One of the noisier board fights Orange County has seen in years comes to a head this week some 2,500 miles away in Washington, D.C., at the annual meeting for Santa Ana-based Grubb & Ellis Co.
At stake is the board makeup and strategic direction of a real estate brokerage and investment company that’s suffered losses and seen its stock drop nearly 80% this year.
The board battle has its roots in 2007’s acquisition of Chicago-based brokerage Grubb & Ellis by Santa Ana real estate investor NNN Realty Advisors Inc.
The deal, a reverse merger for privately held NNN, was valued at about $700 million at the time. Now the company, which kept the better known Grubb name, has a market value of about $80 million.
The shareholder meeting stands to be a referendum on whether the company’s decline is due more to the widespread real estate downturn or because of poor management decisions.
Three seats on Grubb’s eight-person board are up for grabs Wednesday.
The company’s former chairman, Tony Thompson, has accused Grubb’s directors and executives of mismanaging the company since his departure early this year.
He’s looking to rejoin the board and bring along two hand-picked candidates, Stuart Tanz and Harold Ellis.
Tanz is the former chairman and chief executive of San Diego’s Pan Pacific Retail Properties Inc., now part of New Hyde Park, N.Y.-based Kimco Realty Corp. Ellis cofounded Grubb in 1958 and served as chairman and chief executive until 1992.
Grubb’s management opposes Thompson’s slate and has accused him of running a decidedly self-serving campaign.
Thompson is Grubb’s second largest shareholder with a 14% stake.
Voting for Thompson’s slate could force Grubb to install who it calls an unqualified Tanz as chief executive. Management also contends a Thompson win could pressure Grubb to acquire his latest venture, Irvine-based real estate investor Thompson National Properties.
Both sides have dismissed the other’s claims in a series of pointed letters to shareholders. Both express confidence that they’ll emerge victorious.
Thompson told the Business Journal last month he wouldn’t have initiated a costly showdown if he didn’t feel that he’d end up winning shareholder approval.
Grubb officials last week pointed to a group of independent proxy voting and corporate governance advisory firms that have recommended its preferred trio of existing directors up for re-election.
“These recommendations reaffirm our strong belief that we have the right board and management team in place and that we are executing a sound strategic plan and taking aggressive actions to increase productivity, reduce costs and position the company for profitable and sustainable growth and success,” Grubb said in a letter to shareholders.
Shareholder Makeup
The company’s largest institutional investor is Boston-based Wellington Management Co., which had a 7.5% stake at the end of September, according to regulatory filings.
Other major institutional investors include Barclays PLC, Goldman Sachs Group Inc. and Vanguard Group Inc. None of the institutional investors could be reached for comment for this story.
Grubb’s largest shareholder is C. Michael Kojaian, a real estate developer who was the company’s chairman before the combination with NNN.
A Detroit native, Kojaian once owned 70% of Grubb and now holds 23% of the combined company. He may side with management and play kingmaker in the board battle.
Kojaian is a Grubb director who isn’t up for re-election.
OC has seen a handful of proxy battles in the past few years. Grubb & Ellis is the first real estate-related fight of its kind in recent memory.
The county’s most notable boardroom battle in recent years came in 2002, when dissident institutional investors ousted Milan Panic, the founder and former chief executive of what’s now Aliso Viejo-based Valeant Pharmaceuticals International.
More recently, the county’s seen shareholder rebellions that have fallen short of full-fledged proxy battles. In November, New York-based hedge fund Elliott Associates LP pulled out of a hostile bid to buy Irvine’s Epicor Software Corp.
Elliott’s withdrawal ended a two-month standoff between the company and Epicor’s board, which made four separate recommendations to shareholders not to take the buyout offer.
Grubb’s stock falloff makes its board battle small in comparison to others. But animosity on both sides has made up for it.
Executive Styles
The battle pits executives with different styles against each other.
Thompson is a swashbuckling entrepreneur who made a fortune pooling together investors to acquire office buildings and other real estate. He likes to party in Las Vegas, such as when he celebrated his 60th birthday last year at Caesar’s Palace with 400 family, friends, associates and big-name entertainment.
He’s a contrast to Gary Hunt, Grubb’s impeccably groomed and politically connected interim chief executive. A polished development veteran and government affairs consultant, Hunt was political chief for Donald Bren’s Irvine Company in the 1990s. He now is managing partner of consultant California Strategies LLC and stepped in at Grubb in July.
Neither side is pulling punches in their pitches to shareholders.
Even the location of the vote,at Washington’s posh Four Seasons Hotel,has caused rancor. Thompson recommended the meeting take place in OC, to save time and travel expenses for Grubb officials. The company rebuffed his suggestions, according to Thompson.
The former chairman turned dissident investor is the one wasting company time and money on the proxy battle, Grubb contends in letters to shareholders.
Besides starting a rival in Thompson National Properties, he’s been a big seller of Grubb shares since his departure, according to Grubb. Two properties he controls are in default on loans from the company, Grubb claims.
Thompson in turn accuses Grubb of waiting too long to find a full-time chief executive following the July departure of former boss Scott Peters. He also cites heavy management and broker turnover, not to mention poor financial results.
“In our view, Rome is burning and this is hardly the time for the board to fiddle,” Thompson said in a Nov. 21 letter to shareholders.
Grubb isn’t alone in its slump.
Los Angeles-based CB Richard Ellis Group Inc. and Chicago’s Jones Lang LaSalle Inc. both have seen stock declines that mirror Grubb’s.
In November, CB Richard Ellis dropped plans to raise up to $400 million in a private offering,in part to pay some of the nearly $2 billion in debt it took on to finance the 2006 buy of Trammell Crow Co.,and instead opted to sell more shares to the public.
