by Mike Vogel
Updated 2 yearss ago
So it came as a shock when the Lykes stooped to the very public arena of the county courthouse to settle a family squabble. On Dec. 22, 1999, 81 family shareholders forced Lykes Bros. into court to answer this question: Were the leaders of the century-old company trying to chisel their own kin?
The lawsuit -- set for trial in October -- put a punctuation mark on the transition of the Lykes empire from a phalanx of vibrant businesses to little more than a holding company for cattle ranches and citrus groves. There was no shortage of irony: "Stick together whatever you do and take care of your sister," Dr. Howell T. Lykes, the family patriarch, had advised his seven sons around the turn of the century.
Lykes, a doctor-turned-rancher, made his fortune in the 1880s shipping cattle by three-masted schooner to Cuba. In the Lykes Bros. lobby on the 22nd floor of Tampa's Park Tower, photographs and historical documents reflect how Lykes' seven sons built on that legacy. Pooling their interests into a single company, by 1933 they had made Lykes Bros. the largest steamship interest in the Gulf and New Orleans trade, according to a clipping from that year's New York Times.
They also came to dominate Tampa's governance and society. The family men cavorted in Ye Mystic Krewe, a social club -- devoid of women and minorities until the 1990s -- that's the centerpiece of Tampa's annual Gasparilla bash. Each year, club members sail into Tampa in pirate garb and demand its "surrender." On the lobby wall hangs a portrait of Tom Lykes, one of the seven brothers, adorned with a flowing wig as King Gasparilla VII.
Family leaders like the late Parke Wright III, who married into the clan, regularly participated on civic boards and in community causes. "My father's highest calling and simplest wish -- to serve God and be of service to others. That's the goodness of a family like this," says his son, John Parke Wright IV.
Joe Lykes, the last of the seven brothers, died in 1967. Over the next two decades, Chester Ferguson, a Tampa trial lawyer who married into the family, grew the business to encompass Peoples Gas, the state's largest natural gas utility; First National Bank in Tampa, at one time the state's fourth-largest independent bank; and Lykes Pasco, a juice processing company that was the dominant factor in determining Florida citrus prices in the 1970s. Florida Trend in 1988 estimated that the Lykes family operations employed 4,000 and had an estimated combined worth of more than $1 billion.
The Lykes' businesses, however, had peaked. In the 1990s era of industry consolidations, they would be the acquired, not the acquirers. The family sold First Florida Banks, the successor to First National, to Barnett Banks (now Bank of America) in 1992, pocketing $310 million in Barnett stock. Lykes Meat Group was sold in 1996 to Smithfield Foods for an undisclosed sum. In 1997, Lykes Energy, owner of Peoples Gas, was sold to TECO Energy for $300 million.
For the most part, the proceeds were dispersed to individual family members, numbering more than 250. Before the sales, those family members were "asset-rich but not necessarily liquid-rich," says David C.G. Kerr, a Lykes by marriage and a retired attorney with Ferguson's firm, Macfarlane, Ferguson, Allison and Kelly. Through the Barnett and TECO deals, Thompson Rankin, a Ferguson successor, "made them all quite wealthy and no longer simply asset-rich." Indeed, the stock family members received in the TECO and Barnett deals would be worth a combined $1.54 billion at today's prices.
Family gratitude only went so far, however. The sale of the bank, natural gas and meat businesses left Lykes Pasco as the company's only significant operating business. Hard-pressed to compete against Tropicana and Coca-Cola's Minute Maid, the family in 1997 replaced Rankin as CEO with food industry veteran M. Lenny Pippin.
It was a watershed moment. Pippin was the first non-family member to hold the job. An even bigger milestone came in 1999, when Lykes Bros. sold the juice business for a reported $200 million to two investment firms. Howell Ferguson, a Tallahassee lawyer and son of empire-builder Chester Ferguson, took over the much-diminished company. More notably, the sale of such a significant piece of the company activated a provision of Florida law that brought the Lykes into court three days before Christmas.
The juice unit represented upward of 90% of Lykes Bros.' net sales and operating income and 80% of its employees, according to a brief mention in the court case file in Tampa. (No representative of Lykes Bros. or the family members who forced the company into court would talk for this article about most numbers involving the business.) Because the sale represented "substantially all" -- a legal benchmark -- of Lykes Bros.' assets, it triggered a provision of Florida law that allows dissenters to cash out.
Eighty-one interests -- family members or trustees for family members -- holding a quarter of the company's shares elected to do so. Among them was Rankin, Lykes Bros. CEO from 1989 to 1997. "Their reasons for dissenting are probably as many as there are dissenters," says Kerr, the retired lawyer and a dissenter.
