Detailed Look at Florida's Purchase of 187,000 Acres of U.S. Sugar Land
U.S. Sugar's sweet deal provides a detailed look at Florida's Purchase of the 187,000 Acres of Land Owned by U.S. Sugar Corp., including a review of the outstanding U.S. Sugar ESOP litigation:
The company is privately owned, so valuing it is tough, as there is not a public market in the company's shares. The company is controlled by the Charles Stewart Mott Foundation and its benefactors, including the longtime chairman of the company, William S. White, who is married to Mott's granddaughter. Even though the Foundation owns just 19 percent of the shares, it controls the complicated process of picking the board of directors and therefore keeps control within the Mott family. Employees own 38 percent of U.S. Sugar, through an Employee Stock Ownership Plan (ESOP) started in the 1980s.
One indication of a value for the company, then, is what it has paid employees who retire and cash out their ESOP shares. And that value is at the heart of a federal lawsuit now being contested in West Palm Beach.
Some former employees maintain they were low-balled by the company when they were paid $180-$204 a share over the past five or six years. Especially since, unknown to them at the time, a suitor was offering U.S. Sugar's board much more. Nashville banker, agriculturalist and investor Gaylon Lawrence twice in the past three years offered to pay $293 a share for the sugar company. And he thought he had a deal; in August 2005, according to the federal lawsuit, Lawrence reached an agreement with U.S. Sugar's then-CEO, Robert Dolson, for the $293-a-share purchase -- which the lawsuit calls "an extraordinarily valuable offer" that was 50 percent higher than what employees were being paid for their shares and 91 percent higher than the shares' fair market value that some charity shareholders declared in IRS filings.
U.S. Sugar's board apparently didn't appreciate the offer, according to the lawsuit. Suddenly, Lawrence found Dolson out of the picture, suddenly retired with an unexpected $10 million payment from the board. White took over negotiations and in 2006, the board voted to reject the offer, which Lawrence repeated in 2007 with the same result.
The employees' lawsuit portrays the company as buying up their shares at rock-bottom prices and then retiring those shares, increasing the size of company insiders' holdings without having to buy a single share personally. As mechanization replaced the need for employees and those workers' shares were retired, the Mott family's holdings became more and more valuable. Just in time for the state's offer of $350 a share.
The article also contains comments from Corey Rosen, executive director of the National Center for Employee Ownership (NCEO). He notes that since the ESOP owns a minority interest, the value is going to be less than that of a controlling interest. He also discusses the outstanding litigation and whether the state is overpaying for U.S. Sugar:
Rosen said the lawsuit over the value of the ESOP shares is pretty typical for ESOP litigation and that it will be very hard to win for the employees. He also said it is very difficult to tell if, based on the company's own valuation of shares for employees, whether the state is overpaying for U.S. Sugar.
"It's a complicated, detailed process to wade through all the financials," he said. "It's hard to say on its face did the state pay too much, even though there had been other lower offers for the company."