Amfac/JMB Hawaii L.L.C.
Amfac/JMB Hawaii L.L.C.
Wholly Owned Subsidiary of Northbrook Corporation
Incorporated: 1918 as American Factors, Ltd.
Sales: $86.4 million (1997)
SICs: 0133 Sugarcane & Sugar Beet Production; 2061 Cane Sugar, Except Refining; 4941 Water Supply; 4971 Irrigation Systems; 6519 Lessors of Real Property, Not Elsewhere Classified; 6552 Land Subdividers & Developers, Except Cemeteries; 6799 Investors, Not Elsewhere Classified; 7992 Public Golf Courses
Chicago-based but exclusively Hawaiian in activity, Amfac/ 1MB Hawaii L.L.C. is a subsidiary ofNorthbrook Corporation, which is itself a subsidiary of Chicago-based real estate giant JMB Realty Corporation. Amfac/JMB is the main successor company to Amfac Inc., which was bought by JMB Realty in 1988. Amfac/JMB’s principal activities are land development and sales, golf course management, and agriculture. The company owns about 43,000 acres of land on the Hawaiian islands of Oahu, Maui, Kauai, and Hawaii. Among its real estate ventures are several commercial, residential, and resort developments. The company manages three 18-hole golf courses. In agriculture, Amfac/JMB is involved in the cultivation, processing, and sale of sugar cane and coffee. The company also controls—primarily for the purpose of irrigating sugar cane—the rights to more than 100 million gallons of water per day.
In 1849 a German ship captain named Heinrich Hackfeld docked his 156-ton boat Wilhelmine in Hawaii after a 238-day journey from Bremen, Germany. After deciding to become a permanent resident, Hackfeld opened a general store which became very popular with the imported laborers who worked on the islands’ isolated plantations. Hackfeld’s small venture quickly expanded into other lines of business, including boardinghouses and real estate. Hackfeld later opened a trading house, exporting Hawaii’s primary agricultural product, sugar, and importing building materials. Hackfeld’s company became one of the largest in Hawaii, operating retail stores and hotels, trading a wider variety of products, and purchasing thousands of acres of property. Several years later Hackfeld died and ownership of the company passed to his family.
In July 1918, soon after the United States became involved in World War I, the American Alien Property Custodian confiscated H. Hackfeld & Company on the grounds that it was owned by “enemy aliens.” All of the company’s assets were taken over by a group of competitors, including Castle & Cooke, Alexander & Baldwin, and C. Brewer. The company was incorporated and its name was changed to American Factors (a factor is a commissioned agent), and its chain of B.F. Ehlers retailing outlets was renamed “Liberty House.” Under the new management American Factors became more involved in sugar production. Demand for sugar remained high during the Great Depression and World War II, which kept American Factors profitable and allowed it to continue paying dividends to stockholders.
Although it continued to diversify during the 1950s, American Factors remained primarily involved with the production of sugar. However, in 1959, the same year Hawaii was made a state, airline companies acquired long-range passenger jetliners which made Hawaii suddenly more accessible to the American vacationer. Just as suddenly, demand for hotel space and land began to increase. As a major landowner, American Factors recognized this as an opportunity to exploit its hotel and lodging interests. Many of its existing properties were improved, additional facilities were constructed, and several parcels of undeveloped land were sold to developers at a sizable profit.
Despite its increased involvement in the Hawaiian tourist industry, a great deal of American Factors’ business remained in sugar production. The sugar market had always been cyclical, alternating between periods of strong demand and oversupply. Yet during the 1950s increased competition lowered profit margins, even when markets were strong. In 1964 low demand for sugar and molasses forced the company’s operating profits to decline by 43 percent (it still paid a dividend, however). The first of many changes at American Factors occurred on April 30, 1966. The company’s name was changed to Amfac Inc., which was shorter, easier to remember, and more “corporate-sounding.”
Began to Diversify and Expand Geographically in Late 1960s
Henry A. Walker, Jr., a native Hawaiian whose father had served for many years as president of American Factors, was himself named president of Amfac in 1967. The board of directors gave Walker three instructions: enlarge the company, decrease the company’s dependence on sugar, and geographically diversify its operations. In 1968 Amfac purchased the Fred Harvey hotel chain and later acquired the Island Holiday group on Hawaii. Amfac’s Liberty House retail department stores were introduced to the American mainland along with its wholesale distribution network of electrical, medical, industrial, and agricultural products. Amfac acquired the family-run Joseph Magnin retail chain for $31 million in 1969. Walker directed the company to sell additional parcels of Hawaiian real estate to help finance acquisitions on the American mainland, which included Pacific Pearl, Wakefield Seafoods, and the 1971 purchase of Lamb-Weston, a potato and vegetable processor responsible for a substantial share of American’s frozen french fry and mushroom production.
