Some people work to live, and some people live to work.
Arthur Vining Davis, born in 1867, definitely falls into the latter category.
Right out of Amherst college, in 1888, Davis took a job as the first hired employee of
the newly formed Pittsburgh Reduction Company.
The company was pioneering a new and relatively inexpensive way of producing aluminum through
a process called electrolysis.
Over the following 19 years, the company would put themselves on the map when it came to aluminum.
The metal would be used in everything from home cookware to the relatively new and novel
transportation method, the automobile.
They even provided the aluminum used in the Wright Brothers’ historic aircraft, the "Flyer."
In 1907 the organization would take on a new name, transforming from the Pittsburgh Reduction
Company to The Aluminum Company of America, which would informally go by Alcoa.
Commercial: This is aluminum. Nature made it light. Alcoa made it plentiful and low in price.
Just three years later Davis would be named president of Alcoa and later after that chairman
of the board, and he would help lift the company to new heights.
They would introduce new products such as aluminum foil, expand to overseas production
and distribution, and supply the US military with most of its aluminum-based gear throughout
World War 1 and World of War 2.
In 1948, at the age of eighty and after sixty years with the company, Davis would retire
from Alcoa.
This is where the story for most businessmen would end.
But as it turned out, Arthur Vining Davis was just getting started.
Davis’ long accomplished career with America’s largest aluminum company left him pretty wealthy.
He would use that wealth to kick off his retirement by investing in a new interest: land development.
Convinced that southern Florida would soon see a population and development boom, Davis
spent the following ten years buying up tracts of land and property, particularly in Dade,
Broward, and Palm Beach counties.
That property included both undeveloped swampland as well as popular tourist spots.
In 1956 he spent twenty-two and a half million dollars on the Boca Raton Hotel and Club,
as well as 1000 acres of land near it.
The transaction would end up being the largest real estate purchase up until that point in
the history of the state of Florida.
Two years later, David had amassed a staggering amount of land, totaling at over 100,000 acres.
For comparison, that’s over four times the size of Walt Disney World.
That same year Davis consolidated all of his property under one new company, which was
named after himself.
Arthur Vining Davis, at age 91, formed the Arvida Corporation.
The company quickly went to work at developing the land it owned, building hotels, condos,
and even the gas stations in between.
In 1962, after sixty years with Alcoa and four years with Arvida, Arthur Davis passed
away from heart failure at the age of 95.
Today, much of the development and growth of Boca Raton is attributed to Arvida.
Between 1960 and 1970 the city’s population quadrupled, making it one of the fastest growing
cities in the state at the time.
Davis’ wasn’t around to fully see it, but his wager about Florida development had paid off.
A few years later The Pennsylvania Railroad was looking to diversify their business and
thought that land development was a good idea.
Florida was, as most people noticed, growing.
So in July of 1965 they purchased 51% of Arvida stock for a reported $19.6 million dollars.
They continued their investment into the company, eventually purchasing the remaining stock
and making Arvida a fully owned subsidiary by 1976.
Over the years Arvida began to expand their development business to other parts of Florida,
including working on a 340-acre golf course in Central Florida called Orange Tree.
However after just seven years of fully owning Arvida, The Pennsylvania Railroad, then named
the Penn Central Corporation after a merger with the New York Central Railroad, started
to look into getting out of real estate.
Perhaps that merger made them realize that their future was firmly rooted in the northeast.
Penn Central made multiple attempts to sell Arvida that fell through, and in an interesting
turn of events it was those failed attempts that allowed the third effort to work.
See, the executives over at Arvida had faith in their company.
They felt it had a future.
They believed it in so much that they, themselves, wanted to buy their own independence from
Penn Central.
However there was concern that Penn Central would face scrutiny from shareholders if they just
went ahead and sold off their subsidiary to its own executives.
Would the price be fair?
Would Penn Central, and therefore the shareholders, get the proper value for it?
What if an outside buyer was willing to pay more?
They were questions that initially held back the sale, but after those two failed attempts
not only was a value for the subsidiary established, the question was otherwise answered: No, an
outside buyer would not be interested in Arvida.
With a price tag of $181 million dollars, the group of 22 Arvida executives looking
to essentially buy themselves needed help in picking up the tab.
They turned to an investment first called Bass Brothers Enterprises, which as the name
suggests, was owned by four Texan brothers, Sid, Edward, Robert, and Lee.
The four had inherited their fortune from their great uncle Sid Richardson, who was an oil tycoon.
At that point the Bass Brothers already had some real estate investments in Florida, so they felt like
it was a good idea.
So on October 27th, 1983, with the Bass Brothers footing a majority of the bill and, as a result,
taking a reported 70% ownership of the company, they arranged a leveraged buyout of Arvida
from the Penn Central Corporation.
By all accounts, 1984 was going to be the beginning of a new independent chapter in Arvida's history.
Just as Arvida was celebrating its newfound freedom, Disney was starting to feel the pressure
that infamous corporate raider, Saul Steinberg, was putting on them.
He had purchased over 10% of Disney’s stock, signaling to both Disney and the world that
the long-standing American staple was going to be his next target.
Disney, under the guidance of Morgan Stanley & Co, was considering multiple options and
none of them were ideal.
