What Really Motivated U.S. Sugar to Sell?
Bob Buker and Gov. Crist sign the deal. [Photo: Michael McElroy]
To hear U.S. Sugar President Bob Buker tell it, it’s a great time to be in the sugar business in Florida. Sugar prices are at historic highs. His company has the largest, most modern, most automated mill in the industry. The latest federal farm bill is the best for the industry in his 22 years in business. “It mandates a raise in prices,” Buker emphasizes. Meanwhile, soaring corn prices have driven up the cost of sugar’s major competitor, high fructose corn syrup.
The outlook is so sweet, in fact, that U.S. Sugar is going out of business, selling itself to the state of Florida for $1.75 billion. Indeed, the “pillar of the agriculture community in Florida,” as Buker described U.S. Sugar at the announcement of the deal in June, is selling every field and citrus grove, the newest citrus processing plant in Florida, its headquarters, a state-of-the-art citrus nursery near Gainesville, residential real estate developments, that efficient sugar mill, its railroad and rock mines — nearly 300 square miles and every asset, right down to, in Buker’s phrase, “the half-eaten pastrami sandwich in the refrigerator.”
|Take a look at U.S. Sugar's successful history.
So why? Buker’s answer at the announcement of the sale was that Gov. Charlie Crist, who thought up the idea, is persuasive and has “the right team.” It’s not the industry atmospherics, he says. “The economics would say otherwise. We would be in sugar stronger.”
For its shareholders, U.S. Sugar has commissioned a “fairness opinion” of the deal from an investment banker; when it leaks out, the pros and cons that drove the board’s extraordinary decision to put itself out of business will become clear. But a few surmises are in order, most involving a different set of economics — those of the descendants of company founder Charles Stewart Mott and his namesake foundation.
“One hypothesis I have is the heirs of Charles Mott want the money. That’s not the first time that’s happened in Florida agriculture,” says University of Florida economist Tom Spreen.
U.S. Sugar employees and former employees, through an employee stock ownership plan, hold the largest single block of the private company’s shares at more than 30%. But the power to run the company rests in the Mott White family, which has 4% of the company, and the Mott Foundation, which controls 19% of the shares. The other major shareholder of U.S. Sugar is the Mott Children’s Health Center charity in Flint, Mich., which owns 22 % of U.S. Sugar’s 1.9 million shares. For at least 20 years, the U.S. Sugar board has been chaired by William S. White, who married Mott’s granddaughter, Claire Mott White, and also is chairman and CEO of the Flint, Mich., foundation.
U.S. Sugar is selling every sugar field and processing plant it owns. [Photo: Michael McElroy]
In 2005, the company entertained an offer to sell out to a Missouri concern for $293 per share but rejected it as too low, according to a federal lawsuit suit filed by employees unhappy about what the company paid retiring employees for their shares.
Then, in April, because of the effects on crops from hurricanes and drought, the company suspended its dividend, leaving the Motts, the foundation and the health center with illiquid shares that once paid a small dividend but now pay none. White and the foundation declined comment through a foundation spokeswoman.
Some time after rejecting the Missouri concern in 2006, Buker publicly pegged U.S. Sugar’s value at $2.5 billion, according to the suit. The deal to sell to Florida reaches that target — $1.75 billion at closing, plus the profits from six more years of farming. With price supports, domestic growers have a virtual “license to print money,” Spreen says. Indeed, the domestic sugar price approaches double the global price. U.S. Sugar could clear $150 million a year for those six years, for another $900 million, Spreen says. U.S. Sugar declined to discuss its financials.
When U.S. Sugar pays off its debts, shareholders will see an estimated $350 per share from the state’s $1.75 billion, Buker says. The distributed profits from the six remaining years of farming could bring another $473 per share, Florida Trend estimates.
At the announcement, Buker dismissed various ideas advanced by reporters for the sale. The dwindling of the farmable muck soil? No, it will last indefinitely, Buker says. The real estate downturn hampering U.S. Sugar residential development projects? The cycle will turn. NAFTA and foreign competition? Not an issue. Frustrating regulation? “Just the cost of doing business,” Buker says.
“It’s dollars and cents and the right thing to do,” Buker told reporters. Even with falling real estate prices, the $9,400 per acre the $1.75 billion works out to is “a very good price on land.”