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The Sale of the Century
How the deal was done: After a decade of Japanese ownership, Pebble Beach is back in American hands--this time for good
Golf Digest

By Mark Seal

They will always be Pete, Dick and Clint, three Northern California kids who came of age at Pebble Beach.

Pete was a country club caddie, barreling up to Pebble with his buddies and sneaking on to play the fabled greens at midnight, reveling in what he calls the magic. "Whether you're religious or not, you realize this is some of God's great work," he says. Dick was a wild child on Easter break from Berkeley High School, falling in love with the place on a lost weekend best kept private, he says, "because I don't know how long they keep the police records." Clint was a G.I. when he first arrived in 1951, sneaking into Bing Crosby's Clambake show, "lookie-looing around" at Bing and Bob, Rosemary Clooney and Phil Harris as they entertained the golfers after Crosby's fabled tournament.




The gang of four: Arnold Palmer, Dick Ferris, Peter Ueberroth and Clint Eastwood headed the consortium that bought the Pebble Beach Company for $820 million.

By the spring of 1999, Pete had become Peter Ueberroth, former Commissioner of Baseball, engineer of the 1984 Olympics, which transformed Los Angeles into a patriotic pep rally and left a $225 million surplus, the 1984 Time Man of the Year once considered a sure bet to run for the Senate, perhaps even the presidency. Dick was Dick Ferris, former president of United Airlines and current chairman of the PGA Tour Policy Board who, with Ueberroth as his partner, had expanded the Doubletree Hotel and Guest Quarters hotel group into a 1,400-unit chain. And Clint was, of course, Clint Eastwood, Oscar winner, American icon.

But in many ways they were still those illicit kids on the idyllic greens, which had, in the years since, been passed through multiple men's hands. When it was put up for sale by its Japanese owners early last year, Ueberroth, one of half a dozen salivating suitors, seized the opportunity to replant the American flag into the jewel of American golf by enlisting his two Northern California-bred counterparts, along with a powerful fourth: Arnold Palmer.

On Feb. 8, 2000, Ueberroth, Ferris and Eastwood returned to play Pebble Beach. Entering his 18th AT&T Pro-Am, Ueberroth (by the luck of the draw?) had won a place in Tiger Woods' foursome. Tiger roared to victory from seven shots behind, reducing the attending billionaires and movie stars, including normally taciturn Clint Eastwood--"I was there to give him his trophy," he says--into slack-jawed groupies.

"I was baseball commissioner," says Ueberroth, "and I never once got to catch a fly ball in the outfield. But to play with Tiger Woods in a tournament at Pebble Beach? That's way beyond anybody's imagination."

The moment was a coronation. After nearly a decade of Japanese ownership, Pebble Beach was back in American hands. Assembling a ferocious foursome of partners--Eastwood, Ferris, Palmer and himself, along with 132 individual investors ponying up a minimum $2 million each--Ueberroth had engineered an $820 million purchase of the Pebble Beach Company, including the famed U.S. Open venue, three other golf courses and two luxury hotels. Now comes the bigger challenge: to simultaneously preserve the prized property and position Pebble as the premier golf resort of the new millennium.

This is the land that humbled a billionaire, bankrupted a Japanese boom-time golden boy, and, most recently, sent an army of Japanese bankers back home with little to show for their seven years of superlative stewardship but their good names. "The Greatest Meeting of Land and Water in the World," Pebble Beach was the playground for an innocent time in America, built upon the most democratic of concepts--public golf--to which the longtime residents of "the Forest," the 5,300-acre Del Monte Forest that encompasses the resort, pledge absolute allegiance. Here, golf was designed to coexist with the natural splendor. Because that's the way "The Duke of Del Monte"--Pebble Beach founder Sam Morse--planned it.

