WHO REALLY OWNS PABST?

[Update: Thursday, July 17th, 2008 -- This posting, now two years old, continues to be a popular one. Over the last couple of weeks there has been a considerable increase in people Googling "Who Owns Pabst?" and I updated this post, and wrote a new one that covers the Pabst reaction to the AB-InBev merger. -- Ed.]

WHO REALLY OWNS PABST?

(An Uncharitable Foundation)

A Milwaukeeworld special

By Michael Horne

Supervisor Roger Quindel made news last week when he introduced a resolution proposing that the Milwaukee County Board rescind its policy of banning the sale of Pabst Brewing Company’s products by Milwaukee County departments. The policy was put into effect in 1996 to express the county board’s disapproval of the closing of Pabst’s Milwaukee plant; the loss of 245 brewery jobs; and the cancellation of health insurance and death benefits for nearly 800 retirees.

The Quindel resolution read, “Pabst is now owned by S&P Company, which is in turn owned by a charitable foundation that has contributed in excess of $15 million to promote colleges, universities and hospitals.”

He then rescinded his own resolution when it turned out Pabst is still in litigation with former employees of the Joseph Schlitz Brewing Company, the brands of which are owned by Pabst. Nice reason, but there are plenty more.

The Kalmanovitz Charitable Foundation is a scam, carrying S&P stock on its books at pennies – or less – on the dollar. The Kalmanovitz Charitable Foundation, the charity in question, donated only $108,000 to charities last year, rather than the $20 million that would have been expected had it honestly stated its assets. [Things have gotten better since this original report. The Foundation's IRS Form 990PF for 2005, ending June 30th, 2006, the most recent on file, shows distributions of $6.5 million that year.--Ed.]

The foundation, named after Lydia and Paul Kalmanovitz, the former owners of Pabst, received 100 per cent of the shares of S&P Corporation in July 2000. The estate claimed a $387.7 million tax deduction for transferring its assets, including Pabst and real estate, to the foundation.

However, the foundation trustees valued the shares they received at only $2 million. That is a $385.7 million discrepancy.

In 1998, the IRS sued the estate of Lydia Kalmanovitz, claiming it understated its tax bill by more than $210 million by the stock transfer.

From 2000 – 2002, the foundation claimed in its tax records that its assets were only $2 million. It was not until its 2003 tax return that it increased the fair market value of the stock – to $10 million. That is probably still one-fiftieth of the true value of the assets, which include considerable real estate in California and the rights to dozens of beer trademarks. [By 2005 the assets were valued at $59 million.--Ed.]

The foundation lists only three trustees – Rev. John LoSchiavo, Bernard Orsi and Conrad Hewitt. LoSchiavo, a Jesuit, is the chancellor of the University of San Francisco, which received $36,000 from the foundation in 2003. That represents one-third of the total charitable contributions of the charity for that year.

Orsi, the president of S&P, is a former trustee of St. Mary’s College, Moraga, California. His alma mater also received $36,000 from the foundation in 2003.

Hewitt, an accountant, is the former Commissioner of the Department of Financial Institutions for the state of California. It is not known if he has any connection to the University of California – San Francisco, but that school also received $36,000 from the Kalmanovitz foundation in 2003. All trustees are unpaid. [Hewitt resigned in 2006 and was replaced with Lou Girardo. --Ed.]

Another complication is that charities are not allowed to own operating businesses according to IRS rules, which apparently do not apply to S&P. As long ago as 1996, William Bitting, a Los Angeles lawyer, former advisor to Howard Hughes, and then one of the three trustees, said, “it’s pretty safe to say that within five years that the Pabst assets will be sold.”

Ten years later, the foundation still owns the brewing company, which does not appear to be for sale.

Although Quindel may have overstated the charitable contributions of the Kalmanovitz trust and its eleemosynary intentions, it is clear that the company founded by Captain Fred Pabst, one of Milwaukee’s most charitable-minded citizens, and most generous employers, fell into a dark hole when it was purchased by Kalmanovitz, who seems to still be running it from his grave.

