Smith Could Have Received 60% More for Stock Than Bren Offered, Her Lawyer Says

Heiress Joan Irvine Smith’s attorney argued Monday that her shares in the Irvine Co. could have been worth 60% more than Chairman Donald L. Bren originally offered to pay for them in 1983 if the company had been liquidated.

Howard Friedman, who is representing Smith, said the 550 shares of stock owned by Smith and her mother would have been worth $320,000 each, or a total of $176 million, had the company been liquidated and all allowable tax benefits had been exercised.

Instead, Smith and her mother were offered $200,000 per share, or a total of $110 million, for their 11% stake in the company when Bren bought a controlling interest in the Irvine Co. in April, 1983.

Smith rejected Bren’s offer, saying it was too low, and eventually filed sued in a bid to obtain more money for her stock. Other shareholders in the company accepted Bren’s $200,000-per-share offer, which valued the company at $1 billion.

Hypothetical Liquidation

As Smith’s case resumed in federal court here after a one-week recess, Irvine Co. attorneys said that Friedman was basing his higher valuation on a hypothetical liquidation that had no direct relationship to the transaction that actually occurred.

Friedman had questioned Stan Ross, accountant and adviser to Bren, about tax advantages that could have been used under a complete liquidation of the company and its assets.

“ ‘Let’s pretend’ games have to stop with this witness,” protested William Campbell, attorney for the Irvine Co.

Campbell said the fairest test of the value of Smith’s stock in November, 1983--the issue the court has been asked to determine--is the amount that the company’s 33 other shareholders were willing to accept from Bren.

That amount was $200,000 per share, he said, the same price offered to Smith.

But Friedman contended that the stock’s real worth was the price that shareholders could have received for the company if efforts had been made to “maximize its value” at the time, including, if necessary, a liquidation of its holdings.

“That’s a good bit of final argument,” Judge Robert Webster said after listening to the two sides argue over whether he should let Friedman continue questioning Ross about a hypothetical sale. In the end, Webster allowed Friedman to continue.

Response to Memo

The trial began Aug. 4 and is expected to continue for about six months in Oakland County, Mich., where the Irvine Co. was incorporated.

In an interview during a break in Monday’s hearing, Friedman responded to a memo written by Ross, which noted that Friedman had advised Smith to take the $200,000 a share offered by Bren in 1983 and “couldn’t reconcile her logic” when she refused.

The memo, dated March 29, 1983, was submitted as evidence earlier this month. Friedman said Monday that he didn’t recall whether the words contained in the memo accurately reflected what he said to Ross in a 1983 telephone conversation.

Friedman acknowledged, however, that he advised Smith to accept Bren’s offer of $200,000 per share, as well as an alternative proposal to double her ownership in the company from 11% to 22%.

Although the $200,000 constituted “a bargain price” for Bren, Friedman said, Smith could have benefited from the sale.

Friedman said Smith rejected his advice and chose not to sell. “Her business judgment is the one that ultimately prevailed,” he said.