In 1974 the Federal Trade Commission accused Amfac and other suppliers to the C&H sugar consortium of price fixing. The settlement that resulted cost Amfac several million dollars. Although sugar prices that year were high, it was the last time that Amfac would report a profit on its sugar operations for several years; Congress failed to renew the Sugar Act of 1948, which guaranteed a broader degree of price stability by limiting sugar imports.
After several years of poor performance all 48 stores in Amfac’s Joseph Magnin chain were sold to the Ross Hall Corporation for $35 million. Although Amfac added 18 stores to the chain, increasing sales from $50 million to $83 million, expected profits failed to materialize. Henry Walker told Business Week, “We’re getting out of the women’s apparel business because we find we’re not very good at it.” Amfac did, however, retain its 55 highly profitable Liberty House stores, 23 of which were located in Hawaii.
Amfac’s earnings declined every year until 1978. Losses until that time were due primarily to non-operating factors, such as the continued write-off of the Joseph Magnin chain and the company’s switch to a uniform “last in, first out” (LIFO) accounting method, which tends to show lower profits, but also provides the company with taxation benefits.
Fended Off 1970s Hostile Takeovers
During the period that its profits were depressed Amfac became a takeover target for a number of hostile acquisitions. The takeover attempts failed because Amfac was protected by Gulf + Western, a New York conglomerate which owned 20 percent of the company’s stock. Henry Walker, who incidentally was a Gulf + Western board member, told Financial World, “A number of people have tried to acquire Amfac, but they couldn’t without first getting control of G&W’s block.” Gulf + Western was committed to Amfac’s independence, maintaining that its substantial interest in Amfac was strictly for “investment purposes.” Any hostile bid for the company would almost certainly have encountered strong opposition from Gulf + Western.
Amfac was not, however, protected from a different kind of corporate raid. Sid, Ed, Robert, and Lee Bass, four Stanford and Yale-educated brothers from Fort Worth, Texas, announced in 1982 that they had acquired 11 percent of Amfac’s stock, and had filed a “13-D” financial disclosure form with the Securities and Exchange Commission. The Bass brothers did not intend to take over Amfac, but their sudden interest in the company concerned stockholders, particularly Gulf + Western, which at the time owned just under 25 percent of Amfac’s stock. Amfac’s management arranged a complex joint venture with the brothers called Fort Associates. The joint venture gave the Bass brothers interests in several hotels and real estate in Texas and Hawaii, in addition to $52 million in cash, while it retrieved half of the Basses’ ownership of Amfac’s stock. Fort Associates was set up to give the Bass brothers an early return on their investment and Amfac a later return with tax advantages. While the venture remained profitable, Amfac stated that it would rather have resolved the situation differently.
In the meantime, sugar prices began to recover after Congress included sugar in its 1981 Farm Act. Although Amfac was making money on sugar again, Walker continued to reduce the company’s exposure to the volatile commodity through a process of continued diversification. Amfac had acquired over 50 companies since 1967, most of which were located on the mainland.
Myron Du Bain, a former chairman and president of Fireman’s Fund Insurance, was named president of Amfac on January 1, 1983. Du Bain, who had no previous experience with sugar, directed Amfac’s operations from the San Francisco office. Du Bain was hired to “tighten the screws” at Amfac, deciding which businesses should be emphasized and which should be scaled down or sold. Henry Walker remained in Hawaii, where he continued to serve as chairman of the board, managing Amfac’s sugar operations.
During Du Bain’s first year Amfac sold 12 percent of its assets for $177 million, but still posted a $68 million loss. In addition, Gulf + Western sold all its stock in Amfac, although with little consequence. The company recovered during 1984, yet lost almost $29 million in the final quarter when its Hotels and Resorts Group was restructured. As a result, Amfac was forced to withhold its quarterly dividend for the first time in 66 years. Amfac sold its commercial nurseries, seafood fisheries, Hawaiian tour business, and its Liberty House outlets in California. By 1985 Du Bain had reduced Amfac’s debt by $120 million to $400 million. Du Bain left Amfac in September of that year, taking an early retirement to pursue community and civic activities. He was replaced by Ralph Van Orsdel for an interim period lasting until the following May when Ronald Sloan, who had been with Amfac for 25 years, was named president and chief executive officer.
