Sugar Deal Is Not So Sweet
Florida Gov. Charlie Crist's plan to buy U.S. Sugar for $1.75 billion has been described by Florida newspapers as "bold," "ambitious," and "grand."
Now it's time to throw "stupid" and "irresponsible" into the mix.
It's true that the deal, in its broad strokes, might look like a masterpiece. It will conceivably rid the Everglades of the lion's share of its pollution and set the stage for the ecosystem's rebirth. In the long run, it's something that needs to be done, and that makes it difficult to argue with.
Charlie Crist|U.S. Sugar
The devil in this deal, however, is in the details, and they stink like the blackest swamp muck in the stopped-up River of Grass. Not only does the plan present a possible financial nightmare for the state, but also it obviously overprices U.S. Sugar and reeks of undue influence from both the industry and some of the governor's closest allies in state government.
Begin with the bottom line, the $1.75 billion price, which the state intends to borrow and pay off with property tax dollars over 30 years at an actual cost of $3.5 billion. The state, to make the plan work, must also negotiate a major land deal with the other Big Sugar concern in the state, Florida Crystals, which is run by the notoriously tough Fanjul family.
This is in the midst of what looks to be a long recession where homeowners are already overburdened and the state is so broke it cut $1 billion from public education.
"People can't afford to drive down the road to get something to eat," Hendry County Commissioner Darrell Harris says. "Teachers are getting laid off, state workers are getting laid off. And [Crist is] spending $1.75 billion on this?"
Understand that Harris, like most of the 40,000 people in his county, doesn't like this deal. Part of the reason for that is it will likely decimate Hendry's economy.
Still, if the deal was a good one for the state, the timing might be forgiven. Now consider what the state is buying. U.S. Sugar is saddled with debt, under pressure from lower-priced sugar imports, and dependent on massive federal price subsidies to turn whatever relatively meager profits it is making right now.
Oh, and the company also created all of that pollution we're spending all of those billions to clean up. For that it gets a huge buyout (or bailout, if you prefer).
Harris says he believes the state is about to pay way too high a price for the sugar company and its 187,000 acres. Asked what he thought would be a fair price, he said, "About a billion."
Gaylon Lawrence is pretty sure the state is overpaying, too, and the wealthy banker and landowner ought to know. He recently thought he'd bagged Big Sugar himself, before it got away.
The 73-year-old Missourian, who splits his time in Vero Beach, wanted to buy U.S. Sugar, and in 2005 found a willing seller in the company's CEO, Robert Dolson.
The price: about $1.1 billion, including a $575 million sale price plus the assumption of about $500 million in debt, taken on by the company, to update the sugar plant.
"That was [Dolson's] suggested price, not mine," Lawrence told New Times last week in his first interview regarding the deal. "We settled on $575 million plus the debt. We thought we had a deal.... We were looking at this as a keeping situation, as a family situation. It would have taken us five years to make it a good solid investment."
It's no wonder Dolson thought the price, which amounted to just more than $1 billion, was good for the company. It represented a 50 percent premium in the private stock price, from $200 a share to $293 a share. Most businessmen would call that a sweet deal.
Lawrence says he and Dolson were confident the terms would be accepted by the board, which is controlled by the descendants of U.S. Sugar founder Charles Stewart Mott, who made his initial fortune as a General Motors partner and shareholder. The Flint, Michigan-based C.S. Mott Foundation, with more than $2.5 billion in assets and related entities, still owns a majority of U.S. Sugar, while workers have a 38 percent stake.
The current chairman of the U.S. Sugar board is William White, the husband of Mott's granddaughter. As much as the late Mott was respected in Clewiston, White is distrusted, viewed as a distant landlord who cares little about the company while collecting the government-subsidized dividends for the foundation.
White and the board rejected the offer from Lawrence, and Dolson was soon sent packing from his CEO job with a $10 million company parachute (though Lawrence says he doesn't believe the rejected offer had anything to do with the departure).
"The farther [the Mott family] gets away from the source, the less they know about it," Lawrence says. "They thought they were doing right."