For his part, Kerr, 71, was ready to retire from practicing law and wanted the cash rather than Lykes Bros. stock. Two of his stepsons dissented along with him; two others did not. His wife dissented with some shares but kept others. Similar circumstances, he says, are "repeated throughout the 81."
There is unanimity, though, in this: The dissenters feel the company low-balled them. Each year, for estate planning and tax purposes, and for any family members who wanted to sell, the company had investment bank Credit Suisse First Boston value the shares. The company offered Kerr and the other dissenters "less than half" of what the stock had been valued at just months before, Kerr says. The dissenters demanded Lykes Bros. have a judge decide the share value. "None of the dissenters, I believe, is happy with resolving the issue in this manner," Kerr says. But "it is not a feud. It is not a big dissension among family members. It is a valuation issue."
Feud or valuation issue, the lawsuit has produced some dust-ups. For a company protective of its own privacy, Lykes Bros. wasn't shy in demanding a look at the long-distance records of dissenters and at their private investment information. According to the dissenters, the company also refused to let Rankin, its former CEO, see some documents, saying he wasn't a shareholder anymore. Lykes Bros. denies the charge.
Lykes Bros., in the lawsuit, says the dissenters have "an erroneous view of the (company's) operations" and says it based its offer to the dissenters on the work of independent board members who hired an investment firm to value the shares. The company adds that the dissenters demanded more than 21¼2 times the last Credit Suisse valuation.
Neither side will say publicly what the company offered the dissenters. An oblique reference in the court file refers to an offer of $4,178 per share and a second offer, after the suit was filed, of $5,579 per share. Based on the total number of Lykes Bros. shares, those offers would value the once-vaunted Lykes Bros. empire at between $72.7 million and $97.1 million.
A look at Lykes Bros. assets helps explain why the dissenters feel they are being short-changed.
In 1999, Lykes Bros. settled a long-running dispute with the state over control of Fisheating Creek, a Lake Okeechobee waterway treasured by environmentalists and sportsmen. The state paid Lykes Bros. $46.4 million for land on the creek and near it. The state wants to preserve another 91,305 acres of Lykes land near the creek. Assuming Lykes Bros. gets the same price per acre as in the earlier deal, the company will see an $82.4 million windfall from Fisheating Creek alone in the next four to six years as the transactions with the state are finalized. What's more, "they insist they're going to get a much better deal out of us the next time around," says Eva Armstrong, director of the division of state lands.
Then there are the remaining real estate assets: Approximately 300,000 acres of cattle ranch land in Glades and Highlands counties around Lake Okeechobee and another 275,000 acres in Texas that it leases to other ranchers there. Lykes Bros. also has 32,750 acres of citrus groves in Florida, ranking it as the state's second-largest grower. Florida Trend estimates the Florida cattle ranch, the citrus groves, the Texas ranch land and its fertilizer business have combined annual revenues of $90.2 million -- hardly General Electric but clearly enough when combined with the potential Fisheating Creek gains, to explain why the dissenters feel they deserve more for their shares.
Lykes Bros. says the estimate is wrong, and it won't speculate on how a higher payout will affect it. But valuation expert Don Wiggins, president of Business Valuation Inc. in Jacksonville, says that usually a company can liquidate some assets or, if it doesn't have much debt, borrow against other assets to come up with the money to pay dissenters.
Regardless of the lawsuit's outcome, the infighting and the company's smaller size raise questions about Lykes Bros.' future at the end of its first century. The company's citrus and cattle operations aren't an engine for rapid growth. CEO Ferguson says the family company will plant new seeds like its ancestors of yore did. But he's vague. New economy or old economy? "I'm just looking at the good economy," he says. Will the family be active managers as in the past or take passive stakes? That hasn't been gone into with "specificity," Ferguson says.
Seven out of 10 family businesses go out of the founding family with each generation, says Joe Astrachan, of the Cox Family Enterprise Center at Kennesaw State University in Georgia. Stock disputes and contracting holdings can signify a family with trouble handling conflict or perhaps one that emphasized harmony over business direction. Once a fight comes to a boil, however, there's little hope of a fruitful reconciliation reuniting the parties behind the business.
Ferguson, however, sees Lykes Bros. as a force in business -- always. "Most businesses don't make it at all -- let alone a couple generations," Ferguson says. "We have been fortunate we've been able to continue the business as a family business. It remains a goal."
What's a Company Worth?