[UPDATE 10 August 2006. Conrad Hewitt has been named the Chief Accountant for the Securities and Exchange Commission. He will take office August 18th. Nice work if you can get it.]

        CHAIRMAN CHRISTOPHER COX NAMES CONRAD HEWITT TO  BE  THE  COMMISSION'S
     NEXT CHIEF ACCOUNTANT

     On July 24, Chairman Christopher Cox announced that Conrad  Hewitt,  a
     distinguished leader of the accounting profession and the former chief
     financial regulator  for  the  State  of  California,  will  join  the
     Securities and Exchange Commission as its next Chief Accountant.

     "Conrad Hewitt brings to the SEC over 30 years' experience as a leader
     of one of the world's largest accounting firms, a strong background as
     a regulator, and recent service as chairman of 10  audit  committees,"
     Chairman Cox said. "His deep commitment to promoting and  safeguarding
     the interests of investors and the efficient operation of our  capital
     markets  will  make  him  an  exceptionally  valuable  leader  of  our
     professional staff. Conrad's mission-to  maintain  the  integrity  and
     strength of our markets in an era of unprecedented global competition-
     is enormously important. His combination of public and private  sector
     experience, his extensive knowledge, and his practiced  judgment  make
     him exceptionally qualified to meet this challenge, and to help me and
     the Commission address the whole range of domestic  and  international
     issues facing us. With his help, we will ensure that America's markets
     remain the gold standard. When Conrad joins the  Commission,  he  will
     become America's chief accountant, and  every  investor  will  be  his
     client."

     Mr. Hewitt currently is Chairman of the  Audit  Committee  of  Varian,
     Inc. He also chairs the Audit Committee  of  North  Bay  Bancorp,  and
     chairs both the Compensation Committees and the  Audit  Committees  of
     S&P Co. and Pabst Brewing Co. From 1995 to  1998,  he  was  California
     Superintendent  of  Banking  and  Commissioner   of   the   California
     Department of Financial Institutions.

     From 1972 to 1995, Mr. Hewitt was the  Managing  Partner  of  Ernst  &
     Young, and its predecessor firm, Ernst & Ernst, in the firm's Northern
     California  (1986-95),  Seattle  (1979-86),  and  Honolulu   (1972-79)
     regions.

     He began his career as an auditor in the U.S. Air Force  at  Strategic
     Air Command Headquarters. He held the rank of Captain.

     "I'm delighted to once again have the opportunity for  public  service
     to protect investors," Mr. Hewitt said. "Having  worked  closely  with
     former Financial Accounting Standards Board Chairman Denny  Beresford,
     I particularly look forward to a close working relationship  with  the
     FASB. My experience as the chairman of several  public  company  audit
     and compensation committees, during which I worked directly  with  the
     nation's largest auditing firms to implement  the  provisions  of  the
     Sarbanes-Oxley Act in the private sector, has given me  great  respect
     for the role of the Public Company Accounting Oversight Board. I  look
     forward to working  with  the  professionals  there  to  maximize  the
     protection of  shareholders  while  eliminating  excessive  costs  and
     burdens both here and abroad. The challenges for accounting,  both  in
     the U.S. and throughout  the  world,  have  never  been  greater.  I'm
     confident that we will meet them."

     As   Chief   Accountant,   Mr.   Hewitt   will   oversee    accounting
     interpretations, international accounting  matters,  and  professional
     practice issues. He will lead the Commission's  work  on  implementing
     Sarbanes-Oxley's internal control provisions, reducing  complexity  in
     accounting,  enforcing  compliance  with  accounting  standards,   and
     promoting the convergence of accounting standards under U.S. Generally
     Accepted Accounting Principles and International  Financial  Reporting
     Standards.

     Mr. Hewitt earned a Bachelor of Science in Finance and Banking at  the
     University of Illinois. He performed graduate work at  the  University
     of Southern California  and  participated  in  executive  programs  at
     Stanford University and Northwestern University.  He  is  a  certified
     public accountant.

     Mr. Hewitt will begin his duties at the Commission on Aug.  18,  2006.
     (Press Rel. 2006-122)