The Lawrence negotiations were never revealed to the workers, whose stock continued to be valued by the company around $200 despite the Lawrence offer. A group of former employees sued U.S. Sugar earlier this year alleging the Lawrence negotiations were proof the board defrauded them.
The Crist deal values that same stock at $350 per share — nearly doubling the share price and offering about 30 percent more than the businessman did.
"Your wife spends your money easier than you do," Lawrence says. "Tax money is spent easier than the money that's made a nickel and a dime at a time out here. The state always overpays."
"Have you ever seen the state pay the right price for something?" Harris asks.
The real crime in all of this is that the state held all the cards in these negotiations. In addition to the obvious problems with the industry, U.S. Sugar is facing the shareholders' lawsuit, which is asking for at least $150 million in damages, and last year the company was barred from polluting Lake Okeechobee — a move that was going to further decimate its already tax-subsidized business. (Crist, to his credit, was largely behind that move, so he knew all about it.)
Current U.S. Sugar CEO Robert Buker admitted to concerned workers after the deal was announced that "the company had no choice but to sell, because the state had the upper hand and could have pushed them off the land with laws rather than with $1.7 billion," according to an article in the New York Times.
We'll take Buker's word for it. So why didn't Crist use more of that leverage? Why would he rush a deal through at a price that is only sure to enrich a family in Michigan while leaving the taxpayers holding the bag for the Everglades' restoration?
The timing of the announcement might have to do with his obvious ambition to become John McCain's running mate (much like his recent announcement that he has become engaged to be married). But another clue might come from Crist's evolving relationship with Big Sugar — and its relationship with some of his closest friends and advisors.
When he was vying for the U.S. Senate in 1998, Crist railed against Big Sugar. He refused to accept campaign cash from sugar firms and said the industry, rather than the government, should pay for damaging the ecosystem.
"If Big Sugar is responsible for most of the pollution in the Everglades," Crist said at the time, "then Big Sugar should pay for it."
Less than two years after losing that race, Crist loosened up and accepted $2,500 from Big Sugar (including $1,500 from U.S. Sugar and $1,000 from the Fanjuls' Florida Crystals).
But it wasn't until Crist's run for governor in 2006 when U.S. Sugar really came to his side. The company put millions into a campaign to sink his Democratic challenger, Jim Davis. At the same time, it contributed to Crist's campaign directly and put hundreds of thousands of dollars into the coffers of the state's Republican Party. That included a splurge of $242,500 in the last three months of the campaign.
The kicker came after Crist won the race and began collecting money from businesses to hold a swanky inaugural ball. His inaugural committee — cochaired by a man he calls his "great friend," lobbyist Brian Ballard — raised $500,000 from special interests, with $50,000 of it coming from U.S. Sugar.
When news of the extravagant party hit, Crist cancelled the plans and returned the money out of embarrassment.
After U.S. Sugar was banned from pumping polluted water into Lake Okeechobee, the company hired Ballard — Crist's friend and longtime ally — to lobby the governor. That's when Crist allegedly came up with the idea to buy the company.
Handling the negotiations for U.S. Sugar was the law firm of Gunster, Yoakley & Stewart. Crist also has a big connection to the firm: His former chief of staff, George LeMieux, the man the governor calls "The Maestro," now works in Gunster's Fort Lauderdale office, where he continues to promote Crist at every turn.
There is no evidence LeMieux played a direct role in the negotiations, but the ties to Crist's political associates in the deal, as well as the role the company played in his election, might help explain why the governor is playing so nice with U.S. Sugar.
While it looks disastrous as public policy, the plan has indeed been, so far, a masterstroke politically. Environmental groups are hailing him as a hero, and Democrats haven't shown the courage to question it in any meaningful way yet. His political machine is emboldened, and the press is largely playing along.
In short, it's been very good for Charlie Crist. So far. And why shouldn't he bask in the glory while it lasts, possibly riding it to the vice presidential nomination? He won't have to pay for it, after all.