northern New Jersey.
9/94 Hamakua Sugar 29,883 $ 21 Kamehameha Schools Located on the island of Hawaii.
Company Lands Land was classified as
conservation, agriculture and
urban, the vast majority being
agriculture.
(d) APPRAISAL VALUE. Bear Stearns noted that the book value of approximately
$230 million assigned to the Lana'i segment by the Company, which reflects
historical cost, is not a reliable indicator of value since this segment of the
Company has enormously underperformed relative to its expectations at the time
development of this segment began. Therefore, Bear Stearns obtained a limited
real estate appraisal from The Hallstrom Group Inc. for the properties of the
Company on the island of Lana'i. The appraisal resulted in a valuation of
$160 million, of which $55 million is attributable to undeveloped land and
$105 million is attributable to Lana'i City properties, hotels and golf course
assets and project districts (surrounding resort development land). Such
valuation is based upon the most probable price, to a single buyer, which the
property should bring in a competitive and open market under all conditions
requisite to a fair sale. The appraiser noted, "the developed holdings to be
currently underperforming relative to their cost or intrinsic real estate value;
however, our limited appraisal estimates market value based on underlying asset
value." Bear Stearns noted that substantial uncertainty exists as to whether a
buyer could be found and this valuation realized. Bear Stearns also noted that
this asset could be donated to a government, charitable or other organization
and be deemed a charitable contribution, which may provide tax benefits to the
Company.
(e) DISCOUNTED CASH FLOW ANALYSIS. Bear Stearns performed a discounted cash
flow analysis based on an analysis of the present value of future cash flows
potentially realizable from the continuing operation of the Lana'i segment. This
analysis was based on estimates and guidance provided by the Company's
management for estimating the Lana'i segment operating results through the end
of fiscal year 2004. Bear Stearns computed the present value of the free cash
flows of the Company's Lana'i segment for the five fiscal years from 2000
through 2004 by applying a range of discount rates of 11% to 13% per year. These
discount rates were based on the WACC for both the Residential segment and the
Lana'i segment's comparable companies. As noted previously, the Residential
segment comparable companies have such low betas, Bear Stearns calculated the
Residential segment comparable companies WACC assuming a market beta. Bear
Stearns also computed the present value of the terminal value of the Lana'i
segment at the end of fiscal year 2004 by applying a range of unlevered free
cash flow multiples of 5 times to 7 times the Lana'i segment's estimated fiscal
year 2004 EBITDA and applying these terminal values to a range of discount rates
of 11% to 13% per year. The range of terminal unlevered free cash flow multiples
was determined by analyzing the current and historical unlevered free cash flow
multiples of the Company and comparable homebuilder companies and transactions
and factoring in the extremely long-term aspect of this asset and the limited
near-term cash flows.
22
SUMMARY OF ANALYSES REGARDING LANA'I SEGMENT
The table below sets forth the enterprise value ranges for each of the
analyses performed:
ENTERPRISE VALUE
-------------------
LOW HIGH
-------- --------
($ IN MILLIONS)
Discounted Cash Flow Analysis............................... $ 33 $ 49
Comparable Companies Analysis............................... $ 8 $ 24
M&A Comparable Transactions Analysis(1)..................... -- --
Real Estate Appraisal....................................... $160
- ------------------------
(1) M&A Comparable Transactions Analysis resulted in negative values
In examining each of the comparable companies, merger and acquisition
comparable transactions, selected non-economic transactions, appraisal, book
value and discounted cash flow analyses, Bear Stearns concluded that the
approximate value of this asset is difficult to determine. As stated above, Bear
Stearns noted that this segment contains many issues which create substantial
uncertainty in determining its valuation. As a result, Bear Stearns primarily
relied on the discounted cash flow analysis for the lower end of the valuation
range and the appraisal value for the higher end of the valuation range,
resulting in an enterprise valuation for the Lana'i segment from $60 million to
$160 million.
SUMMARY OF SEGMENT VALUATION ANALYSIS
Bear Stearns computed the total valuation for the Company through adding all
of the segment enterprise value ranges described above, subtracting corporate
overhead and net debt and other liabilities and dividing the sum by the
Company's total fully diluted shares outstanding. Bear Stearns noted that this
calculation results in an implied valuation range of $17.54 to $30.75 and that
the proposed offer price is within such valuation range. The table below sets
forth Bear Stearns' summary valuation range:
ENTERPRISE VALUE
-------------------
LOW HIGH
-------- --------
($ IN MILLIONS)
Mainland Residential........................................ $ 100 $ 130
Hawaii Residential.......................................... 155 205
Mainland Commercial......................................... 210 235
Hawaii Commercial........................................... 110 120
Lana'i Segment.............................................. 60 160
Subtotal.................................................... $ 635 $ 850
Less: Corporate Overhead.................................... $ (50) $ (30)
Less: Net Debt and Other Liabilities........................ (273) (273)
Equity Value................................................ $ 312 $ 547
Value per share(1).......................................... $17.54 $30.75
- ------------------------
(1) Based on fully diluted shares outstanding of 17.794 million
As described above, Bear Stearns' opinion and presentation to the Special
Committee were some of the many factors taken into consideration by the Special
Committee in making its determination to recommend the Offer, the Merger
Agreement and the transactions contemplated thereby. Consequently, the analyses
described above should not be viewed as determinative of the opinion of the
Special Committee, the Board of Directors or the Company's management with
respect to the value of the Company or whether the Special Committee would have
been willing to recommend a transaction at a different level of consideration.
