In a court battle over one sister's fight to sell her stake in the Lunds' family-owned grocery chain, two siblings have sided with their brother, CEO Tres Lund.
Shauna Lund McFeeley and Robert Lund both testified in Hennepin County District Court Friday that Kim Lund's demand to sell her stake could would hurt their own interests, including possibly lowering dividends they receive from the company's profits.
Kim, 57, is suing Edina-based Lunds Inc. and Tres Lund after repeatedly asking to cash out her inheritance and being told no.
"The buyout option [for Kim] is not a fair option for all," McFeeley, who lives in Charlotte, N.C., testified in court. "For me, it's putting the value of her 25 percent ahead of myself and everybody else."
Both McFeeley and Robert Lund testified that since Lunds Inc. would take on debt to pay Kim, the company's cash flow would be squeezed. "The company would lose liquidity for its current level of distribution," Orono resident Robert Lund told the court.
The four Lund siblings inherited their ownership in Lunds from their grandfather and father, both of whom died in 1992. Tres Lund, the second eldest after Kim, by then had became CEO of Lunds. He engineered the buyout of rival upscale grocer Byerly's in 1997, and over the years built a chain of 26 Lunds & Byerlys stores that employs 3,700 and produces about $660 million in annual sales.
Kim Lund, the oldest of the four and a longtime schoolteacher, has testified she wants her inheritance freed up so she can turn her "part-time" job of philanthropist into a full-time vocation.
In her suit, she claimed that Lunds Inc. and Tres Lund had been "unfairly prejudicial to her ownership rights," and she also asked that Tres be removed as a trustee over part of her inheritance. Hennepin County Chief Judge Ivy Bernhardson has already ruled that Kim Lund has the right to a buyout.
The trial that began Tuesday will determine how much Kim Lund gets paid. Her financial experts say her stake is worth about $80 million; Lunds' experts value it at just more than $21 million.
Lunds says it would have to borrow up to $76 million to meet Kim's valuation, even paying her over several years. The company claims such "crippling" debt would endanger its future. Kim Lund's lawyers point out that Lunds has rejected several other financing options to buy her out, including selling her 25 percent stake to an outsider or to an employee stock ownership plan (ESOP).
Robert Lund testified Friday he would consider an ESOP, while McFeeley said she's against that idea. But both made clear they wanted the company to remain under family control.
"I believe Grandpa intended for only us [four siblings] to hold company stock," McFeeley told the court. "I don't want to deal with someone from the outside that I don't know."
McFeeley, the mother of three college-age daughters, told the court that she has repeatedly sought to cash out a relatively small portion of her own equity in Lunds. She had accepted a "redemption offer" put forward by Lunds' board not long before Kim filed suit. But McFeeley said if the company is "strapped" with debt to buy out Kim, she would "not push for liquidity."
Kim rejected the redemption offer, saying in her suit that it grossly undervalued her equity. The Lund siblings could participate in the offer "on a limited basis," the suit said, "but only $8 million is being made available for redemption, a far cry from coming forward with a proposal that provides for full liquidity."
In court filings and during the trial, Kim claimed that Tres Lund doesn't want to give up control of her ownership interests — and that Lunds' board consistently backs him up. The siblings, who never had significant jobs at Lunds, have no seats on Lunds' board — which until 2009, consisted basically of Tres. In that year, Tres appointed Mitch Avery and Gene Gerke as directors, both of whom are also defendants in Kim's suit.
Avery took the stand Thursday, and under cross-examination from Kim Lund's lawyer, Richard Ostlund, he acknowledged that Tres Lund — a longtime friend — had personally loaned him and his business interests about $200,000. The debt was incurred before Avery was named a Lunds director, and he told the court he still owes Tres money.
With a buyout of Kim, the other Lund siblings' ownership of the company would rise to 33 ⅓ percent.
Still, Robert Lund testified that if payments to Kim strained Lunds' cash flow, not only would it affect him and McFeeley, but it could hurt the company's ability to expand or weather a downturn.
Robert, who at age 45 is the youngest sibling, told the court he has infant twins and a 21-month-old child, and plans to pursue a graduate degree at the University of Minnesota beginning in May.
With little other income, "my family is dependent on the distribution" from Lunds to its shareholders, he testified.