honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Monday, December 12, 2005

Grove Farm sale challenged

By Jan TenBruggencate
Advertiser Kaua'i Bureau

Grove Farm's headquarters building sits on a portion of the nearly 22,000 acres of land the company owns on Kaua'i.

JAN TENBRUGGENCATE | The Honolulu Advertiser

spacer spacer

PUHI, Kaua'i The Grove Farm story, as laid out in court documents, has all the features of a classic tale of money, land and intrigue.

Grove Farm which owned nearly 22,000 acres of Kaua'i land, including 5 miles of oceanfront property, the island's largest shopping center and a golf course surrounded by developable property was sold to Steve Case in 2000 for $26 million plus the assumption of about $60 million in debt. Some of the sellers most of them descendants of the missionary Wilcox family now believe the price was too low and say they would have objected to the sale to Case if board members had told them more about the company's financial condition and about other more lucrative offers.

The story has several key elements: one of the richest men in America; his father, a respected elder in the state's legal community; a 135-year-old family-owned company on the ropes, cash poor but land rich; and a board of directors' desperate struggle to keep the company alive.

Grove Farm, formed in 1864 by George N. Wilcox the son of missionaries was mainly a sugar company from its start, but by the end of the millennium, it had given up on sugar, converted itself into a development firm and gotten caught by the real-estate slump after Hurricane Iniki. It was still owned by members of the Wilcox family, but it was arguably in trouble, with debts of some $61 million, no access to new capital, mounting annual losses and not much real-estate selling. First Hawaiian Bank and Bank of Hawaii held the mortgages and were pressing for payment, corporate officers said at the time.

The smell of blood in the water attracted a flurry of activity starting in 1999, with suitors coming forward to buy part of its holdings or all of the company. Several entities came forward to make offers, and two of those were interestingly close to the company: Scott Blum, the son-in-law of the chairman of Grove Farm's board, Hugh Klehbahn; and Steve Case, the son of Grove Farm's longtime corporate attorney, Dan Case.

Steve Case, who made hundreds of millions growing AOL into an Internet powerhouse and then merged it into Time Warner, had a net worth variously estimated, depending on stock prices, at $750 million to $1.5 billion.

Through companies he owned, Steve Case ultimately bought Grove Farm for $26 million, assumed the debt and quickly announced the infusion of $14 million to get it on its feet a total commitment of about $100 million.

His dad's law firm, Case Bigelow and Lombardi, represented Steve Case's interests and Grove Farm in the deal with the approval of both and continues to be active in the firm's operations. An additional connection: Dan Case had been raised on Grove Farm, where his father had been the company's chief financial officer.

INSIDER DEAL ALLEGED

To some Wilcox family members, the sale to Steve Case held a kind of comfort. The Case family wasn't a blood relation, but it was part of Grove Farm's extended family. But to others, who have filed legal actions to reverse the sale, it felt like an insider deal that sold the company cheap and deprived them of their heritage.

One early legal challenge by some former shareholders has been dismissed by the courts, and another is still working its way toward an October 2006 trial date. Some of the shareholders in the early suits are also members of two more actions filed within the past month, one in state and one in federal court.

Plaintiffs in the newest actions say they once controlled 36 percent of Grove Farm's stock.

The federal case names Steve Case and his companies. The state case, filed on Kaua'i, names Steve and Dan Case, as well as Steve Case's companies, major partners in Dan Case's law firm, and most members of the Grove Farm board at the time of the company's sale.

Although local attorney John L. McDermott is listed as the attorney filing the suit, it was prepared by Maryland attorney Matthew H. Simmons, who is not a Hawai'i-licensed attorney but is asking the Hawai'i courts' permission to appear on behalf of the plaintiffs. Simmons, when reached by The Advertiser, declined to comment on the case.

In their complaint, McDermott and Simmons argue that the company had more prospects than the board told stockholders about, and was worth far more than the board recommended they accept for it. He alleges that there were offers for joint ventures, leases and sales of land that would have considerably eased the company's financial situation, and there were offers to buy the company for more than Case was offering. Notably, it argues that the board withheld the company's true prospects from its stockholders.

Attorneys and board members "betrayed Grove Farm from within, blinded shareholders to its value and deliberately led them into needlessly selling their company," the complaint says.

SUITS CALLED UNFOUNDED

Honolulu attorney Gary Grimmer, who represents Dan Case, said he has skimmed Simmons' 190-page complaint, and his first reaction is that it contains a lot of "20-20 hindsight." He said he is still studying the detailed allegations and was not ready to make a public statement about them. "We're still formulating a response," he said.

Steve Case and his companies are represented by Honolulu attorney Paul Alston, who said the charges are without merit.

"These two new lawsuits recycle old and unfounded allegations against Steve Case and his companies. The merger between Grove Farm and Steve Case's company was approved by almost 99 percent of the company's shareholders including the plaintiffs in these lawsuits in a process that was thorough and appropriate," Alston said.

Case Bigelow and Lombardi partner Dennis Lombardi's office said he had no comment.

Attorney Corey Y.S. Park, who represents the former Grove Farm board members, said he's read the case and found it "full of inaccuracies, mischaracterizations, innuendo and a totally misleading picture of what occurred during a very difficult time for the company."

At the time of the sale, Grove Farm was being characterized to reporters as a company in deep trouble almost paralyzed by debt, harangued by its lenders, losing money and having no access to cash. Company director Randy Moore in 1999 told a reporter the company was "not currently profitable" and that it had established a special board committee to consider one of what ultimately would be several takeover offers.

INVESTMENTS ON KAUA'I

In retrospect, Steve Case's move appears to have been a wise one. Kaua'i's real-estate market had been moribund for years after 1992's Hurricane Iniki, but in 2000, visitor-industry and real-estate officials were remarking on the first signs that a recovery might be under way. Today, the economy is in full flower, and Grove Farm president Warren Haruki said the firm is active.

"Today, there are visible impacts of his investment on Kaua'i," Haruki said. "The Kukui Grove Shopping Center was significantly upgraded and renovated; infrastructure was put into the surrounding commercial property to attract tenants such as Home Depot and Costco; roads, a new sewer plant and water resources were built in the residential area around (the Puakea Golf Course); affordable-housing projects in Puhi and Hanama'ulu are under way; a new water purification plant is operational; and charitable gifts have been made to Kaua'i charities and nonprofit organizations."

One thing is clear: Grove Farm's prospects today look far brighter than they did in 1999 and 2000. And the unstated question behind the legal actions appears to be: Did that happen because of the sale to Steve Case, or might it have occurred without him?

Reach Jan TenBruggencate at jant@honoluluadvertiser.com.