23
REASONS FOR THE RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF
DIRECTORS
As noted above, a Special Committee of independent directors was formed
consisting of Mr. Carson, Mr. Cook, Mr. Dallas and Mr. Hogan, who promptly
retained Bear Stearns to assist it from a financial and investment banking
standpoint.
The Special Committee directed Bear Stearns to make inquiries of a number of
companies who, in the belief of the Special Committee and its advisors, might
have an interest in proposing alternative transactions and directed Bear Stearns
to advise them of any unsolicited proposals or inquiries made. Further, they
provided Bear Stearns with, and considered themselves, detailed reports on the
Company's historical performance, projections, financial condition and assets
and consulted with their legal advisors about the appropriate matters to
consider in evaluating the terms of the Proposal, the Offer and the Merger. The
Special Committee had extensive discussions, and received reports from Bear
Stearns, the Company, Mr. Murdock and other representatives of FLX (including
Deutsche Bank), and was advised of the limited appraisal conducted on the
Company's property on the island of Lana'i and some of its property on Oahu.
In determining whether to recommend approval of the Merger Agreement and the
Offer, the Special Committee considered the following factors:
MARKET PRICE AND PREMIUM
The Special Committee considered the historical market prices and recent
trading activity of the Shares, including the fact that the consideration
shareholders would receive in the Offer and the Merger represents a premium of
approximately 53% to the price at which the Common Stock was trading prior to
public announcement of the Proposal on March 29, 2000. The Special Committee
took note of the fact that the Company repurchased 3,015,764 Shares in July 1998
at $19.25 per Share pursuant to a self tender offer and that the book value per
Share at March 31, 2000, was approximately $32.60. The Special Committee also
considered the fact that the Shares had not traded as high as $18 per share in
any period after the self tender offer until announcement of the Proposal.
LACK OF ALTERNATIVE ACQUISITION PROPOSALS
The Special Committee considered the fact that since announcement of the
Proposal on March 29, 2000, except as described in "Background of the
Offer--Contacts of Parent" above, no other party had contacted the Special
Committee or Bear Stearns to express an interest in submitting an acquisition
proposal at a high price. While the Special Committee considered it possible
that an alternative proposal might be obtained at a higher price if FLX were
willing to sell its shares in the Company, the Special Committee concluded that
such an offer was relatively unlikely in view of FLX's opposition to any such
transaction. In this connection, the Special Committee noted that FLX and its
affiliates could, with relative ease, acquire sufficient additional shares of
the Company in open market or privately negotiated transactions to block an
acquisition by another person. In addition, the Special Committee considered
that the Proposal was subject to withdrawal at any time after May 15, 2000
(subsequently extended to May 19, 2000), and if the Special Committee delayed
action on it to allow time for more active solicitation of acquisition proposals
other than the contacts made by Bear Stearns there was a significant risk that
the Proposal would be withdrawn.
SPECIAL COMMITTEE FORMATION AND ARM'S LENGTH NEGOTIATIONS
The Special Committee considered the fact that the Merger Agreement and the
Offer are the product of arm's-length negotiations between FLX and the Special
Committee, none of whose members are employed by, or affiliated with, the
Company (other than as directors or shareholders of the Company), FLX or any of
their affiliates.
24
OFFER PRICE AND MERGER CONSIDERATION
The Special Committee concluded, based on its negotiations with FLX and all
of the other information available to it, that $18.50 per Share represents the
highest price that FLX is willing to pay and the highest price reasonably
attainable for the shareholders.
BEAR STEARNS FAIRNESS OPINION
The Special Committee considered the financial advice of Bear Stearns and
the Fairness Opinion to the effect that, as of the date of such opinion and
based upon and subject to the assumptions, factors and limitations set forth
therein, the $18.50 per Share in cash being offered in the Offer and Merger is
fair, from a financial point of view, to the Company's shareholders other than
FLX and its affiliates. A COPY OF THE FAIRNESS OPINION SETTING FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY
BEAR STEARNS, IS FILED AS EXHIBIT (A)(3) HERETO AND IS INCORPORATED HEREIN BY
REFERENCE. SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE FAIRNESS OPINION
CAREFULLY AND IN ITS ENTIRETY.
