Taubman Says Irvine Co. Undervalued When Sold

BLOOMFIELD HILLS, Mich. â€”  Detroit shopping center magnate A. Alfred Taubman, former chairman of the Irvine Co., testified Wednesday that he considered the company somewhat undervalued when it was bought by Donald Bren in 1983.

Taubman, a partial owner of the Irvine Co. in 1977-83, said he figured the company might have been “worth a quarter of a billion more� than the $1 billion paid by Bren to acquire majority ownership.

Taubman is one of several former Irvine Co. owners testifying in a lengthy trial in which heiress Joan Irvine Smith is trying to prove that the company was worth at least $3 billion when Bren bought his controlling interest in November, 1983.

Smith and her mother, who owned 11% of the Irvine Co. before Bren’s buyout, have rejected several offers by Bren to buy their stock. Their shares are being held in escrow pending a determination by the court of the company’s value at the time of the buyout.

Taubman, a billionaire whose business involvements include the chairmanship of the prestigious Sotheby’s auction house, also indicated that he was not happy about selling his stake in the Irvine Co. when Bren pressed the issue beginning in late 1982.

Outbid Mobil Corp.

Taubman was a member of the “Eastern� investment group that outbid the Mobil Corp. when it tried to buy the Irvine Co. in 1977. Taubman was joined by automaker Henry Ford II, oilman Max Fisher, several New York investors and, eventually, Smith and Bren.

“We were not friendly suitors at the time,� Taubman said.

The investor consortium acquired the Irvine Co. in 1977 for $337.4 million, or $6,000 a share, said Taubman, who bought 770 shares. When the company was sold to Bren six years later, its owners received $200,000 per share.

Smith contends that the 550 shares she bought for $3.3 million were worth at least three times the $110 million that Bren offered to pay her four years ago.

Taubman said that after talking with people familiar with the Irvine Co. and viewing its extensive Orange County landholdings from a rented helicopter in 1976, he was convinced that the investment had tremendous potential.

Enjoyed His Role

“I wanted to be involved,� he told the court. “It looked like fun. It was a great buy.�

Taubman described himself as a long-term investor who enjoyed his active role in running the Irvine Co. before Bren’s buyout. He described the board as “one of the most active, knowledgeable boards I’ve ever sat on.�

Because the company was a small, private corporation, its owners acted together more like partners than corporate shareholders, he said.

The company prospered under his leadership, Taubman testified. A five-year secured loan that financed the 1977 purchase was paid off in about a year’s time.

Taubman said his annual reports to the board, even during the recession years of the early 1980s, described the company’s future as “bright� and “outstanding.�

When Bren’s intentions to acquire control of the company became clear in February, 1983, Taubman said, he was “not happy about selling. I felt the opportunity was still there. I wasn’t interested in leaving the company.�

‘Alimony Was Good’

But even if the sale could be likened to a divorce, he said, “the alimony was good.�

Taubman said it was his policy as chairman to reject inquiries from potential purchasers. He said he was disturbed to learn that Kenneth Leventhal & Co. was preparing financial information for Bren while simultaneously serving as the company’s accounting firm.

Taubman said he was also “aroused� when he discovered that Bren, a fellow board member, had been quietly meeting with prominent business people and politicians in Irvine during 1982 to discuss a possible buyout.

Bren told Taubman he was dissatisfied with the way the company was being run, Taubman testified. In the fall of 1982, Bren challenged Taubman for the company’s chairmanship.

The following March, after consulting with Max Fisher, Taubman said he decided he would not attempt to thwart the wishes of other members of the ownership group who wanted to sell their shares to Bren; he agreed to participate in the sale.

Jenny King is a free-lance writer in Detroit.