"The father of the environmentalists," Morse, nephew of the inventor of the telegraph, arrived in 1915 to find what would become the Pebble Beach Golf Links marked off in 80-foot lots, destined to become a subdivision. Morse had been sent to liquidate the property by its owner, the Southern Pacific Railroad. Instead, he assembled a consortium to buy it for $1.3 million, banished the home sites to the hills, prohibiting homeowners from cutting a single tree without permission, and enlisted Jack Neville and Douglas Grant to lay out the Pebble Beach Links so as many holes fronted the shoreline as possible, creating a public course that could be enjoyed by anyone. "If I were offered $500 million for oil-well rights, I would not allow anyone to put an oil well on Monterey Peninsula," Morse once said.

The Forest still stands in delicate balance between nature and development, between progress and exploitation. Home to sensitive plant and animal species--black legless lizards, red-legged frogs, wood rats, rare bats, and a host of orchids, clovers and trees, most notably the noble Monterey pine--Pebble Beach presents as much of a challenge for developers as golfers. "You might consider developers here both blessed and cursed," says botanist David Allen, a former resident. "Blessed to be in a very unique environment, but cursed because the area complicates and confounds development."

Today, not only do Morse's spiritual descendants--local environmentalists and a blinding array of environmental protection agencies--rise up in complaints and petitions once the line is crossed between sensible development and exploitation, but the forest also faces threats from nature: a pitch canker fungus has recently invaded the Monterey pine trees. Experts predict the fungus could infect and kill 85 percent of the trees in the forest in the next 15 to 20 years. Pebble Beach Company has been proactive in creating a Monterey pine cloning program to reseed the forest and to comply with regulations to replant every tree removed by development, along with instituting forestry, ecology and wildlife initiatives, including the "adopt-a-wolf" program and erecting hand-painted fences to allow sea lions to give birth without the crowds disturbing them--all while aggressively developing and marketing its most precious asset: golf.

The village of Pebble Beach, adjacent to the Lodge whose front lawn is a putting green, seems locked in a Morse-era, Mayberry time warp. Residents receive both mail and gossip at the Post Office--where Bing Crosby stares down benevolently from a photograph. They're guarded by one frequently bored traffic cop. And they're kept informed of local happenings via The Scoreboard, a newsletter published by The Pebble Beach Company. "It's so placid around here," says local teacher and chaplain Paul Woudenberg. "Nothing ever happens."

Nothing but sensational golf and, until recently, the incessant transfer of the Pebble Beach title. The cycles of buying and selling began in 1978, when Pebble Beach was sold for $72 million to 20th Century Fox. Sam Morse had been dead for almost a decade, and his managers extracted assurances that Fox would honor Morse's management philosophies and environmental traditions. But corporations are comprised of many voices, many minds, and three years after buying Pebble, Fox was gobbled up for $722 million. The deal included the movie studio and its various assets, including the Aspen Ski Company and Pebble Beach.

From the smog of Los Angeles, a new owner emerged, a man whose appetite for deals was matched only by his appetite for golf.

"I'm a golfer," says Marvin Davis. "And Pebble Beach was it."

Sitting behind a massive cockpit of a desk, in a peach-carpeted, crystal chandelier-strewn office in the Fox Plaza he built, sold at a profit and recently repurchased for $250 million on the edge of Beverly Hills, Marvin Davis, 74, looks every inch the dealmaker. A veritable mountain of a man, gargantuan both in weight and wallet, once known as "Mr. Wildcatter" for the fortune he made in Rocky Mountain oil, he's now an undisputed master at buying low, selling high. Whether it's 20th Century Fox, The Beverly Hills Hotel, Web TV, radio and TV stations across America or even a recent attempted takeover of Carter-Wallace Inc.--maker of Trojan condoms--assets are Davis' canvas, and he paints only in the color of green. One hand fielding phone calls, one eye scanning twin "Personal Market Watch" screens, he has granted a rare interview with one stipulation.

