Suitors bring relief, and strife, to cash-poor kamaaina company

Ten months after he sent out a fateful letter outlining the dire condition of the Wilcox family's historic legacy, Hugh Klebahn, chairman and chief executive of Grove Farm Co. Inc., shared some seemingly good news with the board committee spearheading the sale of the company.

At a time when some family members were questioning the need to sell out, the chairman told the committee that Grove Farm's condition, while hardly robust, was no longer critical.

In fact, Klebahn told the committee that Grove Farm had enough cash on hand from land sales, or in escrow from pending sales, to make all loan payments to its main lender, First Hawaiian Bank, for the next nine months -- until April. That did not count money that would come in during the interim.

In addition, Klebahn said, Bank of Hawaii had appraised Grove Farm's Kukui Grove shopping center to be worth $20 million -- more than Grove Farm's official valuation consultant previously had said the whole company was worth.

In brief, the company had at least a little breathing room.

Nearly six years later, the July 11 meeting has surfaced as a focus of dispute in a state and federal legal battle that has divided the Wilcox family. Among other claims, former shareholders allege that their cousins who were running Grove Farm painted the company's financial condition as far worse than Klebahn described in July 2000.

Richard Wilson, a Honolulu lawyer representing former shareholder Mike Sheehan, said the information shared during the July 11 meeting was "huge."

"Had the board been candid, would the Wilcoxes have sold the company, sold the family dirt, and gone through all the angst that went with that?" said Wilson. "I just can't see that happening."

In either case, by July 2000, management seems to have passed the point of no return in its quest to sell.

Buyers arrive

By late July, suitors were converging on Grove Farm. An investor called Fidelity Partners Inc. was offering just less than $125 a share. Another bidder, Honu Group, was proposing about $136 per share. Even Aspen Venture Group LLC, which had performed the official valuation on Grove Farm, was making a bid -- and offering substantially more than its official valuation had said the company was worth, documents show.

Grove Farm's board initially signed a letter of intent to sell to Honu Group for $140 per share, or about $24 million. But like the Blum deal, the Honu bid also fell through.

The board, which had been pushing so desperately to sell out based on the company's feeble finances, was back to square one.

On Sept. 18, the special committee informed shareholders that it would seek other bids. Offers poured in. Moore's diary shows that on Sept. 18, he got calls from two perspective bidders, including Bert Kobayashi, a prominent Honolulu lawyer who was representing a firm called Wattson-Breevast. Over the next couple of weeks, documents show, inquiries also came in from Bob Szolomayer, an executive with Del Mar Pacific Group LLC of San Diego, and Honolulu developers Stanford Carr and Howard Hamamoto.

Kobayashi, Carr and Hamamoto did not return calls. Szolomayer, who is no longer with Del Mar, declined to comment.

Of all the bidders angling for Grove Farm, the one that appears to have attracted the most attention was Steve Case, the media mogul whose family had ties with the company going back two generations. Steve's grandfather, Heb Case, had spent decades working for the company, and the law firm managed by Steve's father, then called Case Bigelow & Lombardi, had long been Grove Farm's corporate counsel.

(Steve Case's father, Dan, is a director of Oahu Publications Inc., publisher of the Star-Bulletin.)

On Sept. 19, the day after the Honu deal fell through, Klebahn received a call from Dan Case, who, according to board minutes, said his son would make an offer if invited to do so. For a board that had seen two deals fall through, Case could hardly have appeared a better suitor. Not only was Steve Case a known quantity with plenty of money, but Dan Case also had suggested that Steve would simply step into the deal Honu had negotiated and fast-track the whole process.

Although there were other bidders, Gary Grimmer, Dan Case's attorney, said that none of the others had showed Case's focus.

"Nobody had suggested that they would just step into the Honu draft agreement and make a definitive agreement within a really short time," he said.

Three days later, the board invited Case to bid.

At the same meeting, the board also waived the conflict of interest posed by Dan Case representing his son while Dan Case's firm represented the company in the transaction.

The board spent little time discussing the waiver. The whole meeting lasted only 30 minutes, minutes show.

In the race for Grove Farm, Steve Case took the pole position. Although a "meet-or-beat" provision in his ultimate offer would allow Case to match higher offers once they were made, e-mails sent among Case's camp show Case received guidance on how much he should bid from Grove Farm management even before Case had made his official offer.

Plaintiffs claim this showed that the board favored Case. Defense lawyers, however, have said passing on information about other buyers was simply a negotiating technique to obtain a higher offer from Case, and a state appeals court has rejected the argument that the e-mails represent proof that Steve Case received any insider information.

Regardless, some former suitors say they feel they were not given a fair chance.

"It wasn't a process where they were seeking to get fair offers that would result in the best price," said Joe Sherman, the president of Fidelity Partners Inc. of San Francisco, who was trying to acquire the property on behalf of a timber farmer with the help of Steve Sofos, a Honolulu real estate adviser. Sofos did not return calls.

Dissidents steadfast

Meanwhile, the activist cousins continued to probe. Klebahn's diary shows that both Patsy Sheehan and Guy Combs wanted shareholders to be able to keep land instead of getting cash for their shares. According to Klebahn's notes, Sheehan didn't want it for herself, but "if the young people wanted (land)," he paraphrased her as saying, "they should be given the opportunity."