TRANSACTION STRUCTURE
The Special Committee evaluated the benefits of the transaction being
structured as a cash tender offer for all of the outstanding shares, thereby
enabling shareholders to obtain cash for all of their Shares at the earliest
possible date, and the fact that the per Share consideration to be paid in the
Merger is the same as in the Offer. The Committee also considered the fact that
more than 94 days from public announcement of the Proposal, and more than 39
days from public announcement of the Merger Agreement, will have elapsed before
Shares may be accepted for payment in the Offer. This lapse of time should
provide a sufficient period of time for any party desiring to do so to present
an alternative acquisition proposal.
MINIMUM CONDITION
The Special Committee considered the fact that the Minimum Condition in the
Offer requires the tender of a majority of the outstanding Shares held by
persons other than FLX and its affiliates before Shares may be purchased in the
Offer, and that before the Minimum Condition is waived, FLX must consult with
the Special Committee.
TERMS OF THE MERGER AGREEMENT
The Special Committee also considered the terms of the Merger Agreement,
including the ability of the Special Committee to provide non-public information
concerning the Company to any third party who may have an interest in submitting
an acquisition proposal, if the Special Committee determines that there is a
reasonable likelihood that such actions would lead to a transaction proposal
with a reasonable likelihood of completion. Further, if an alternative
transaction proposal is received by the Company, the Special Committee may
terminate the Merger Agreement if it determines that such action is required to
comply with its fiduciary duties to shareholders. In such event, FLX would be
entitled to receive a fee equal to 2% of the consideration available to Company
shareholders in the alternative transaction proposal, but not less than $6.8
million. The Special Committee concluded that the amount of this fee was not of
such a magnitude that it would constitute a meaningful obstacle to a competing
proposal if there were a person who wished to submit one.
HISTORICAL AND PROJECTED FINANCIAL PERFORMANCE AND RELATED RISKS AND
UNCERTAINTIES
The Special Committee considered the Company's business, financial
condition, results of operations and prospects and the nature of the industry in
which the Company operates, including the prospects of
25
the Company if it were to remain independent. In this connection, the Special
Committee considered the projected results of operations prepared by the
Company's management. The Special Committee noted that in view of the
vulnerability of the Company's business to changes in the general economy and
the cyclical nature of the industry in which the Company operates, achievement
of projected results of operations is subject to significant uncertainties.
In addition to the matters mentioned above, the Special Committee considered
all of the terms of the Merger Agreement, the present economic environment, the
availability of appraisal rights in the Merger, the likelihood of completion of
the Offer and the Merger, and all of the other facts and circumstances
pertaining to the proposed transaction. The Special Committee did not consider
it practicable or useful to quantify or otherwise assign relative weights to the
various factors considered by it. Based upon all of the information available to
it, the Special Committee concluded that the Offer and the Merger are fair to,
and in the best interests of the shareholders.
After considering all the information it received, the Special Committee
unanimously determined that the terms of the Offer and Merger are fair and in
the best interests of the Company and its shareholders and recommended to the
Board that the Merger Agreement be approved and a recommendation be made to
shareholders (other than FLX and its affiliates) to tender all of their Shares
in the Offer. Mr. Dallas was unable to participate in the meeting of the Special
Committee on May 19, 2000, but has advised the Company of his agreement with the
conclusion reached at that meeting.
APPROVAL OF DIRECTORS.
The Board unanimously determined that the terms of the Offer and the Merger
are fair to and in the best interests of the shareholders of the Company, and
approved the Offer and the Merger and the other transactions contemplated by the
Merger Agreement, and approved the Merger Agreement, including approval for
purposes of the "interested shareholder" provisions of the Hawaii Business
Corporations Act. As required by Hawaii law, the vote of the Board was
sufficient to approve the Offer, the Merger and the Merger Agreement without
considering the votes of Mr. Murdock and one other director, Lynn Scott Safrit,
because Mr. Murdock is the owner of the Purchaser and Ms. Safrit is employed by
one of Mr. Murdock's privately held real estate companies. However, so that the
Offer could be unanimously recommended by the Board, Mr. Murdock and Ms. Safrit
indicated their approval. Mr. Dallas was unable to participate in the May 19,
2000 meeting but has authorized the Company to state that he agrees and joins in
the resolutions of the Board.
INTENT TO TENDER
To the best of the Company's knowledge, all of the Directors of the Company
intend to tender their Shares to the Purchaser at the Offer Price as described
in Schedule TO.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
Pursuant to the terms of a letter agreement, dated April 11, 2000, between
Bear Stearns and the Company (the "Bear Stearns Engagement Letter"), the Special
Committee retained Bear Stearns to act as the Special Committee's exclusive
financial advisor in connection with the proposed sale of the Company. The
Special Committee retained Bear Stearns based upon Bear Stearns' qualifications,
experience and expertise, and because Bear Stearns is a well-recognized
investment banking and advisory firm. Bear Stearns, as part of its investment
banking and financial advisory business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, leveraged buyouts, recapitalizations,
and valuations for corporate and other purposes. Such summary and description
are qualified in their entirety by reference to the Bear Stearns Engagement
Letter, which has been filed as Exhibit(e)(5) hereto and is incorporated herein
by reference.
