A&B buys Grace Pacific for $277 million

Alexander & Baldwin Inc. said Thursday it will buy Grace Pacific Corp. for $277 million, putting together two kama­aina powerhouses in the real estate and construction fields.

The purchase, which includes $42 million in assumed debt and $235 million in cash and stock, is expected to close in the fourth quarter of this year and must be approved by A&B shareholders and federal regulators. Shareholders at the privately held Grace have said they will approve the sale, and both companies said there will be no layoffs among Grace’s 550 employees.

"An … important consideration for the Grace shareholders and our employees is that Grace is being acquired by a 142-year-old Hawaii-based and managed company that has the highest reputation for integrity and commitment to our community," said David C. Huli­hee, Grace CEO, who will continue in that position after the purchase.

Grace will become a subsidiary of A&B and continue to conduct business under the Grace Pacific name.

The purchase is a continuation of the buying spree A&B has been on since spinning off its Matson shipping subsidiary last year. At that time A&B launched a strategy to boost its real estate development, especially on Oahu, and to buy more commercial property in Hawaii financed by selling commercial property on the mainland.

A&B announced last week it was buying Pearl Highlands Center for $141.5 million. Earlier in May it bought Napili Plaza, a retail center on Maui, for $19 million. In January A&B bought Wai­anae Mall for $30 million. It is also building the 340-unit Wai­ho­nua condominium tower in Kakaako and is planning to build a 470-unit tower at 600 Ala Moana Boulevard called The Collection.

Kapolei-based Grace is one of Hawaii’s largest locally owned construction companies and is its largest asphalt paving contractor. It is not a contractor for high-rise projects. Hawaiian Dredging is the general contractor for the Wai­ho­nua project, and A&B has not yet named a general contractor for The Collection.

"The addition of Grace to the company will extend our capabilities to encompass infrastructure development and replacement work, for which we see a steady and growing need in Hawaii," said Stanley M. Kuri­yama, Alexander & Baldwin CEO.

"Hawaii’s outlook for infrastructure construction is positive resulting from both announced infrastructure replacement projects and anticipated commercial and residential development activities," the companies said in a news release. "The Hono­lulu City & County, for example, recently announced its intent to perform $120 million to $150 million in road repairs to the city’s streets in each of the next five years."

The purchase of Grace, which was initiated by A&B, is A&B’s largest purchase of another company, said Suzy Hollinger, A&B’s director of investor relations, in an email.

A&B said that with the added sales from Grace’s business, A&B will be able to start paying a 4-cents-per-share dividend.

The $235 million A&B is paying to Grace shareholders is in the form of A&B common stock, which makes up 85 percent, and cash, comprising 15 percent. A&B said it will issue between 5.33 million and 6.34 million new shares.

The $235 million will be paid to Grace’s 135 shareholders. Five of those shareholders own 71 percent of Grace.

Walter Dods, former head of First Hawaiian Bank, owns 12 percent of Grace. His share of the $235 million works out to $28.2 million. Dods also sits on the board of A&B. Another A&B director, Jeff Wata­nabe, holds a 1 percent interest in Grace.

"The transaction was unanimously approved by special committees and the boards of directors of each company, consisting of directors who did not have interests in Grace," the companies said in the news release.

Mid Pac Petroleum, a fuel distribution and retailing company which Grace owns, will be spun off to Grace’s existing shareholders and not be acquired by A&B, the companies said. Jim Yates will continue to serve as Mid Pac Petroleum’s president and CEO after the spinoff.