Descendants of Charles Stewart Mott, the industrialist who created the foundation that bears his name, have been accused of cheating employees at a sugar company out of an opportunity to sell shares in their retirement plan at an attractive price, the employees allege in a class-action lawsuit.
Included in the lawsuit is William S. White, president of the foundation and the husband of Mr. Mott’s granddaughter Claire Mott White. The fund is one of the nation’s largest, with $2.5-billion in assets.
The lawsuit charges that Mott family members effectively control U.S. Sugar Corporation, in Clewiston, Fla., through shares held by the Mott foundation, personal holdings, and by arrangements with a charity, the Mott Children’s Health Center, which was endowed with a gift of U.S. Sugar stock from the Mott foundation.
The employees — including farm workers, equipment operators, and mechanics — allege that Mott family members secretly pushed for the rejection of a buyout offer for the company that would have increased income for U.S. Sugar retirees by as much as 50 percent. The employees argue that the Motts had no incentive to sell a controlling interest because each year the company was buying back shares from retiring employees at an artificially depressed price, and increasing the family’s ownership of the company in the process.
H. Douglas Hinson, a lawyer for Mr. White, says that the nine-member board of U.S. Sugar decided to reject the buyout offer, and that the Mott foundation, which owns about 19 percent of the stock, had nothing to do with the decision. Mr. White is chairman of U.S. Sugar’s board.
“The decision was made by the board as a group,” Mr. Hinson says. “Everyone participated in that decision.”
Mr. Hinson says Mr. White spends most of his time at the Mott foundation, whose grant programs are designed to promote democracy, strengthen communities, and protect the environment.
Mr. White has a “very limited role” at U.S. Sugar and does not even have an office at the company, Mr. Hinson says. “It’s disappointing, it’s frustrating, for someone like Mr. White to be accused of these things,” he said.
Employee Shares
U.S. Sugar employees acquired company stock in their retirement plans when U.S. Sugar created an employee stock-ownership plan, known as an ESOP, in 1983. The employees collectively own 38 percent of the stock, but they have no representation on the company’s board. Employees can cash out of the plan only when they retire or leave the company.
Nearly 80 percent of the employees are hourly workers, many with relatively little retirement savings.
The lawsuit centers on the value of U.S. Sugar and whether the approximately 4,000 current and former employees were being paid a fair price for their stakes in the company. It is clear that U.S. Sugar’s board believed that the company’s shares were worth far more than the prices they were paying to departing employees.
But some experts on ESOP’s caution that such a discrepancy does not necessarily imply any wrongdoing by the board or its members, including Mr. White.
The trustee for the stock-ownership plan — U.S. Trust, a division of Bank of America — relies on an appraisal firm to determine the value of U.S. Sugar, since the company is not publicly traded. The appraisal evaluated the company based on the financial returns of its businesses, rather than its assets, which include 187,000 acres of Florida land.
From 2005 to 2007, U.S. Sugar paid departing employees between $194 and $213 per share.
In 2005, and again in 2007, Gaylon M. Lawrence Sr. and his son offered $293 per share for the company, but the board ultimately rejected both offers. In an interview in January 2008 with the Palm Beach Post, the company’s chief executive officer, Robert Buker, described the offers as “ridiculous” and said it would have been “an absolute crime” to sell the company at that price, given the value of the land it held.
“If $293 per share is ‘ridiculous’ and a ‘crime,’ what does that say of U.S. Sugar’s conduct in paying its employee shareholders $100 less than that amount per share?” the lawsuit states.
Curtis B. Miner, a lawyer for the U.S. Sugar employees, did not return phone calls seeking comment.
Even as Mr. White and other U.S. Sugar board members rejected the $293 offers as inadequate, the Mott foundation in tax filings with the Internal Revenue Service pegged the value of its U.S. Sugar holdings at just $153 to $164 per share — barely more than half the price proposed in the buyout offer.
Mr. Hinson says that U.S. Trust knew about the offer from the Lawrence group. The lawsuit maintains the buyout offer should have been taken into account in determining an appropriate price to pay departing and retiring employees. Richard A. Schneider, a lawyer for U.S. Trust, did not respond to requests for an interview.
The typical U.S. Sugar employee would receive about $800 per month in retirement income through the sale of shares in ESOP, according to the lawsuit. An employee who sold at the price offered by the Lawrences would have received about $1,208 per month.
“That additional amount each month is enough to make the difference between meeting basic needs and not, and to result in a significant difference in quality of life for such employees,” the lawsuit says.
Loren Rodgers, project director at the National Center for Employee Ownership, says that by law an ESOP is not allowed to pay retirees the higher price that a “strategic buyer” would pay unless such an offer is accepted. That language is designed to protect the remaining employees, he says.
“If the people who retired this year got paid a strategic price for their shares, you’re sucking money out of the company and hurting the value of the company for all future retirees,” Mr. Rodgers says.
But Mr. Rodgers adds that the company could have shared valuable information with employees by telling them that it had rejected the $293 buyout offer because it believed the break-up value of the company far exceeded that offer.
“This is not exemplary behavior by an ESOP,” Mr. Rodgers says. “The vast majority of ESOP directors would look at what U.S. Sugar is doing and say, Whoa, we would never do that.”
‘Not Frustrated’
In a statement, the Mott foundation, whose headquarters are in Flint, Mich., said it was confident that U.S. Sugar’s board had “acted responsibly and within its duties.”
The Mott Children’s Health Center, a charity in Flint that provides services to more than 10,000 children per year, is the second largest shareholder in U.S. Sugar (following only the employees) with 22 percent of the stock, and would have seen its endowment, valued at $262-million as of year-end 2006, swell with a sale of the company.
Walter P. Griffin, a lawyer for the charity, says that the medical center has not identified a fair price for U.S. Sugar, since the buyout offer was never presented to shareholders.
But he says the charity has confidence in the leadership of the company’s board.
“We’re not frustrated,” he says. “We’re thankful that the Mott foundation established this corporation and provided us an opportunity to provide care within this community.”
Mr. Griffin also says the charity will not be affected by U.S. Sugar’s decision earlier this year to suspend its dividend, which had been paying about 2 percent per year. “The loss of the dividend is not going to change our ability to provide the services we’ve provided in the past,” Mr. Griffin says.