Wattson-Breevast also continued its pursuit. How serious the company was, however, is a matter of considerable dispute.

Tony Wattson, the company's president, estimates his company spent $300,000 to $400,000 on due diligence. Company executives went to Kauai several times to inspect the property, Wattson said. Joining on one trip was Wattson-Breevast's main investor, Henry Samueli, the billionaire co-founder of Broadcom Corp.

"We were anxious," Wattson said. "We were ready to buy."

Klebahn's notes confirm that he met with Wattson at least once, at the Plaza Club in Honolulu, in late September.

On Nov. 1, Combs wrote Klebahn urging him to consider Wattson-Breevast's offer, which Combs understood to be $170 per share -- considerably higher than Case's. In light of the big year-end payment due to First Hawaiian Bank, Combs also asked Klebahn to contact First Hawaiian and notify it that consummation of a sale might be delayed another 60 days.

Klebahn wrote back stressing the need to honor the terms of Case's deal. Klebahn also said it was not necessary to talk to First Hawaiian Bank at the time because "the December 31, 2000 payment is anticipated to be covered by property sale proceeds."

On Nov. 29, with a shareholder vote on the Case deal looming on Dec. 1, Sheehan wrote a final letter to Klebahn.

"It has been very confusing at best, given the fact that we have yet to have a clear professional appraisal of the company and or the assets of the company," she wrote. "Personally, I have asked myself on several occasions why the value of our shares has gone from under $100 to now as high as $175."

Sheehan exhorted Klebahn to let other bidders conduct due diligence, even if that meant delaying the sale.

"Right now you are not providing me with enough information in order to decide whether the $152 figure is a fair figure or too low," she said.

Klebahn responded by reiterating the need to sell quickly.

He said that flirting with other buyers could kill the Case deal, and he again raised the specter of the $3.5 million payment to First Hawaiian Bank.

Klebahn never explained to Sheehan what he had told Combs just weeks before -- that the company anticipated making the First Hawaiian payment with money raised from selling land. Instead, he repeated the doomsday scenario.

If the Case deal cratered and the second buyer also walked, Klebahn wrote, "That would probably lead to a bankruptcy filing for the Company."

Corey Park, a lawyer for the former board of directors, said that some of the money Grove farm hoped to use to pay First Hawaiian Bank was still in escrow pending the closing of deals that were not expected to close until December. Even if those deals had closed, he said, the company had many other obligations.

Paying its obligations to First Hawaiian alone, Park said, "didn't solve the fundamental financial problem the company was facing."

And that was a lack of cash.

For its part, Wattson-Breevast was begging Grove Farm management to delay the shareholder vote for 10 days so Wattson-Breevast could complete its due diligence and make a higher offer. A Nov. 29 e-mail message from John Miles, a lawyer for Wattson-Breevast with the firm of McDermott Will & Emery, expressed frustration.

Miles said that Wattson-Breevast had agreed to place a $4.5 million deposit in escrow at Bank of Hawaii or First Hawaiian Bank. And he said, "The shareholders' meeting can be postponed until December 11, 2000 without jeopardizing the (Case) transaction!"

"Our offer is significantly higher than the existing offer and backed by substantial financial resources," Miles wrote. "Delaying the shareholders' meeting for ten (10) days to permit us to finalize an agreement in order to realize millions of dollars more for your shareholders should be an easy decision ... . Presumably your client's board is well counseled on its fiduciary duties to maximize shareholder value."

Connections missed

Two days after Miles' entreaty, Grove Farm's board met.

The meeting's minutes show that the board simply had no confidence in Wattson-Breevast. According to an account laid out in the minutes of the board's Nov. 30-Dec. 1 meeting, Wattson-Breevast had initially said it could work within the deadline imposed by Grove Farm, but then had simply failed to show up for a key meeting on Nov. 13-14. Furthermore, minutes state, Wattson-Breevast never contacted First Hawaiian Bank regarding a deferral of the year-end payment.

Carswell, one of the former directors, summed up his views of Wattson-Breevast simply: "I don't think that this outfit had any integrity. I think that they did not show anything other than a flippant desire to deal with Grove Farm."

The board voted not to give Wattson-Breevast more time.

On Dec. 1, the shareholders voted almost unanimously to sell to Case for $152 per share, or about $26 million. Case also assumed more than $60 million in debt, which brought the value of the deal to closer to $90 million.

Altogether, those favoring the deal represented 169,238 out of 171,122 shares, or roughly 99 percent of the shares. These included the family members who had raised the most questions early on: Patsy Sheehan, Guy Combs and Barbara Fisher.

Only three shareholders, owners of just 53 shares, voted against the deal.

One cousin said the shareholders voted to sell because they thought the company was on the verge of disaster. Another attributed it to family loyalty.

Regardless, some of the old family bonds have splintered.

In his Dec. 28 e-mail, David Carswell, the son of board member Curly Carswell, wrote that he was saddened that some family members had opted to stay away from family holiday gatherings because of the rifts.

"What," he asked, "are we going to tell our children and our children's children about the division of this once-proud family that no longer speaks to each other and is tainted by bitterness?"