26
In the ordinary course of business, Bear Stearns and its affiliates may
actively trade in the securities of the Company for their own account and for
the accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities. Bear Stearns may or may not have long or
short positions on the Company's Common Stock. To the best of Bear Stearns's
knowledge, it has never directly provided investment banking services to FLX,
the Parent or the Company.
Pursuant to the terms of the Bear Stearns Engagement Letter, the Company
agreed to pay Bear Stearns a $250,000 retainer ("Retainer Fee") upon signing the
Bear Stearns Engagement Letter and a $1,250,000 fairness opinion fee ("Fairness
Opinion Fee") upon notification to the Special Committee that Bear Stearns is
prepared to render its fairness opinion in connection with the Offer. Bear
Stearns' Fairness Opinion Fee is not contingent upon the content of the opinion
or the approval and consummation of the Offer and the Merger. In addition, if
the Offer and Merger are consummated Bear Stearns will be entitled to a
transaction fee of $450,000 plus $1,667 for each $0.01 per share above $17.00
per share received by shareholders other than FLX, provided that Bear Stearns
was not asked to perform substantial work beyond that associated with assessing
the attractiveness of the FLX proposal as well as alternatives, advising as to
the fairness of any transaction with FLX and engaging in preliminary discussions
with third parties to determine their interest in pursuing an acquisition of the
Company. However, if the Offer and Merger are consummated and Bear Stearns is
asked to complete substantial additional work, such as further exploring
potential interest from buyers other than FLX or rendering an opinion with
respect to a transaction with a buyer other than FLX, Bear Stearns will be
entitled to an additional fee of $1,250,000 plus $1,667 for each $0.01 per share
above $17 per share received by shareholders other than FLX. Also, the Company
has agreed to reimburse Bear Stearns for its reasonable out-of-pocket expenses
(including the fees and disbursements of its attorneys), and the Company has
also agreed to indemnify Bear Stearns and certain persons affiliated with or
acting as agents of Bear Stearns against certain liabilities and expenses
arising out of Bear Stearns' engagement.
Except as described above, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to shareholders on its behalf concerning
the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transactions in Shares have been effected during the past 60 days by the
Company or, to the knowledge of the Company, by any executive officer, director,
affiliate or subsidiary of the Company.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
(a) Except as set forth in this Statement, the Company is not currently
undertaking or engaged in any negotiations in response to the Offer that relate
to: (1) a tender offer for, or other acquisition of, the Company's securities by
the Company, any subsidiary of the Company or any other person; (2) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any subsidiary of the Company; (3) a purchase, sale or
transfer of a material amount of assets of the Company or any subsidiary of the
Company; or (4) any material change in the present dividend rate or policy, or
indebtedness or capitalization of the Company.
(b) Except as set forth in this Statement, there are no transactions,
resolutions of the Board of Directors, agreements in principle, or signed
contracts in response to the Offer that relate to one or more of the events
referred to in the preceding paragraph.
ITEM 8. ADDITIONAL INFORMATION.
Reference is hereby made to the Offer to Purchase and the related Letter of
Transmittal which are attached as Exhibits (a)(1) and (a)(2), respectively, and
are incorporated herein by reference in their entirety.
27
CERTAIN LEGAL MATTERS. Except as otherwise disclosed herein, based on
information provided by the Company, neither the Company, FLX, Purchaser nor
Parent is aware of any license or regulatory permit that appears to be material
to the business of the Company that might be adversely affected by Purchaser's
acquisition of Shares as contemplated herein or of any approval or other action
by a domestic or foreign governmental, administrative or regulatory agency or
authority that would be required for the acquisition and ownership of the Shares
by Purchaser as contemplated herein. Should any such approval or other action be
required, Purchaser and Parent presently contemplate that such approval or other
action will be sought, except as described below under "State Anti-Takeover
Statutes." There can be no assurance that any such approval or other action, if
needed, would be obtained or would be obtained without substantial conditions or
that failure to obtain any such approval or other action might not result in
consequences adverse to the Company's business or that certain parts of the
Company's business might not have to be disposed of, or other substantial
conditions complied with, in the event that such approvals were not obtained or
such other actions were not taken in order to obtain any such approval or other
action. If certain types of adverse action are taken with respect to the matters
discussed below, Purchaser could decline to accept for payment, or pay for, any
Shares tendered. See Section 14 of the Offer to Purchase for this and other
conditions to the Offer, including conditions with respect to governmental
actions.
STATE ANTI-TAKEOVER STATUTES. A number of states have adopted laws and
regulations that purport to apply to attempts to acquire corporations that are
incorporated in such states, or whose business operations have substantial
economic effects in such states, or which have substantial assets, security
holders, employees, principal executive offices or principal places of business
in such states. In 1982, in EDGAR V. MITE CORP., the Supreme Court of the United
States (the "Supreme Court") invalidated on constitutional grounds the Illinois
Business Takeover statute, which, as a matter of state securities law, made
certain corporate acquisitions more difficult. However, in 1987, in CTS CORP. V.
