We continue the introduction to the richest real estate investor in the globe, the owner of The Irvine Company, Donald Bren. See Part 1 here. Excerpts from the book: The Irvine Ranch: a Time for People" by Martin A. Brower.

At that point, cities and the County were increasingly imposing costly demands on the developer. These demands included roads, flood control channels, parks, and schools — all of which were previously provided by the cities and the County.

In 1976, Watson always claimed that his planning and development were designed to provide a physical environment in which people could add their own sociological values. The James Irvine Foundation became serious about selling The Irvine Company to comply with the Tax Reform Act. The Company's revenues and net income depicted picture-perfect graphs, with both steadily increasing over the preceding seven years. Revenues had nearly doubled in the past three years, reaching $104 million, while net income stood at $11.4 million. The concept of taking the Company public was dismissed by the Board for two reasons: the stock market was not performing well, and there was evidence suggesting that a real estate company should not go public because Wall Street valued quarterly results rather than long-range objectives. Some suspected there was a third reason: with her ownership of twenty-two percent of the Company's stock, Joan Irvine Smith would finally control the Company, and the Foundation trustees, who had long battled the heiress, would not concede to her victory.

Instead, the Foundation exposed the Company to several major corporations that might want to diversify into real estate. The only corporation to show special interest was Mobil, which had a real estate development arm. Mobil had developed a community in Northern California and a group of high-rise condominiums in Hong Kong. The firm expressed interest in The Irvine Company not only for its land and property portfolio but also for its planning and development talent, which could be utilized in off-Ranch projects.

This concept particularly excited Watson and his staff, who had long considered exporting their planning and development strengths to other parts of the nation. During the period of negotiations, Irvine Company Director of Public Relations Martin Brower conducted a national news media campaign to emphasize the strengths of Company executives to prospective buyers. The public relations campaign resulted in glowing articles in Fortune, Time, Newsweek, Business Week, the Wall Street Journal, and the New York Times. Suddenly, The Irvine Company was in the public eye nationally. In the autumn of 1974, Mobil Oil offered the Foundation $200 million in cash for the Company, and the Foundation accepted the offer.

However, this infuriated Joan Irvine Smith, who insisted the Company was worth far more than $200 million. She filed suit in December 1974 to block the sale and was successful in interesting the State of California's Attorney General's Office — the guardian of charitable contributions from foundations — to enter the suit. Although Smith's stockholder suit was not considered valid by the court, the attorney general's suit was accepted. In March 1975, the court blocked the sale to Mobil.

After the suit was filed, Cadillac-Fairview, a major Canadian real estate developer, read about the contested sale, received permission to study the Company, and in October 1976 entered a bid of $265 million. Cadillac-Fairview immediately garnered Smith's support and Irvine Company management. Coming into contact with the Canadian firm while exposing the Company's plans and books, the management had positive feelings about the firm. They chuckled after a trip to Toronto that Cadillac-Fairview had assembled a more sophisticated computer model of The Irvine Company's business plan than the Company had on itself.

While Mobil and Cadillac-Fairview were bidding against each other, Irvine family member Keith Gaede, an avid horseman, attended a horse show to benefit the City of Hope in Los Angeles. Gaede said hello to an acquaintance, "Colonel" Bloomberg, who asked conversationally whether the Irvine Ranch had yet been sold. Gaede answered that it had not, whereupon Bloomberg set off a series of events that brought in a third bidding entity. Bloomberg called his New York friend Herbert Allen, a Wall Street investor, and told him about The Irvine Company and its holdings. Allen contacted a friend of his in Detroit, A. Albert Taubman, who as a large, regional shopping center developer understood real estate. Taubman was interested and, in turn, interested two Detroit business friends — Max Fisher of United Brands and Henry Ford II. Meanwhile, Herb Allen had interested Milton Petrie of the New Jersey-headquartered Petrie Stores. Feeling there was a need for agricultural expertise, Taubman involved Southern Californian Howard Marguleas of agri-giant Sun West. In November 1976, under the name SMBH&Z, the Allen-Taubman-led group entered the bidding war for the Company with a bid of $285.6 million.

Seeking additional funding for SMBH&Z, Allen contacted his Wall Street colleague Benjamin Lambert of Eastdil, Eastman Dillon's real estate investment arm. The contact was providential, as Lambert had already been contacted by a Los Angeles homebuilder, Donald Bren, about financing a leveraged buyout of The Irvine Company. In an unusual but strategic alliance, Bren combined forces with Taubman, Allen, and the others. Understanding from Bren the need to have heiress Joan Irvine Smith on their side, the group invited her to become a named part of the consortium, allowing her to retain partial ownership of the Company she loved after the proposed purchase — which she relished. The resulting consortium — named Taubman-Allen-Irvine and incorporated through Taubman in Michigan — then made a bid of $302.9 million in March 1977, well over Mobil's previous bid. Now a full-scale bidding war was underway. Each day, the court permitted the high bidders of the previous day to outbid the new high bidder. In February 1977, Cadillac-Fairview had bid $286.2 million. But when Mobil outbid that, Cadillac-Fairview decided the stakes were too high, could no longer keep the required down payment liquid, and announced it was dropping out.

