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Backed Purchase of Firm in 1982 by a Local Person : Official Says He Felt Bren Would Aid Irvine Co. Image

October 13, 1987|JENNY KING | Jenny King is a free-lance writer in Detroit

BLOOMFIELD HILLS, Mich. — Irvine Co. Director Howard Marguleas testified Monday that he supported Donald L. Bren's 1982 bid to become chairman of the board because the company's image at the time "left a lot to be desired."

Marguleas told the court that he liked the idea that a local person "more in tune with the community" than the ownership group led by Detroit shopping center magnate A. Alfred Taubman, who preceded Bren as chairman, would play a larger role in company affairs.

Marguleas, a prominent Orange County produce grower, said Bren was far and away the largest stockholder in the company, which is now in litigation to determine if the Irvine Co. was fairly valued at $1 billion when Bren bought out the company's other owners in 1983.

Heiress Joan Irvine Smith and her mother, who refused to sell their stock to Bren, claim that the company was worth about $3 billion at the time of the buyout.

"In fact, I criticized him (Bren)," Marguleas testified. "It was all his money he put up. He did it at his own risk, and we benefited from it. He should have asked us to help him."

Marguleas, who served on the company's compensation committee during the six Taubman years, said the company's profit-and-loss statements from the early 1980s were not an accurate reflection of the company's real estate activity.

For example, he said, a $50-million profit recorded one year reflected unusually high interest income received from money market certificates purchased with proceeds from the sale of land to the state.

"At that time, the interest rate for money market certificates was up to 16% to 17%. We weren't really making money. It was more like a windfall profit," Marguleas told Judge Robert Webster, the retired Oakland County jurist who is serving as referee. The trial is being held in the Detroit suburb of Bloomfield Hills because the Irvine Co. is incorporated in Michigan.

As a member of the compensation committee, Marguleas was involved in negotiations with Peter Kremer, a former Irvine Co. president whose contract was not renewed in 1982. Kremer owned 1% of the company, and the committee was charged with determining how much he should receive for his stock.

Marguleas said the board was told by its accountants, Kenneth Leventhal & Co., that the company was worth between $650 million and $900 million. Kremer's settlement, as suggested by the compensation committee, was based on a $750-million valuation.

Marguleas said fellow committee member Max Fisher, who handled the Kremer settlement at Marguleas' request, arrived at the $750-million figure.

Although he said he usually deferred to Fisher, a Detroit oilman who had invited Marguleas to join the investor group that bought the company from the Irvine Foundation in 1977, Marguleas said he did not heed Fisher's advice to sell his shares to Bren in the winter of 1983.

"Max Fisher was very upset when he learned I wasn't selling. He said it was a very serious mistake . . . that it ($1 billion) was a very high price," Marguleas said.

Marguleas, who retained an ownership position in the reconstituted company, said that when he learned of the "possibility" that Bren would be interested in acquiring a controlling interest in the company in February, 1982, he balked.

"I called Bren immediately, and told him I was confused," he said. "I said I'd like to stay as a partner. Bren said he'd think about it and check on it from a legal standpoint."

Marguleas said he thought the company would continue to prosper. He said he was interested in improving the attitude of the community toward the Irvine Co. despite Fisher's warnings that the risk involved in retaining his ownership position was "too great."

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