DYNAMICS CORP. OF AMERICA, the Supreme Court held that the State of Indiana may,
as a matter of corporate law and, in particular, with respect to those aspects
of corporate law concerning corporate governance, constitutionally disqualify a
potential acquiror from voting on the affairs of a target corporation without
the prior approval of the remaining shareholders. The state law before the
Supreme Court was by its terms applicable only to corporations that had a
substantial number of shareholders in the state and were incorporated there.
The State of Hawaii has enacted both a control share acquisition statute and
an anti-takeover statute. The control share acquisition statute permits a
corporation's articles of incorporation to provide that the statute shall not
apply to the corporation or its shares. The Company's Articles of Incorporation
contain such a provision; therefore the control share acquisition statute does
not apply to FLX, Purchaser or the Offer. Similarly, the Hawaii anti-takeover
statute does not apply to a transaction which has been approved by the target
company's board of directors. The Board has approved the Offer and the Merger
Agreement. Therefore, the anti-takeover statute will not apply to the Offer or
the Merger.
ANTITRUST. The Offer and the Merger are subject to the HSR Act, which
provides that acquisition transactions meeting the filing threshold may not be
consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice (the "DOJ") and the Federal Trade
Commission (the "FTC"), and certain waiting period requirements have been
satisfied.
On May 24, 2000 Parent and the Company filed their Notification and Report
Forms with respect to the Offer under the HSR Act. The waiting period under the
HSR Act with respect to the Offer will expire at 11:59 p.m., New York City time,
on June 7, 2000, unless early termination of the waiting period is granted.
However, the DOJ or the FTC may extend the waiting period by requesting
additional information or documentary material from Parent or the Company. If
such a request is made, such waiting period will expire at 11:59 p.m., New York
City time, on the tenth day after substantial compliance by Parent with such
request. Only one extension of the waiting period pursuant to a request for
additional information is authorized by the HSR Act. Thereafter, such waiting
period may be extended only by court order or with the consent of Parent. In
practice, complying with a request for additional information or material can
take a significant amount of time. In addition, if the DOJ or the FTC raises
substantive issues in connection
28
with a proposed transaction, the parties frequently engage in negotiations with
the relevant governmental agency concerning possible means of addressing those
issues and may agree to delay consummation of the transaction while such
negotiations continue. The Purchaser is not obligated to accept for payment
Shares tendered pursuant to the Offer unless and until the waiting period
requirements imposed by the HSR Act with respect to the Offer have been
satisfied. See Section 14 of the Offer to Purchase.
The FTC and the DOJ frequently scrutinize the legality under the Antitrust
Laws, as defined below, of transactions such as Purchaser's acquisition of
Shares pursuant to the Offer and the Merger. At any time before or after
Purchaser's acquisition of Shares, the DOJ or the FTC could take such action
under the Antitrust Laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the acquisition of Shares pursuant to the
Offer or otherwise seeking divestiture of Shares acquired by Purchaser or
divestiture of substantial assets of Parent or its subsidiaries. Private
parties, as well as state governments, may also bring legal action under the
Antitrust Laws under certain circumstances. Based upon an examination of
information provided by the Company relating to the businesses in which Parent
and the Company are engaged, there can be no assurance that the acquisition of
Shares will not violate the Antitrust Laws, that a challenge to the Offer on
antitrust grounds will not be made or, if such a challenge is made, of the
result.
As used in this Statement, "Antitrust Laws" shall mean and include the
Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal
Trade Commission Act, as amended, and all other Federal and state statutes,
rules, regulations, orders, decrees, administrative and judicial doctrines, and
other laws that are designed or intended to prohibit, restrict or regulate
actions having the purpose or effect of monopolization or restraint of trade.
HAWAII ENVIRONMENTAL DISCLOSURE STATUTE. Chapter 343D of the Hawaii Revised
Statutes prohibits a beneficial owner of ten percent or more of any class of
securities of any Hawaii corporation from purchasing more than an additional
five percent of such security during any twelve-month period without first
submitting a filing to the Office of Environmental Quality Control of the State
of Hawaii (the "OEQC")in compliance with the statute. The filing must describe
(i) all judicial and administrative proceedings during the preceding five years
to which the person was a party, and which involved any environmental matters,
and (ii) a detailed history of such person's compliance with all applicable
environmental laws or regulations. There is an initial fifteen day waiting
period with respect to the filing, which may be extended if the OEQC requires
additional information from the filing party. FLX, Parent and Purchaser filed
the required disclosures with the OEQC on May 17, 2000. Assuming there will be
no extensions, the waiting period will expire on or about May 31, 2000.