As the story goes, film producer Jonathan Taplin saw the quagmire that Disney was in,
and had an idea.
He reached out to an acquaintance of his, Richard Rainwater, who was in charge of supervising
all of the non-oil investments of Bass Brothers Enterprises, and pitched him on the idea of
the Bass Brothers investing in Disney as a white knight.
However Rainwater initially declined.
The Bass Brothers had a significant amount tied up in Texaco investments, and with the
recent investment of Arvida, they apparently didn’t have enough capital to buy enough
of Disney to make it worth their while.
Meanwhile, unbeknownst to Taplin, Disney was just starting to initiate talks with Arvida
over the possibility of hiring them as consultants for the development of some of Disney’s
central Florida real estate.
It was reportedly Rainwater who reached out to Disney and pitched to them an idea:
What if Disney acquired Arvida?
It would almost serve as a one-two punch in the fight against Steinberg.
By purchasing the company with an all-stock acquisition, they would be diluting Steinberg’s
ownership in Disney.
At the same time that all stock acquisition, paired with the Bass Brother’s significant
investment in Arvida, would in-turn make the Bass Brothers large shareholders in Disney,
making them white knights.
This also solved the Bass Brothers’ problem, as it was essentially transferring their Arvida
investment over to Disney without needing any additional capital.
Finally, the move would potentially lock out one the ways that Saul Steinberg could take
over Walt Disney Productions.
Disney’s rules required 80% shareholder approval when it came to any acquisition offers
they received.
So if Steinberg were to flat-out offer to buy Disney, he’d have to offer a price that
was good enough to win over 80% of the shareholders.
Disney management and the Disney family collectively owned 15% of the company, and with the stock
purchase, Arvida and the Bass Brothers had an estimated 8% ownership in the company.
So as long as Arvida and the Basses voted in Disney’s favor, their combined 23% could
shut down any acquisition offers that Steinberg might make on the company.
If Saul wanted Disney, he’d have to fight tooth and nail for it.
Disney had no time to waste.
While acquisitions like this could often take months or even years to negotiate, Disney’s
acquisition of Arvida took less than two weeks.
They agreed to purchase the company for $200 million in newly issued Disney stock, meaning
that in just seven months the Bass Brothers and those Arvida executives turned a profit
of $19 million on a company that not too long before, couldn’t even find a buyer.
It may have been a short-lived independence, but it was a profitable one.
While Arvida had developed and sold much of its land since Davis formed the company in
1958, the acquisition still resulted in Walt Disney Productions gaining an additional 20,000
acres of property.
None of it was next to Walt Disney World, of course, but overnight their land
holdings nearly doubled.
Disney, doing its part, certainly tried to sell the acquisition as a natural and perfect
decision for the company.
They denied that it had anything to do with Steinberg, and argued that they had long term
plans to expand their real-estate interests, but something didn’t add up.
For one, Disney already had over 20,000 acres of Florida land, and at that point in 1984,
most of it was undeveloped.
And perhaps hiring a consultant to help develop the land they did own made sense, but buying
them outright did not.
Disney World was one of the largest private construction projects in American history.
They had just built EPCOT Center, which cost them over a billion dollars.
They owned and operated multiple resorts.
It’s not as if Disney didn’t know how to develop their land.
They certainly didn’t need Arvida to make use of what land they had, and they definitely
weren’t ready to double the amount of land they needed to develop.
Lastly, Disney at that point wasn’t really in the business of acquiring companies.
So to rush into an acquisition so quickly… well, let’s just say that nobody was buying
what Disney had to sell.
The public saw the move for what it was: an attempt to slow down and stop Saul Steinberg.
Roy Disney, who had left the company’s board and had been considering his own leveraged
buyout of Walt Disney Productions, publicly criticized the acquisition, calling it a waste
of Disney’s resources.
He wasn’t wrong either.
The purchase of Arvida was meant to dilute Steinberg’s investments in Disney, and technically
speaking it did just that.
Before the purchase, Steinberg had built up a 12.1% ownership of Walt Disney Productions.
After the acquisition and the new shares were issued, his ownership was diluted, down to
11.1%.
The move to gain that 1% of traction on the battlefield through the purchase of Arvida
was a risky one, because this wasn’t just a game being played between Steinberg and Disney.
Everyone’s ownership of Disney was diluted.
There were countless other investors who had a financial stake, and if they felt that the
company’s management wasn’t making the right decisions, they might just step in to
try and stop them.
One shareholder in particular did just that, suing Walt Disney Productions to block the
acquisition of the Arvida Corporation, claiming that it was a poor purchase and wasn’t in
the best interest of the company.
The shareholder felt justified in the action because they had a lot to lose.
After all, that shareholder just saw his 12.1% of the company reduced to 11.1%.
When Saul Steinberg sued to block the acquisition of Arvida, he took it one step further.
He announced that he could no longer remain a passive investor while Disney management
made such poor decisions, and announced his intention to purchase up to 49.9% of Walt
Disney Productions.
It was the final step before an actual takeover.
Disney’s plan to scare away Saul Steinberg cost them two-hundred million dollars and
it had just backfired on them in the worst way possible.