"We'll talk about golf, OK?" he says in a voice that sounds more New Jersey than Beverly Hills. And only about golf. Because golf, specifically Pebble Beach golf, is Davis' passion, as evidenced by a photograph nestled amid acres of frames of him posing with every dignitary on the planet: a picture of The Big Man swinging a spindly golf club as agile as a ballerina, the Pebble Beach Pacific lapping at his feet.

"Oh, I loved every minute of it; very hard to part with," he says of his five-year tenure as owner. "I never fall in love with any asset, but that one I came closest to. That's why I tried to buy it back."

Not once, but twice, first in 1993, just after he'd sold it, then again, recently, when he submitted a bid that was rejected by the Japanese. "Anything that you improve, you're entitled to get paid for it," says Davis. And Davis, who held onto Pebble Beach when he sold off his other Fox assets, piece by piece, for $1 billion, pocketing a $300 million profit, radically improved his prized resort. He revitalized the existing golf courses, developed Spanish Bay, with its inn and coastal course, and made other improvements. But in the late '80s, residents noticed signs of cost cuts, believed to bolster cash flow. The season of selling had arrived. Some say Davis began actively shopping Pebble Beach, with a price tag of $1.2 billion. But Davis insists that the suitors came to him. "I hadn't planned on selling," he says. "But the price got so high ..."

Enter Minoru Isutani, the 1980s golden boy of Japanese golf, pied piper to 12,000 members of his various Japanese private golf clubs, master of the million-dollar membership, seller of $30,000 gold-inlaid golf clubs, a prestige seeker from the tiny island for whose citizens land is everything. A tall, handsome workaholic, Isutani rode Japan's boom-time bubble like a bull rider, amassing a fortune in computers and sporting goods before turning to golf course development under his Cosmo World banner. He was perpetually doing three things at once--buying the Hogan Company for $52 million, launching a $600 million planned community in the then-ghost town of Henderson, Nev., scheming to create a global tour of legendary courses for his members. But one resort defied him. "His dream was, he wanted to build a golf course like Pebble anywhere in the world," remembers Isutani's chief assistant, Ted Honda. "So we looked for a suitable site, not only in Japan but Europe, United States, Spain, south of France and Japan. Basically, we couldn't find anything close."

Isutani never imagined that he would have the opportunity to buy The Real Pebble Beach. "He comes from a culture where nobody would ever sell anything of that value, and the fact that he could buy Pebble Beach just floored him," says Perry Dye, the golf course designer who built six of Isutani's Japanese courses and chaperoned him on a Lear jet and helicopter scouting tour of American prospects.

"He approached a friend of mine and said that he would like to buy Pebble Beach," remembers Marvin Davis. "I said, ‘Sure, bring him in.'"

"Their group approached us," insists Ted Honda.

Either way, in 1990, Minoru Isutani--surrounded by interpreters, assistants and attorneys--sat before Davis, in the ultimate den of ante-up.

"It's an honor to be the owner of the finest golf course in the world," Davis said in introduction.

Isutani, who spoke little English, spoke to an interpreter and the interpreter spoke back to Isutani, then addressed Davis. They came together on the universal language of money. "He knew the property well and mentioned a price"--$841 million, almost $700 million more than the estimated value of Pebble Beach itself at the time of Davis' purchase--"subject to due diligence. We shook hands on the deal and that was it. Another [Japanese] group came in after that and topped his price pretty substantially [by a reported $50 mil]. But I said we'd made a deal already."

Fanatical about golf, Isutani arrived to a golf resort scorched brown by a seven-year drought. "It looked like Beirut," remembers Paul Spengler, current senior vice president of golf properties, who arrived at the end of the Davis era. "As soon as Mr. Isutani and Cosmo World purchased the company, at 10 in the morning on Sept. 5, within five minutes, I got a call from one of his top managers saying for me to hire Jack Nicklaus for the restoration and preparation of Pebble Beach for the U.S. Open," says Spengler. Isutani should have called a public relations expert instead.

