Free Threshold Resistance by A. Alfred Taubman

her. You could sense her determination and love for the ranch. It was also clear that she was one tough woman. I later learned that she had divorced her first husband after discovering that he was having an affair. The story goes that when Joan learned of her unfaithful husband’s rendezvous with his girlfriend at Joan’s horse ranch in Virginia, she had the place surrounded by security personnel and demanded he leave or face the consequences.
    But before I could endorse a bid higher than Mobil’s $24-per-share offer, I needed to make the proper appraisal and evaluation. That could take weeks, even on a fast track. Smith assured me that the company’s records would be open for our review, and promised that management would be available to answer our questions. We put together a team of Taubman Company personnel headed by Bob Schout, our head of market research, assembled our outside consultants, and went to work.
    When we completed our initial appraisal in late September, it was clear to us that Mobil was trying to buy the company on the cheap. Now, it may have seemed the height of folly for a guy from Detroit to start a bidding war against a huge multinational oil company. But I sensed that our team had an advantage. By nature and temperament, we could look at this asset—and its potential—in a fundamentally different light. Where we saw it as a real estate deal, Mobil, an industrial company, was going to operate the ranch as an industrial business. I also was sure they were assessing the value of the company using their conventional corporate earnings-per-share basis. After all, they had acquired other companies based on this type of analysis.
    Here’s how Mobil probably saw it. The Irvine Company hadearned approximately $10.9 million after taxes in fiscal 1974–75; it was not out of line to offer nineteen to twenty times earnings, or about $218 million for the 8.4 million shares outstanding. Their offer on the table when we got interested was $24 per share, or $192 million. The Irvine Company’s earnings had been growing at about 10–12 percent annually, which gave Mobil confidence that the deal would contribute to their own financial results. Clearly, they had room to go higher.
    But how high were we willing to go? We looked beyond earnings per share and appraised the value of the opportunity on the basis of land value and real estate development upside, which led to a significantly higher present-day valuation: at least $400 million. If we played our cards right, we could outbid Mobil and still get the ranch at a huge discount to its value. We opened our bidding at $27 per share, $3 more than Mobil’s offer. The courts recognized our offer and opened the bidding.
    This deal got started because of prior relationships, and it moved forward because of them, too. Wells Fargo had been our lead bank on the West Coast for nineteen years, and we had developed an excellent relationship. I thought they would be the perfect catalyst to bring together a consortium of banks to finance what would be one of the largest real estate transactions in history. In October, Wells Fargo committed to be our lead bank. In November, I added my good friend Ben Lambert of Eastdil Realty to the team to assist with the structuring of a preliminary business plan and land absorption projections to present to the banks. I also brought on Kenneth Leventhal to handle accounting matters after Ken and his associate, Stan Ross, came all the way from Los Angeles to my office in Detroit and made an impressive presentation and an impassioned plea for the business. In concluding his pitch, Ken remarked, “Mr. Taubman, if we don’t get the assignment to work with you on the Irvine Ranch, I intend to slit my wrists!” That’s dedication.
    In the meantime, the bidding intensified when the Canadian real estate firm, Cadillac Fairview Corporation, offered $265 million in the form of cash and notes—notes