The Lykes Bros. fight is called a dissenters rights case: The 81 dissenting shareholders who want to cash out have a radically different idea than the company of what the company is worth. Valuation expert Don Wiggins, president of Business Valuation Inc. in Jacksonville, says different methods of valuing companies yield different results. On even relatively uncomplicated assets such as land, for example, appraisals can differ based on assumptions about whether the land will be sold in bulk or individual parcels.
Wiggins says dissenters frequently go to court when they get a low offer from the majority. But as the time for a trial draws near, most settle rather than risk an unfavorable court decision. In one recent case Wiggins worked on, the dissenters ended up with three times what they initially were offered.
It can be real money. Lykes Bros. dissenter Thompson Rankin's trust holds 607 shares. At the company's first two offers, they would be worth $2.5 million to $3.4 million. At three times the offers, the shares would be worth $7.5 million to $10.2 million. "I've seen a lot of these family fights. They are really the bloodiest. Whenever money comes in the picture," Wiggins says, "a lot goes out the window."
Lykes Bros. Holdings
300,000 acres in Glades and Highlands counties, home to the nation's fourth-largest cow/calf herd. Florida Trend, using USDA averages, estimates the ranch's 22,000-head herd is worth $19.5 million and brings in $5.5 million a year in revenues. The family company has owned the land for decades, having purchased some of it for only $1 an acre. The Lykes Bros. land in the two counties as recently as 1999 had $123 million in debt on it. The debt as of January 2000 was down to $29 million.
273,500 acres in Presidio and Brewster counties in the Big Bend area of Texas, and another 1,650 acres of farmland in San Patricio and Bee counties, Texas. Lykes Bros. leases the land to others. Florida Trend, using Texas averages, estimates Lykes Bros. is paid $1.97 million per year for the land.
Lykes Bros. in 1999 sold 9,885 acres on Fisheating Creek in Glades County to the state and gave a conservation easement for another 41,523 acres around the creek, the only undammed waterway to Lake Okeechobee. Lykes Bros. retains the right to ranch on the 41,523 acres. The family also can hunt there and restrict public access to designated sites for people trying to reach the creek itself. The state paid $46.4 million for the land and easement and wants to buy an easement on another 91,305 acres of Lykes land in the area. The company, depending on the price per acre, stands to receive between $82.4 million and $109.6 million.
32,750 acres in Glades and Highlands counties. Using standard yield figures and citrus prices, the acreage could bring in $47.7 million per year in revenues.
Lykes Bros. has six vacant lots in the private development on Ballast Point in Hillsborough County. Family patriarch Dr. Howell Lykes moved there in 1895. A family compound near the Tampa Yacht & Country Club, Lykes Lane's residences, ranging from a half-million to more than a million in appraised value, are home to just a few Lykes families. (Publix Super Markets Chairman Howard Jenkins also owns a home there.) Lykes Bros. also has two residential lots, totaling three acres, on nearby Interbay Boulevard.
The 20-employee Lykes Insurance in Tampa in February bought an eight-employee Winter Park agency as part of a plan to expand in central and south Florida.
An estimated $35-million fertilizer blending and distributing business.
A $3.4-million claim against Cuba for two ranches totaling 16,797 acres and 4,882 head of cattle seized in the revolution. Interest on the claim has been accruing at 6% per year since 1959 and 1960.
Coastal Petroleum Co.
The Apalachicola company whose business consists of trying to collect compensation from Florida for its refusal to allow it to drill in an area leased for oil and gas production on the Gulf Coast and Lake Okeechobee. Lykes Bros. began investing in Coastal in 1992, but its relationship dates to the 1940s, when Lykes family members bought royalty rights to some of Coastal's leases. (See "Oil Pressure," page 50.) Lykes can convert its stake into 15.2% of Coastal parent Coastal Caribbean Oils & Minerals Ltd. The shares at today's prices are worth $8.3 million.
Brooksville Homestead, 60 acres in Hernando County.
A six-acre residential lot, 5602 Bayshore Blvd., in Hillsborough County.
Wells Road, 354 acres in Pasco County.
Lake County lands: 12 acres of housing lots in Lake Illinois, 172-acre airport tract, five acres of commercial lots, a 60-acre "U.S. Post Office tract" and the 67-acre Orange Blossom property.
Church Road property, 134 acres in Hernando County.
Clay Hill property, 205 acres in Pasco County.
Truck terminal property, 8.9 acres in Thomas County, Ga.
The family also has sites in Dade City, Fort Pierce and Lake Placid. It has not been aggressive in developing the bulk of its land holdings for commercial or residential use.
Source: Court files, published reports