Xenophobia inflamed the Forest. The Japanese had already gobbled up 160 U.S. golf courses and owned 74 percent of the courses in Hawaii. But many felt that Pebble Beach--where Bing Crosby had led his perennial cocktail party of celebrity golfers and where Elizabeth Taylor filmed "National Velvet" in 1944 (returning six years later for the first of many honeymoons)--was too all-American to be sold to foreign interests. Isutani would pour $5 million on the courses and sever relationships with Pebble's Japanese tour wholesaler--which brought groups of Japanese tourists and golfers to the resort--to keep his resort exclusive. But the good he did was lost amid controversy. "Just the idea of Japanese ownership, well, it was a racial period," says lifelong resident Hampton Stewart.

The new owner's plan was as incendiary to the residents as his nationality. Isutani was shouldering a domino effect of debt: a $574 million loan from Mitsubishi Bank, secured by a $664 million promissory note from Itoman, an Osaka development company, which had borrowed its cash from Sumitomo Bank. Isutani planned to service his loans by selling memberships in Japan--1,000 memberships at possibly $1 million each, according to Honda, for which members could reserve tee times five years in advance--leaving only two hours of tee times daily for nonmembers.

Why did Isutani think he could privatize the most public of American golf resorts? Because, he insisted, Marvin Davis promised him he could.

"We repeatedly asked Mr. Marvin Davis if there would be any objection," he told The San Francisco Examiner. "He said there would be no objection."

Davis leans back in his chair, his MD monogram blinking off his sky-blue shirt like a fast-food logo. "He made a statement, ‘I got tricked!' " Davis says of Isutani. "If anybody tricked him, it was his own law firm. They were here at all times."

When Isutani's membership scheme became public, the Forest rose up against him, every ecologist, Sierra Club member, black-tailed deer and seal pup carping the Gospel of Sam Morse: "The [original home] deeds specified that the Pebble Beach golf course was designed for the recreational use of the residents... and the course could not be shut out by privatization," remembers "coastal activist" Carl Larson, a leader in the fight against Isutani. Isutani, whose membership plan passed the county supervisors, was tied up in motions by the California Coastal Commission, which voted 11 to 1 that his plan denied the public access to the coast. "They could have won it, if they'd stayed with it," advises Marvin Davis. "They could have taken the Coastal Commission to court."

Isutani attempted to file a lawsuit in late 1991, but his courier reportedly missed the filing deadline by 15 minutes. Sumitomo Bank tried to refinance the loans. The same week, Isutani's Cosmo World filed for bankruptcy protection. He was fined $320,000 for missing a $3.2 million tax payment.

Finally, Isutani surrendered. After only 17 months of ownership, he was forced to sell Pebble Beach in 1992 to a partnership involving Sumitomo and Taiheiyo Club Inc., a Tokyo-based company that owns and operates a dozen courses in Japan, for $500 million, his $341 million loss becoming, according to one observer, "The biggest financial failure in golf."

Pebble Beach was back in play.

Promising to polish the "jewel of California," the new owners, basically a collection of reserved Japanese bankers, made good on their word, dispatching a team of four men to manage Pebble, first under the stewardship of Hiroshi Watanabe, who was Dale Carnegie compared to the reclusive Isutani. "He and his wife were very social, and he was like a salesman, very sports-minded," says a resident. But Watanabe's tenure was short lived.

Seishi Jiromaru, Watanabe's successor, followed in his footsteps in polishing the Pebble. "They put a lot into this place," says Hampton Stewart. The company reinvested more than $100 million over the course of its ownership, renovating the Lodge at Pebble Beach and the Beach Club, building a new tennis club, a new seawall, a new fifth hole, the new Spa at Pebble Beach and a new luxury hotel, Casa Palmero, where Tiger Woods and other celebs resided during the recent AT&T, even a new $3.2 million parking garage. While Taiheiyo enjoyed the dividend of using Pebble Beach as a playground to entertain major Sumitomo Bank clients, it's estimated that the company's expenses equaled its returns, making the investment "an even par," according to one of Taiheiyo's principals.

