War for 80,000 Acres

By John Quirt

Irvine Co. owns an 80,000-acre ranch that makes up one-fifth of Orange County, Calif. There the company has been building houses and factories grouped into developments that are remarkably successful examples of comprehensive urban planning. It must be put up for sale, however, because the James Irvine Foundation owns the controlling interest. Under federal tax law, the foundation cannot control an enterprise that aims at making a profit--and Irvine Co. not only tries to turn a profit but clears a rather tidy one. Mobil Oil Corp. offered $200 million in May, setting off a frantic bidding war. Since then, counteroffers have come from Cadillac Fairview, a Canadian land developer, and SMBH & Z, a Detroit investment firm. Mobil has made a second bid, and the price has been pushed up toward $300 million. Last week the foundation and a California court that must approve any sale began evaluating final bids.

What makes Irvine so desirable? TIME Correspondent John Quirt toured the ranch and discussed the impending takeover with Irvine executives and outsiders. His report:

On the neatly manicured lawns that surround Irvine-built factories and office buildings, workers toss Frisbees during their lunch hours or nap under the midday California sun. Many of them live within walking distance, in Irvine-designed homes adjacent to golf courses, swimming pools and lakes. Shopping centers and parks, all landscaped by Irvine, are less than ten minutes away. It is an idyllic work-live-play environment, carved out of beanfields and cow pastures south of Los Angeles. Irvine has built on only 10,000 acres, and plans to continue developing its land over the next 25 years with nearly $10 billion worth of houses and commercial and industrial complexes. When the expansion is completed, the ranch will have 400,000 residents and be the country's largest master-planned urban setting. Says an executive of one company that has been bidding for Irvine: "For the rest of the century, all we can see on those 80,000 debt-free acres is growth, growth, growth."

Homes by Lottery. So far it has been carefully managed growth. In a cyclical industry where developers often expand wildly in good times and cut back in bad, Irvine's management has stuck by a steady expansion plan through booms and recessions and increased its earnings an average of 12% each year since 1971. This year profits will rise at least that much above the $11.4 million earned in 1975 on sales of $104 million. During the 1973-74 recession, while most developers were retrenching, Irvine was preparing its most ambitious project: Woodbridge, a new community with $42 million in parks, lakes and other public facilities. When Woodbridge was ready for unveiling last June 20, more than 12,000 prospects turned up, and a lottery had to be held to choose buyers for an initial block of 350 homes priced at $50,000 to $95,000. Most jumped several thousand dollars in market value as soon as the buyers moved in.

"We take the attitude that even though we own the land, in reality we are only guardians of it," says President Raymond Watson. "When people advise us how they would like to see it developed, we listen." That philosophy has enabled Irvine to gain the support of California ecology groups for its projects. Next, three miles of choice coastline will be developed along the southern edge of the ranch. If California's coastal commission approves, 80% of the property, including hilltops overlooking the ocean, will be left untouched. On the remaining 2,000 acres, Irvine will erect a resort, three mini shopping centers and 14,000 homes.

Sudden Speedup. Irvine's management is "the best in the business," says U.C.L.A. Professor Fred Case, a land-development expert. Mobil and Cadillac Fairview have added their praise. Still, Watson, a 50-year-old former San Francisco architect who joined Irvine as planning manager in 1960, admits that he feels "apprehensive" about the impending takeover. One danger is that a new owner may order a sudden speedup in Irvine's growth in order to increase its profits; that could expose the company to the same boom-and-bust cycle that bedevils other developers.

The vote to decide who buys the company will be made soon by the eight directors of the Irvine Foundation and by 48-year-old Joan Irvine Smith, a granddaughter of the ranch's founder; she controls nearly half of the 45.5% of Irvine stock that is not held by the foundation. Although several board members are leaning toward Mobil's bid, Mrs. Smith favors SMBH & Z's latest offer because it would permit family members to buy back some Irvine Co. shares. Last summer she sued to block Mobil's initial $200 million bid for all Irvine shares on the grounds that they are worth much more than that. She may well be right. California's attorney general, who oversees all foundation finances in the state, has joined her lawsuit and suggested that Irvine might actually be worth around $500 million.

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