Worth ‘Understated by at Least Half’ in ’83 : Attorney Asserts Bren Undervalued Irvine Co.
While lauding Irvine Co. Chairman Donald L. Bren as “one of the more admirable entrepreneurs in our country,” the attorney for Irvine family heiress Joan Irvine Smith argued in court Thursday that Bren grossly undervalued the company when he bought out other shareholders 5 years ago.
Attorney Howard I. Friedman said in closing arguments that his client was justified in rejecting as inadequate Bren’s 1983 offer to pay $110 million for her 11% stake in the company.
Smith contends that her shares were worth $330 million and is seeking another $170 million in interest, for a total of $500 million. Bren, in the meantime, has reduced his offer to $88 million.
“I don’t claim the merger was unfair,” Friedman said in reference to the transaction in which Bren acquired control of the company. He reiterated, however, that the $1.04 billion Bren said the company was worth in 1983 was “understated by at least half and probably more.”
“That alone warranted rejection of the offer,” Friedman said.
To resolve the dispute, the Irvine Co. had to sue Smith and her mother, Athalie Clark. (Half of Smith’s share in the company was in a trust from which Clark draws interest.) The value of Smith’s shares will be decided by the court-appointed referee who has been presiding over the trial in Michigan, where the Irvine Co. is incorporated. The trial began in August, 1987.
The Irvine Co., founded by Smith’s grandfather in 1865, now owns about 68,000 acres in Orange County, or about one-sixth of all the land in the county. Bren was among a group of investors who bought the company in 1977, and he took control in 1983 with the purchase of a controlling interest in the stock.
Friedman used charts and other graphics in his 5-hour closing argument to outline Irvine Co. assets and investments in an attempt to show that the company was worth far more than the $1 billion Bren said that it was.
“We’re dealing with a company whose value for improved properties alone was $1 billion, which is equivalent to what is claimed to be the value of the entire company in the merger itself,” Friedman said.
In 1983, he said, the Irvine Co. was experiencing a substantial recovery from the economic downturn of 1981 and 1982 and stood to profit greatly from Orange County’s continuing growth.
Further, Friedman argued, “the Irvine Co. is unique. It has a mix of assets not commonly found--a diversified investment portfolio coupled with the capacity for tremendous growth and the ability to dispose of property to meet demands,” Friedman said.
“The company had a skilled manager with a good track record who demonstrated his capacity to weather an adverse economic cycle. It is situated in one of the prime growth areas of this country.”
Friedman praised Bren for his business acumen and skill in developing the Irvine Co. but argued that his client was nonetheless justified in challenging the value put on the company in the merger offer.
The Irvine Co. has argued throughout the trial that its offer to Smith was fair. As evidence, its attorneys pointed out that sophisticated investors such as New York financier Herbert Allen Sr. and Detroit shopping mall magnate A. Alfred Taubman had accepted Bren’s offer. (Attorneys for the Irvine Co. presented their closing arguments Wednesday.) Bren, who attended the trial Thursday, said he was pleased with Friedman’s remarks about him personally and interpreted the attorney’s statement that the merger was not unfair as a vindication of his position.
“I appreciate, in addition to the vindication, his admiration,” Bren said. “I believe that throughout the whole process of the sale, there was an effort by me and the board members and everyone else involved to be eminently fair.”
A decision in the case is not expected before June.