"As the green fee came close to $200 six years ago, my concern was that the quality of the course equal the value," says Paul Spengler. "We used to have twilight play, which really impacted the first 10 holes. Isutani requested that we discontinue twilight play, and Taiheiyo agreed so as to have a better product."

This year, the green fees were increased to $300. "The golf course has never looked better," says Eastwood.

From the moment Sumitomo/Taiheiyo bought Pebble Beach, it became the target of envy, a prized asset around which potential suitors swarmed. "I used to get calls every month: 'Are you for sale?' " remembers Pebble Beach president John Chadwell. Developers from San Diego to Dallas panted overtures by telephone. Starwood Resorts--which develops and manages hundreds of hotels worldwide--dispatched representatives to Japan to sweet-talk Sumitomo bankers. And Marvin Davis--always Marvin Davis--kept Pebble Beach on his emotional speed-dial. "There were rumors that Marvin Davis was buying it back every year since he left," says Chadwell. Local realtors would leave calling cards, insisting they were fronting for "a really big" enterprise. Rumors of potential suitors floated up like golf balls from the Pacific: the Sultan of Brunei, the USGA (a suggestion later dismissed by USGA personnel as "whiskey talk"), even Clint Eastwood, who says he was contacted constantly by suitors.

But Taiheiyo wasn't interested in selling. By late 1998, however, they'd be brought to the table, not by takeover sharks but by their own bankers. Back in Japan, with private funds bailing out the country's battered banking industry and a banking regulator breathing down their necks, the banks began seeking salable assets. Sumitomo also wanted cash to move into Internet banking. Pebble Beach was a rock of black ink in a sea of red. "The Japanese think in very indirect ways," says golf course architect Robert Trent Jones Jr., who, on a trip to Japan in 1998, heard from a friend who introduced him to a Sumitomo banker. "They didn't say they wanted to sell, but I understood: He's a banker and I'm a golf course architect... " remembers Jones. "So

I gave them some advice: 'If you choose to sell it, it would be wise to get someone who is well-known in America and who has impeccable credentials.' "

The bankers apparently took Jones' advice. Flooded with calls from buyers with bottomless pockets, the Japanese bankers vowed to return the jewel they'd "polished" to the best American stewards possible, someone who would be in it for the long term. "They didn't want any barbarians at the Highway 1 gate," says one observer of the Japanese bankers' mind-set.

Still red-faced over the Isutani debacle, the Japanese owners didn't want to sell at an exorbitant price that a new owner would find impossible to debt-service, thus sentencing Pebble Beach to yet another cycle of buy-and-sell. "We wanted to demonstrate that a Japanese company could do a great thing--care about the community, care about an American treasure," said Shoichi Okochi, president of Taiheiyo.

In early 1999, the word filtered out to possible suitors, including Peter Ueberroth, a longtime guest of the Lodge, a fixture on the golf courses, who would drop in on Seishi Jiromaru practically each of his 10 annual visits to Pebble, repeating, "If it's ever for sale... " like a mantra. Not one to "waste emotion" on a deal that might never happen, Ueberroth had no idea what he would do if ever given a chance to actually bid on Pebble Beach. But in February of last year, he and other possible bidders received calls from Japan: Well, yes, there will be a quiet auction with many bidders, and may the best team win.

In mid-March, Jiromaru called Chadwell into his office. "I've got some bad news," Jiromaru said. "We have to sell the company."

Jiromaru told Chadwell that the company had hired an investment banker, Lazard Frères & Company, to manage the sale process. Four or five days later, the Pebble Beach executive committee met with the Lazard Frères reps, who had prepared 10-year projections of Pebble's future. Presentation books were compiled. The word was put out. A benchmark price of $800 million was conveyed by Lazard Frères to potential buyers.

Pebble Beach was back in play.

Continued


June, 2000


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