LEGAL PROCEEDINGS RELATING TO THE OFFER. Following the public announcement
of the Proposal on March 29, 2000 five purported class actions were filed in the
Superior Court of Los Angeles County, California and three in the Circuit Court
of the Second Circuit of the State of Hawaii. The complaints generally allege
that the Company's directors breached their fiduciary duties and engaged in
self-dealing by failing to maximize the value of the Shares. The complaints
further allege that the value of the Shares is materially greater than the
amount contained in the Proposal. Each complaint seeks certification of a
plaintiff class, declaratory and injunctive relief with respect to the
transactions contemplated by the Proposal, unspecified compensatory damages, and
attorneys' fees and costs. In addition to naming the Company's directors as
defendants, seven of the lawsuits name the Company as a defendant and two of the
lawsuits name FLX as a defendant. The defendants believe that the actions are
without merit and intend to defend them vigorously. The five purported class
actions pending in Los Angeles Superior Court are entitled: FURTHERFIELD
PARTNERS, L.P. ET AL. V. MURDOCK ET AL., Case No. BC227387; CHARLES MILLER ET
AL. V. DAVID H. MURDOCK ET AL., Case No. BC 227390; GREAT NECK CAPITAL PARTNERS
ET AL. V. CASTLE & COOKE, INC. ET AL., Case No. BC 227403; JOSHUA KAPLAN ET AL.
V. CASTLE & COOKE, INC. ET AL., Case No. BC227470 and JERRY KRIM ET AL. V.
CASTLE & COOKE, Case No. BC227484. The three purported class actions pending in
Hawaii Circuit Court are entitled ARCHIE D. SODEN ET AL. V. CASTLE &
COOKE, INC., ET AL., Civil No. 00-1-0145(1); CRANDON CAPITAL
29
PARTNERS ET AL. V. CASTLE & COOKE, INC., ET AL., Civil No. 00-1-0146(2); and
RUTH WHITE ET AL. V. CASTLE & COOKE, INC., ET AL., Civil No. 00-1-0208(3).
In the Hawaii litigation, plaintiffs have filed a declaration of Ms. Karen
Char, President and Chief Executive Officer of John Child & Company, Inc.
("Child"), a professional corporation that specializes in real estate appraisal
and consulting. Ms. Char's declaration described the analysis her firm performed
to determine the reasonableness of the reported book value of the Company's real
estate assets, $1.027 billion as of December 31, 1999. Based on the information
available to Child, including appraisal reports, real property tax assessments
and reports of market analysts, Ms. Char stated that in her opinion a
conservative market value for the Company's real estate was in the range of
$1.18 billion to $1.34 billion, or a value of 15% to 31% greater than book
value. Ms. Char's declaration provides the following preliminary minimum market
value estimates for the Company's real estate:
ESTIMATED MINIMUM
PROPERTY MARKET VALUE % OF TOTAL
- -------- ----------------- -------------------
($ IN MILLIONS)
Hawaii (all properties)......................... $ 730 $ 890 62 66
Residential development
California.................................... 153 153 13 11
Florida....................................... 20 20 2 2
Arizona....................................... 56 56 5 4
Operating property.............................. 208 208 18 16
Undeveloped land holdings....................... 16 16 1 1
Total mainland................................ 453 453 39 34
Total Hawaii and mainland, rounded............ $1,180 $1,340 100 100
In addition, some of the plaintiffs have cited in their complaints to a
Sutro & Co. report dated March 30, 2000 written by Craig Silvers, which stated,
in part, that Sutro & Co. valued the Company at approximately $29 per Share and
calculated the book value of the assets of the Company at just over $32 per
Share.
Plaintiffs also filed a declaration of Dr. Scott Hakala, a principal of
Business Valuation Services, Inc., a national business valuation and financial
advisory firm. Dr. Hakala stated that in his view the proper way to value the
Shares of the Company was to determine the net asset value of the Company. He
said the net asset value is calculated by determining the fair market value of
each of the Company's assets, comparing the amount of the Company's liabilities,
and dividing the result by the number of shares outstanding. Based on his review
of records of the Company, Ms. Char's analysis, reports by market analysts
(including Craig Silvers of Sutro & Co.) and other factors, Dr. Hakala stated
that the fair value of the Company's principal assets was in excess of book
value and that the fair value in a sale of the Company would be in the range of
approximately $34 to $40 per share. He further stated that the current market
price of the Shares did not properly reflect the true value of the Company
because, among other reasons, the public had inadequate information about the
value of the underlying assets.
30
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
(a)(1) The Offer to Purchase dated May 31, 2000 (incorporated
herein by reference to Exhibit 99(a)(1) to the Schedule TO
of FLX, Parent and the Purchaser filed on May 31, 2000).
(a)(2) Form of Letter of Transmittal (incorporated herein by
reference to Exhibit 99(a)(2) to the Schedule TO of FLX,
Parent and the Purchaser filed on May 31, 2000).
