Developer Bren Tells Court He Broke No Vow : No Lies in Irvine Co. Buyout, He Testifies

Heiress Joan Irvine Smith’s attorney, continuing efforts to characterize Irvine Co. Chairman Donald L. Bren an opportunist who took advantage of his client, said Monday that Bren broke a promise to Smith by saddling the Irvine Co. with a huge debt in order to acquire control of the giant land development firm.

But Bren, in his sixth day on the witness stand in a trial that will determine how much the company was worth when Bren acquired control in 1983, denied lying to Smith or breaking any promises.

In order to borrow the $560 million he used to buy out most other Irvine Co. shareholders in April, 1983, Bren signed a loan agreement that required the company to set aside for debt repayment purposes all of the cash it raised from land sales and from the refinancing of its properties.

Additionally, because Bren acquired the Irvine Co. shares through a privately owned company he called Newco, the loan agreement required Bren to merge the Irvine Co. into Newco.

That action, taken seven months after Bren achieved control, enabled Newco to become the controlling entity and to pledge Irvine Co. assets as collateral for Bren’s loans.

In his testimony Monday, Bren said he promised only to avoid encumbering the company with debt to raise the cash he needed to initially gain control.

Bren said he did not consider it a breach of his word when, seven months after becoming majority owner of the Irvine Co., he merged his own company into it and then used Irvine Co. assets as security for the $560 million he had borrowed to buy the stock.

Friedman, who has been cross-examining Bren since Thursday and who has said he might keep the powerful developer on the stand all this week, is trying to impeach Bren’s credibility to weaken his claim that the Irvine Co. was worth only about $750 million when he gained control. Bren, who owned 35% of the company when he launched his bid for control, has testified that he willingly paid some of the shareholders a stiff premium, effectively valuing the company at $1 billion, in order to secure control.

But that premium does not apply to the 11% of the company controlled by Smith and her mother, and they are being offered only $88 million for their stake.

Smith has agreed to sell to Bren but disputes the valuation. She claims that Bren deliberately has undervalued the company and that it actually was worth $3 billion when Bren bought it. With accrued interest, she claims, she and her mother should receive $500 million.

Irvine Co. attorneys have tried to paint Smith as an obstructionist who routinely opposed the majority of the Irvine Co.’s board of directors and who automatically objected to Bren’s plans despite his attempts to be fair with her.

During Monday’s hearing, however, Friedman suggested that Bren purposely kept Smith in the dark about his loan agreement with the banks that financed his buyout of most other Irvine Co. shareholders in April, 1983.

According to court documents and testimony, if Bren had not persuaded Irvine Co. directors to approve the merger with Newco, Bren would have defaulted on the $560 million in debt and the banks would have wound up with the 34% of the company he used as his initial collateral.

This, as well as the terms of the agreement that required the Irvine Co. to accumulate $400 million in cash by the time it was merged into Newco in November, 1983, constituted a breach of promise by Bren because the loan documents effectively gave control of the company to the banks, Friedman argued.

But Bren denied that the loan agreement encumbered the Irvine Co.’s assets. He argued Monday that he alone was financially liable for the loan during the seven months before the Newco-Irvine Co. merger.

And Irvine Co. attorney Bill Campbell, objecting to a Friedman question about the impact of Bren’s loan agreement on the company, said Bren had never promised that the Irvine Co. would not be affected by the agreement.

Instead, Campbell said, Bren promised Smith only that the company her grandfather founded would not be a party to the initial loan and that its assets would not be used as collateral in Bren’s original stock purchases.

Bren said he did not expect to remain personally liable for the stock acquisition.