That left only Taubman-Allen-Irvine's SMBH&Z and Mobil. The national media had a field day as each day the giant corporation, Mobil, bid against the consortium of individual multi-millionaires. Most observers believed that the giant Mobil would emerge victorious. On May 18, 1977, Mobil bid $336.6 million. The next day, May 19, the consortium bid $337.4 million — more than one-third higher than Mobil's original offer. At noon the following day, May 20, 1977, Mobil announced that it would not attempt to outbid the consortium. Subsequently, Al Taubman would boast that he had correctly predicted every Mobil bid but one, and that he knew Mobil would drop out at about twenty times The Irvine Company's annual earnings — $17 million in 1975-76 — or $340 million. The consortium was prepared to go higher. The court approved the price, declared Taubman-Allen-Irvine the winner, and the sale of The Irvine Company was completed. Therefore, 112 years after James Irvine acquired the Irvine Ranch, the company became a Michigan corporation.

The Irvine Company appeared to face a financial challenge, one that Barron's magazine wrote was impossible to meet. To run the company profitably enough to service the five-year, $100M loan negotiated by the consortium to purchase the firm. In structuring the $334.7M acquisition, Taubman and Bren had decided to allow Joan Irvine Smith to become an 11% partner, permit other Irvine family members to retain a small percentage, and that each of the two men would interest other financial partners. Taubman attracted Fisher, Ford, Allen, Petrie, and Marguleas for his part of the deal. Taubman was surprised when Bren said he would cover his 34% of the agreement himself. Key to the financing of the acquisition was the $100 million loan, which was assembled by a group of 9 banks. The timing of the acquisition could not have been better, as the nation came out of the 1973-74 recession, and the economy grew warm in 1976 and 1977.

Entitlement for the completion of Newport Center in line with original plans had been completely lost without warning during a single Newport Beach city council meeting one evening when a newly elected “slow-growth” city council majority changed Newport Center’s remaining commercially designated land to residential. The Company at first considered suing the city for downzoning or “taking” the economic use of Company land. But Company executives decided that would be counter-productive in the long run, and instead decided to wait out the slow-growth city council members’ terms of office and try to elect a more “responsible” city council majority at the next election. Fortunately for the Company, the slow-growth city council members were short-tempered and abusive to citizens appearing before the body on other matters. With a subtle campaign quietly backed by the Company, strengthened by a not-so-subtle campaign by The Koll Company — whose Koll Center Newport project near the Airport was adversely affected by the council — several slow-growth council members lost their seats at the next election to “responsible” candidates, and the council majority changed. (Ends in 1982).

In 1983, Bren made a startling move. He offered to buy out Taubman and his partners by launching his own leveraged buyout of The Irvine Company through a company he had quietly formed called New I Corp. Nielsen (president at the time) and the entire Irvine Company were taken by complete surprise. For their 51 percent of the Company, for which they had contributed less than $100 million six years earlier, Bren offered the “Eastern” shareholders $516 million. Determining that they had made a sizeable profit and uncertain about the future resulting from the heated “greedy eastern carpetbagger” campaign and the residential leasehold crisis, the Taubman-led easterners agreed to accept Bren’s offer. Orange County newspaper reporters tried to uncover why these astute businessmen would sell a company which appeared to have an unlimited financial future, but Taubman would only comment “My father always told me you take some and you leave some.” To his hometown “Detroit Free Press” he boasted: “This was a better deal than the Louisiana Purchase.” Howard Marguleas asked Bren if he wanted him to sell his small percentage of the Company, but Bren told him he did not have to sell. Minor shareholders William White II and Ben Lambert also retained a small interest. But Joan Irvine Smith objected to the buyout price as being too low, and objected to Bren’s saddling the Company with a $560 million debt (the $516 million buyout plus interest due to five banks making the loan). This valued the company at just over $1B and her 11% shares at about $100M. She filed suit. With the buyout also came $560M of debt. Bren worked with First Boston Company on financing the buyout, and he worked closely with accountants Kenneth Leventhal & Company on how to make the payments. The lawsuit lasted quite a few years in the 80s and after endless months of discovery, depositions, the trial which was in Michigan (where the company was incorporated) and resulted in the judge awarding her $256M including accumulated interest.

We will continue 1980's to 2010's in the next post.