(a)(3) Opinion of Bear, Stearns & Co. Inc., dated May 19, 2000
(included as Annex A to this Statement).*
(a)(4) Selected pages from the Company's 2000 Proxy Statement for
the 2000 Annual Meeting of Stockholders, filed on Schedule
14A (incorporated herein by reference).
(a)(5) Text of Press Release issued by the Company on March 29,
2000 (incorporated herein by reference to Exhibit 99(a)(8)
to the Schedule TO of FLX, Parent and Purchaser filed on
May 31, 2000).
(a)(6) Text of Press Release issued by the Company on April 12,
2000 (incorporated herein by reference to Exhibit 99(a)(10)
to the Schedule TO of FLX, Parent and Purchaser filed on
May 31, 2000).
(a)(7) Text of Press Release issued by the Company on May 16, 2000
(incorporated herein by reference to Exhibit 99(a)(11) to
the Schedule TO of FLX, Parent and Purchaser filed on
May 31, 2000).
(a)(8) Text of Press Release issued by the Company on May 22, 2000
(incorporated herein by reference to Exhibit 99(a)(13) to
the Schedule TO of FLX, Parent and Purchaser filed on
May 31, 2000).
(e)(1) Agreement and Plan of Merger, dated as of May 19, 2000,
among FLX, Parent, Purchaser and the Company (incorporated
herein by reference to Exhibit 99(d)(1) to the Schedule TO
of FLX, Parent and the Purchaser filed on May 31, 2000).
(e)(2) Confidentiality Agreement between the Company and FLX dated
March 29, 2000 (incorporated herein by reference to Exhibit
99(d)(2) to the Schedule TO of FLX, Parent and Purchaser
filed on May 31, 2000).
(e)(3) Indemnification Agreement entered into by the Company and
the Special Committee members dated April 11, 2000
(incorporated herein by reference to Exhibit 99(d)(3) to the
Schedule TO of FLX, Parent and Purchaser filed on May 31,
2000).
(e)(4) Bear Stearns, Presentation to the Special Committee of the
Board of Directors dated May 19, 2000 (incorporated herein
by reference to Exhibit 99(c)(2) to the Schedule TO of FLX,
Parent and Purchaser filed on May 31, 2000). The Company has
submitted a Confidential Treatment Request to the SEC with
respect to Appendix C of this Exhibit.
(e)(5) Limited Appraisal Report from the Hallstrom Group regarding
Company property on Lana'i and certain property on Oahu
(incorporated herein by reference to Exhibit 99(c)(3) to the
Schedule TO of FLX, Parent and Purchaser filed on May 31,
2000).
* Included with the Statement mailed to shareholders.
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
CASTLE & COOKE, INC.
By: /s/ EDWARD C. ROOHAN
-----------------------------------------
Edward C. Roohan
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
Dated: May 31, 2000
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ANNEX A
May 19, 2000
Special Committee of the Board of Directors
Castle & Cooke, Inc.
10900 Wilshire Boulevard
Los Angeles, CA 90024
Ladies and Gentlemen:
We understand that Flexi-Van Leasing, Inc., a Delaware corporation and a
wholly-owned subsidiary of Flexi-Van, Castle & Cooke Holdings, Inc., a Delaware
corporation and a wholly-owned subsidiary of Flexi-Van ("Buyer"), and Castle
Acquisition Company, Inc., a Hawaii corporation and a wholly-owned subsidiary of
Buyer ("MergerCo."), on the one hand, and Castle & Cooke, Inc., a Hawaii
corporation ("C&C") on the other hand, intend to enter into an Agreement and
Plan of Merger (the "Agreement") pursuant to which MergerCo. has agreed to make
a tender offer to purchase (the "Offer") all of the outstanding shares (the
"Shares") of Common Stock, no par value, of C&C, other than any such Shares
owned beneficially by Flexi-Van or its affiliates, at a purchase price per share
of $18.50 payable in cash (the "Purchase Price") and, subject to the conditions
specified in the Agreement, to cause MergerCo. to enter into a merger (the
"Merger") with C&C in which MergerCo. shall continue as the surviving
corporation and in which each of the Shares (other than Shares then owned by
Flexi-Van or its affiliates) would be converted into the right to receive $18.50
in cash (the "Merger Consideration"). The Purchase Price in the Offer and the
Merger Consideration are hereinafter collectively referred to as the
"Consideration" and the Offer and the Merger are hereinafter collectively
referred to as the "Transaction."
You have asked us to render our opinion as to whether the Consideration is
fair, from a financial point of view, to shareholders of C&C, other than
Flexi-Van and its affiliates.