Aborted Restructuring Led to JMB Acquisition in 1988
Amfac lost $66.6 million in 1986 on sales of $2 billion, the third year in four in which it posted a large loss. A restructuring was clearly in order, and in late 1987 Sloan advocated the sale or spinoff of the company’s Hawaiian assets—particularly its 50,000 acres of land—in order to take advantage of a significant run-up in land prices in Hawaii that had taken place over the previous year. But in November 1987 Amfac’s board, still largely dominated by Walker, balked at this idea and fired Sloan when he refused to resign. In December the board approved a far different restructuring plan, one that aimed to divest all U.S. mainland operations (including wholesale distribution, food, and resorts), find a joint venture partner for its Hawaiian land-holdings, and return the net proceeds from the restructuring to shareholders.
Subsequently, Amfac sold Lamb-Weston for $276 million and Monterey Mushrooms for $30 million in early 1988. But the restructuring plan came to a halt in May 1988 when a management group led by new president and CEO Richard L. Griffith proposed a $41/share, $800 million buyout. The offer set off weeks of speculation about competing takeover bids, and finally JMB Realty Corporation made a $49/share, $920 million offer which was accepted in July and finalized in November 1988. At the time, privately held, Chicago-based JMB Realty was the largest real estate syndicator in the United States with $20 billion of property under management. The company was founded in 1969 when three Chicago accountants—Bob Juddelson, Judd Malkin, and Neil Bluhm—pooled $5,000 to invest in real estate.
Following the takeover, JMB split Amfac into several separate subsidiaries. The main successor to Amfac operated under the name Amfac/JMB Hawaii, Inc. This company was responsible for all of Amfac’s activities in Hawaii, as well as Liberty House. Operating separately within the JMB umbrella were Amfac Distribution and Amfac Resorts (on the mainland). Amfac/JMB essentially had three main operations: property development, agriculture, and Liberty House. But in 1990 JMB decided to separate Liberty House from Amfac/JMB, and formally divided the company into two divisions: property development and agriculture (the latter consisted principally of sugar and coffee).
Amfac/JMB was immensely smaller than the old Amfac, with annual revenues in the 1990s averaging about $117 million (compared to the $2.1 billion posted by Amfac in 1987). The company was also consistently in the red, losing $13 million in 1994, $34.2 million in 1996, and $25.6 million in 1997. Recessions in Japan and the United States (especially in California) severely depressed the once sky-high Hawaiian real estate market. Significant events in the early 1990s were the closure of a money-losing sugar plantation on Oahu and the completion of the Waikele master-planned community on the island of Oahu. The Waikele development included 2,700 residential units, a retail commercial center, and the Waikele golf course, which Amfac/JMB also managed. By early 1994 the development had brought more than $275 million in gross revenues to Amfac/JMB.
In March 1997 the company restructured its operations into six separate operating divisions: sugar farming, coffee farming, water, golf, land, and property development. The sugar, coffee, and water divisions were part of the old agriculture division, with water consisting of the company’s control of the rights to 300 million gallons of water per day, which was primarily used to irrigate sugar cane. The golf division managed three golf courses in Kaanapali and Waikele. The land division was responsible for selling or leasing the company’s nonstrategic landholdings. It seemed likely that Amfac Property Development Corp. was the most important division of the future Amfac/JMB and that some of the other divisions may be jettisoned. The company stated that it planned to focus its future development activities on its Maui land parcels. Already under development there were a 280-unit timeshare resort and a 1,700-unit affordable-housing project. Gary Grottke served as president in the later 1990s. In March 1998 Amfac/JMB was converted into Amfac/JMB Hawaii L.L.C. in order to change the company from a corporation to a limited liability company.
Amfac Land Company Limited; Amfac Property Development Corp.; Amfac Property Investment Corp.; H. Hackfeld & Co., Ltd.; Kaanapali Estate Coffee, Inc.; Kaanapali Water Corporation; Kekaha Sugar Company, Limited: The Lihue Plantation Company, Limited; Oahu Sugar Company, Limited; Pioneer Mill Company, Limited; Puna Sugar Company, Limited; Waiahole Irrigation Company, Limited; Waikele Golf Club, Inc.
Amfac Golf Division; Amfac Sugar Division; Kaanapali Estate Coffee Inc.; Amfac Water Division; Amfac Land Co.; Amfac Property Development Corp.
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_____, “Amfac Inc. to Sell Lamb-Weston Unit for $276 Million,” Wall Street Journal, April 4, 1988, p. 6.
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—updated by David E. Salamie