St. Marys Loses Its Mill

  



Companies, People, Ideas
The Fall of The House of Gilman
Robert Lenzner Tomas Kellner, 08.11.03

 How family feuds, business neglect and extravagant spending destroyed a billion-dollar fortune

Howard Gilman led a double life. He ran a group of companies that churned out the most mundane products you could imagine: paper bags, bleached cardboard and two-by-fours. Yet he could be found hosting glitzy functions where he would sip champagne with the likes of actress Isabella Rossellini, or entertaining dancer Mikhail Baryshnikov at his elegant plantation near Jacksonville, Fla., which Gilman transformed into a dance center and wildlife preserve.

It was at the 7,500-acre White Oak Plantation that Gilman was felled by a heart attack at age 73, in January 1998. By this time the Gilman family fortune, with $1.1 billion in assets, carried $550 million in debt. Now, just over five years later, much of the remaining money is gone. Gilman, who was childless, bequeathed the vast majority of his assets to the Howard Gilman Foundation. Yet at the close of 2001 the fair market value of the charity's assets was only $227 million. The foundation's 2002 IRS filing won't be available until this fall. But the circumstantial evidence is that it is in a downward spiral. One of the assets it held was a $47 million IOU from the parent of the buyer of the Gilman paper mill. With the buyer in bankruptcy--and the parent suing the Gilman estate for fraud--that asset may be worth nothing. The foundation, which typically gave to arts groups, is so broke that it stopped handing out new grants in 2003. (It is honoring existing grants.)

Shirtsleeves to shirtsleeves in three generations, says the adage about family fortunes. The rise and fall of the Gilmans fits that pattern. Like many American success stories, this one begins on Manhattan's Lower East Side, the first stop for Jews fleeing eastern Europe. Isaac Gilman arrived in the 1880s and peddled trinkets on the crowded streets. By 1907 he had enough money to take over a distressed New England paper company in the village of Fitzdale, Vt., making newsprint and wrapping paper. The locals were so grateful they changed Fitzdale's name to Gilman in 1921.

Isaac passed the business to his son Charles, who in 1939 moved the business south to the Georgia-Florida border, not far from Jacksonville. There he built a large mill with three paper machines. He added a short-line railroad to haul trees, pulp and paper. The Gilman Paper Co. prospered and grew into the largest privately held paper company in the U.S.

When Charles died in 1967 the problems for the third generation of Gilmans began. Charles Jr., known as Chris, was president; Howard, the older brother, was a senior officer. Their relationship became strained, riven by jealousy and bitterness over control of the company, according to friends and family. In 1979 their mother, Sylvia, sided with Chris, disinheriting Howard and leaving Chris with control of the business.

Enter Bernard D. Bergreen, a New York City attorney who says he met Howard at a New York party in 1979 and became his personal counsel and, later, financial adviser and general counsel to the business. "Howard's financial future in 1979 was clouded at best," says Bergreen, 80. He also states Gilman had no equity in the company and limited business or investing experience.

Bergreen spoke only briefly with FORBES. His account, which largely blames Howard and Chris for the demise of the fortune--and of course can't be disputed since the two men are now dead--is contained in an 81-page petition filed with the Surrogate's Court in Manhattan. Bergreen says he managed to reinstate Howard's stake in the paper company by arranging for the two brothers to each obtain 50% of Gilman basically for free from the trust that controlled their father's estate.

In the middle of this turmoil Chris died from a heart attack in 1982, at 51. A new round of litigation ensued between Chris' widow, Sondra, and Howard over whether she was required to sell her share of the company to Howard. Sondra told FORBES she decided finally to sell her shares to Howard because, she says, she didn't want to leave her future "in irresponsible hands." That left Howard as the sole owner of the Gilman empire.

But after two decades of legal wars, the business was ailing and, as Bergreen tells it, Gilman wasn't the right person to turn it around. He says he could not convince Gilman to invest the capital necessary to keep the paper business competitive. A papermaking machine today costs $100 million or more; Bergreen claims Gilman had other uses for the money. Between 1988 and 1997 he lavished $300 million on his philanthropy and what Bergreen calls "pet projects." Back at the mill, a big source of this largesse, the business faltered and profits turned into losses--$55 million over the last two years of Howard's life.

The biggest pet project: $154 million spent transforming the White Oak Plantation in Yulee, Fla., which was acquired by the Gilman family in 1938, into a dance center for Baryshnikov and other noted artists, a conference center and a home for 60 species of endangered and threatened animals, including reticulated giraffes, okapis, black and white rhinoceros, and cheetahs. Howard played host at White Oak to U.S. presidents and celebrities and their families, often using the company's plane to ferry them to White Oak. The guests were fed meals prepared by top-notch chefs. Bill Clinton played golf on Gilman's private nine-hole course.

The Gilman fortune also was devastated by huge losses in the bond market during the years 1992-94 and by a bad investment in the entertainment business, $63 million spent on a forgettable television series called Space Precinct.

But Howard Gilman never neglected his philanthropy, making big gifts to the Howard Gilman Gallery at the Metropolitan Museum of Art and the Howard Gilman Opera House at the Brooklyn Academy of Music. Gilman also backed many dance and theater companies and was Baryshnikov's patron from the moment the Russian dancer landed in the U.S.

Bergreen, coexecutor of Gilman's will, sold off some assets, including timber holdings and the plane. A division that sold lumber declined in value from $230 million after Gilman's death to around $67 million today, according to Dun & Bradstreet. Bergreen blames a glut of Canadian lumber. Other foundation assets at year-end 2001: $38 million in securities (not counting the dubious loan on the mill), White Oak and a highly regarded collection of photos.

If the Gilman Foundation is ailing, Bergreen is not. Between 1985 and 1997 he earned $40 million from Gilman, according to a court filing, and in 2001 Bergreen wanted another $40.5 million for services from 1998 to 2000. The foundation's board sliced that to $17 million, and the New York attorney general's office is trying to force a further reduction.

Why didn't Gilman sell the holdings if, as suggested, he had little interest in running the business? The former corporate controller of Gilman Paper, Michael Pallen, offers this: "He felt tremendous loyalty to his family and employees." Sentiment, in this case, seems highly overrated.