In the course of performing our review and analyses for rendering this
opinion, we have:
- reviewed a draft form of the Agreement dated as of May 18, 2000;
- reviewed C&C's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the years ended December 31, 1997-1999, its Quarterly
Reports on Form 10-Q for the period ended March 31, 2000 and its Reports
on Form 8-K for the three years ended December 31, 1999 and from
December 31, 1999 to the date hereof;
- reviewed certain operating and financial information, including
projections for the five years ended December 31, 2004, provided to us by
management of C&C relating to C&C's business and prospects;
- met with certain members of C&C's senior management to discuss C&C's
business, operations, historical and projected financial results and
future prospects;
- met with Mr. David H. Murdock and representatives of the financial advisor
to Flexi-Van, Deutsche Bank Securities Inc., to discuss the Transaction
and their views as to C&C's business;
- reviewed a letter dated March 29, 2000 and a draft letter dated May 19,
2000, of Deutsche Bank Securities Inc. regarding the financing of the
Transaction by Flexi-Van;
- met with attorneys for the plaintiffs in certain lawsuits which have been
filed with respect to the Transaction, together with certain consultants
and advisors to such counsel;
- met with the Special Committee and discussed, among other things, the
Special Committee's view of the financial projections of C&C furnished to
us by C&C's management;
- reviewed the historical prices, trading multiples and trading volumes of
the Shares;
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- reviewed publicly available financial data, stock market performance data
and trading multiples of companies which we deemed generally comparable to
C&C;
- reviewed the terms of recent merger and acquisition transactions which we
deemed generally comparable to C&C and the Transaction;
- performed discounted cash flow analyses on the various segments of the
business of C&C based on the projections for such segments of C&C
furnished to us by C&C;
- reviewed certain Schedule 13D's and amendments thereto filed with the
Securities and Exchange Commission with respect to C&C, including such
schedules filed by Mr. David H. Murdock, Tweedy, Browne Company LLC and
Messrs. Daniel R. and Thomas J. Tisch (the "Tisch Group");
- reviewed certain appraisals of real properties owned by C&C or its
subsidiaries furnished to us by C&C;
- reviewed limited appraisals dated May 18, 2000, with respect to the real
property owned by C&C and located on the Island of Lana'i in the State of
Hawaii, and certain real property owned by C&C and located on the Island
of Oahu in the State of Hawaii, which appraisals were prepared at our
request by the Hallstrom Group Inc., Honolulu, Hawaii;
- conducted such other studies, inquiries and investigations as we deemed
appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation the projections, provided to us by C&C. With respect to C&C's
projected financial results, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the senior management of C&C as to the expected future performance
of C&C. We have not assumed any responsibility for the independent verification
of any such information or of the projections provided to us, and we have
further relied upon the assurances of the senior management of C&C that they are
unaware of any facts that would make the information and projections provided to
us incomplete or misleading.
In arriving at our opinion, except for those appraisals referred to
hereinabove in this letter, we have not performed or obtained any independent
appraisal of the assets or liabilities of C&C, nor have we been furnished with
any such appraisals other than those previously referred to in this letter. We
note for the Special Committee of the Board of Directors of C&C the inherent
difficulty in valuing C&C's assets and operations on the island of Lana'i given
the historical lack of profitability and uncertainty regarding C&C's business
plan with respect to such assets. During the course of our engagement, we were
asked by the Special Committee of the Board of Directors of C&C to contact
various third parties, including the Tisch Group, regarding a potential
transaction with C&C, and we have considered the results of such discussions in
rendering our opinion. We have assumed that the Transaction will be consummated
in a timely manner and in accordance with the terms of the Offer and the
Agreement without any regulatory limitations, restrictions, conditions,
amendments or modifications. Pursuant to the instructions of the Special
Committee, we have not performed any analysis with respect to, nor do we express
any opinion on, the ability of Flexi-Van and its affiliates to finance the
Transaction.
We have acted as financial advisor to the Special Committee of the Board of
Directors of C&C in connection with the Transaction and will receive a customary
fee for such services, a substantial portion of which is contingent on
successful consummation of the Transaction. In the ordinary course of business,
we may actively trade the equity and debt securities of C&C for our own account
and for the account of our customers and, accordingly, may at any time hold a
long or short position in such securities.
It is understood that this letter is intended solely for the benefit and use
of the Special Committee of the Board of Directors of C&C and does not
constitute a recommendation to the Special Committee of the Board of Directors
of C&C. This opinion does not address the underlying business decision of the
Special Committee of the Board of Directors of C&C to recommend the Transaction
to the shareholders of C&C
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or the underlying business decision of C&C to enter into the Merger, the
relative merits of the Transaction as compared to any alternative business
strategies that might exist for C&C or the effects of any other transaction in
which C&C might engage. This letter is not to be used for any other purpose, or
be reproduced, disseminated, quoted from or referred to at any time, in whole or
in part, without our prior written consent. Our opinion is subject to the
assumptions and conditions contained herein and is necessarily based on
economic, market and other conditions, and the information made available to us,
as of the date hereof. We assume no responsibility for updating or revising our
opinion based on circumstances or events occurring after the date hereof.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration is fair, from a financial point of view, to
shareholders of C&C, other than Flexi-Van and its affiliates.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: _________/s/ Cary Thompson________
Senior Managing Director
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