Irvine Heiress Gets $149-Million Award : Litigation: The ruling may end Joan Irvine Smith’s long stock-price dispute with Donald L. Bren, who controls Irvine Co., now one of the nation’s largest developers.
A Michigan court referee ruled Monday that Joan Irvine Smith, an heiress of Irvine Co., should be paid $149 million plus interest for her stock in the company, now one of the biggest developers in the nation.
The decision may put to rest a bitter, seven-year dispute that pitted Smith, whose family founded the huge ranch in the 1860s, against Donald L. Bren, who now controls the company.
Both sides seemed pleased by the ruling, in one of the largest such cases on record. Smith had demanded $330 million, but she and her lawyer claimed victory Monday. The amount, however, comes much closer to the $88 million that Bren, one of the nation’s richest men, offered her when he bought control of Irvine Co. in 1983.
Smith had argued that Bren’s offer was far too low. The trial, which began in 1987, centered on how much the company was actually worth when Bren bought it.
“The ruling is closer to the company’s estimate, but we’re quite pleased,” said Howard I. Friedman, Smith’s lawyer. “But I’d be less than candid if I didn’t say the company was worth a great deal more.”
Said Smith, who with her mother, Athalie Clarke, owned 11% of the company: “I understand the Irvine Co. is saying this is a great victory. But I am not unhappy. I consider it a definite victory for us. It is still a lot of money.”
Irvine Co., on the other hand, was pleased because the ruling “so clearly validates the fundamental fairness of the 1983 transaction in which Donald Bren acquired the Irvine Co.,” said Gary H. Hunt, the company’s senior vice president.
Neither side seemed likely to appeal the ruling Monday, although Smith said she would take some time to consider an appeal.
Some issues remain to be determined by Robert B. Webster, a retired Michigan judge who presided over the case.
The biggest is a hearing to determine how much interest Smith will get on the $149 million. Her lawyer estimates that could add another $25 million to the total. Irvine Co. lawyers said it would probably be considerably less.
Webster may also decide whether to award attorney’s fees to one side or the other. With other costs, Irvine Co. estimates its legal expenses at $15 million over the last seven years and says Smith’s costs are probably about the same. She declined comment on that issue.
Webster, who was appointed to hear the case so that it wouldn’t tie up a Michigan courtroom for years, said he’d prefer to leave the attorney fees issue up to the courts but would rule if the courts insisted he do so.
The trial was held in Michigan because the company is incorporated there.
Irvine Co. said it has long budgeted for an amount greater than the judge awarded and can pay the award through previously established lines of credit. The award is not payable until the issue of interest is resolved.
Smith had been asking for about $500 million with interest.
The high-stakes trial was the stuff of a television miniseries: On one side was Bren, an intense, reserved billionaire with enough land and power to impose his own architectural vision on a huge slice of Southern California. On the other side was Smith, a feisty member of the horsey set whose family traces its money and its toughness to the old cattle-ranching days of 19th-Century California.
Bren, 57, bought out fellow shareholders in 1983 for $200,000 a share. They had bought the shares just six years earlier at $6,000, and they reaped a 3,200% return on their investment.
Smith, 56, whose grandfather incorporated Irvine Co. in 1894 to run the family’s vast ranch, also agreed to sell her 550 shares. But she demanded three times more, or $600,000 a share. Thousands of acres in Orange County’s most desirable neighborhoods, she insisted, were worth that much.
When they couldn’t agree, the company had to go to court and ask a judge to set a fair price. It was Smith’s right to insist on a court hearing under Michigan laws that protect shareholders of privately held companies from being squeezed out at unfair prices.
The subsequent trial dragged on through 150 days in the courtroom between 1987 and 1989. It chewed up 27,000 pages of trial transcripts and pleadings and an estimated $30 million in legal fees. The trial was held in a rented office outside Detroit.
Smith painted Bren as a conniving schemer, and Bren’s lawyers portrayed her as a greedy, litigious eccentric.
Smith contended that Bren exaggerated the company’s problems in order to frighten and mislead shareholders and stampede them into selling at a low price.
That’s ridiculous, said Bren. The other shareholders who sold to him at $200,000 a share were some of the most astute investors in the nation: Wall Street investment bankers and executives of large corporations.
Bren said it was unlikely they would underestimate the value of their stock by $400,000 a share. Therefore, he said, the court should accept his price as fair. He said the deal met the test of fairness under the law: that the buyers and sellers be “knowledgeable and willing.”
The referee rejected the three experts Smith put on the stand, who valued the company at as much as $3 billion in 1983.
The referee’s ruling could make it easier for other dissident shareholders in private companies to challenge sales, experts said. In fact Irvine Co. argued that if Smith won, it would hamstring managers and enable shareholders to arbitrarily hold up any deal they didn’t like.
These cases are complicated because it’s hard to value the stock of a privately held company such as Irvine Co. Unlike in a public company, the stock isn’t traded openly on an exchange, where the price is determined by public demand and can be easily found in the newspaper stock tables each morning.
Irvine Co. is especially hard to value because there is nothing to compare it to: It owns a stretch of immensely valuable Orange County land 22 miles across and nine miles deep in some places, an undulating brown sea squarely in the path of growth moving south from Los Angeles. Some of the 64,000 acres it owns sell for more than $1 million. It is the largest private owner of land in any of the nation’s metropolitan areas.
Valuation cases are usually settled out of court because they can take years to resolve; few people can afford to hire lawyers and expert witnesses for that long.
But with hundreds of millions of dollars at stake, Bren and Smith couldn’t reach a settlement after Bren bought the company in 1983. The two are said to dislike each other, which may also have hindered negotiations.
Meanwhile, on the bright side for Bren, he hasn’t yet had to pay a dime to Smith. Irvine Co. has been able to keep and use millions of dollars it would otherwise have had to pay Smith in 1983 if she’d agreed to Bren’s offer.
And there is another, backhanded benefit to the ruling: Now that the referee says the company was worth more than Bren paid for it, it makes Bren seem a canny deal-maker who outsmarted some of the brightest businessmen in the world.
The ruling may also fuel more speculation about the size of his fortune; if the land is worth much more than the company says, then Bren’s net worth may have been underestimated by Forbes magazine and others.
Owning the company gives Bren a net worth estimated by Forbes at $1.8 billion. That makes him one of the 20 richest people in the nation, wealthier than much better-known tycoons such as Ted Turner, Donald J. Trump, Harry Helmsley, Rupert P. Murdoch and August A. Busch III.
But Bren doesn’t like to talk about his wealth. The profiles in national publications such as Newsweek make him downright uncomfortable. That’s partly because he loathes publicity and partly because speculation about his wealth riles up California’s powerful slow-growth movement and environmentalists, who question why Bren needs to develop more vacant land when he’s already a billionaire.
The company always downplays the question of Bren’s wealth and says that just because a judge, with a stroke of his pen, upped the value of the company on paper doesn’t necessarily make it so in reality.
