Rum Deal in an Old Family Firm

By Richard Hornik

Last week's family reunion in the Biltmore Hotel in Coral Gables, Fla., might have been a joyous one. The Bacardis could have marked the 125th anniversary of the development by their forebear Don Facundo Bacardi of a way to produce a light, clean rum. His label now accounts for half of world rum sales. But instead of a celebratory gathering of the clan, the stockholders' meeting of Bacardi Corp. on Thursday was another episode in a high-stakes corporate and family feud. A battle for control of the company has split the more than 500 Bacardi heirs and apparently led to the ouster of four family members from high posts in the rum business.

Over the years the Bacardi heirs have established a complicated network of independent companies stretching from Mexico to Europe. Many of them share the same officers, and all stick to the same standards for producing Bacardi rum. Puerto Rico-based Bacardi Corp. is the only portion of the empire that is a publicly traded company, and that is the point of contention. Last year Bacardi Corp.'s two top officers, Chairman Alfred O'Hara and President Manuel Luis Del Valle, launched a campaign to take the Bacardi Corp. private. In a proxy statement, they said such a move would "reduce the diversity of stockholder interests, thereby simplifying the corporation's management decisions."

O'Hara and Del Valle, two nonfamily members who were brought in to run the company a decade ago, won the support of many of the Bacardi heirs for the privatization plan, but another faction rose up in opposition. The dissidents feared that they would lose their voice in management and that removing the stock from public trading would hurt its value. Said a discontented family member: "The reasons put forth in the proxy statement are not sufficiently weighty to put the company through this trauma."

In recent months top Bacardi officers seem to have been conducting a purge of family members who oppose the privatization plan. Those let go include Bacardi Corp. Vice President Adolfo Comas Bacardi; Jorge Bacardi, vice president of the Bahamas operation; Toten Comas Bacardi, a quality-control manager in Europe; and Alberto Bacardi, president of a Canadian subsidiary.

Meanwhile, O'Hara and Del Valle devised a plan to reduce the number of shareholders to fewer than 300, which would eliminate the SEC reporting requirements that apply to a public company. Management proposed to do this by declaring a reverse stock split of one share for every 1,000 shares. Anyone holding fewer than 1,000 shares would have to accept a cash payment of $41 a share, and that would whittle the total number of stockholders to below the magic 300 level.

By the stockholders' meeting last week, management had lined up the votes to ram through its plan. In a swift 14 minutes, the reverse stock split was approved. But while the opposition lost a major battle, the war may not be quite over. For the past month the dissidents have been trying to spread their holdings to other family members and trusts so that even after the reverse split there will be more than 300 shareholders. On one day in April, three Bacardis met at Miami's airport and created 240 trusts. Management claims that these shifts came too late. Whatever the outcome, it seems that in the distilling business blood may be thicker than water, but not necessarily thicker than rum.

With reporting by Marcia Gauger/Coral Gables