How To Succeed in Business Without Really Bribing
Boyd, James
How to Succeed in Business Without Really Bribing by James Boyd Every society proclaims a close relationship between its dominant group and Almighty God. It was inevitable, therefore, that in...
...PASCO was a mining empire with $78 million in liquid assets, of which $60 million was in cash or cash equivalents...
...They do, however, represent another judicial instance in which federal judges examined Korholz’s mode of doing business and found that it conformed to approved standards...
...Schy could carry the fight only because he was a lawyer, enjoyed vigorous health, and had some financial reserves...
...His corporate flagship, American Gypsum, with which he had won those early victories, was foundering and destined to be sold for salvage...
...failures to disclose matters of self-dealing...
...He announced a plan to borrow $38 million from PASCO-but its minority stockholders fought the plan and tied it up in a court stalemate...
...Soon he woyld be the controlling voice...
...After the inspectors left, the spinners were dug up and reinstalled...
...At the first PASCO board meeting thereafter, the remaining Korholz promises were broken...
...There was no conspiracy, just unconnected circumstance...
...In the tender-offer papers he filed with PASCO management and the SEC he put these assurances in writing: Susquehanna does not plan or propose to liquidate Pan American, to sell its assets to, or merge it with, any other person, or to make any other major change in its business or corporate structure...
...Under the terms of the merger, Korholz became a major stockholder of American Gypsum and was named to its board of directors...
...Rhyne’s Decor As past president of the American Bar Association, Rhyne stood on the top rung of his profession...
...Why couldn’t the records be changed to show a repayment date in the remote future-a change in writing only, of course...
...After the new class of preferred stockholders had received their guaranteed annual dividends, or their liquidation price, there would probably be nothing left over for the 9,000 existing Susquehanna stockholders, either for dividends, or for liquidation if the company went bust...
...He appears to have advanced his $100,000 to one Anthony Reilly, president of Rock Wool, for stock purchases, then to have become engaged with Reilly in a six-year campaign of legal ambuscades from which Korholz emerged the survivor...
...By the spring of 1971, 18 months after that investment, the $72-million value had shrunk to $12 million, a loss of $60 million...
...to get this personal windfall, five directors must quit the board, to be replaced by Korholz and his men...
...Wheelock Whitney, owner of 25,000 shares of Susquehanna, was traveling when the $15 offer was made, and by the time he heard of it, and of the pull-out by the Lannan group, Korholz had exhausted h s credit and obtained all the resignations he needed...
...Again, he would be in a position to profit from the inside knowledge that a merger was in the works, one that would drive up the price of Atlantic stock...
...Besides, the absurdities of the Tax Code gave a perverse value to white elephants...
...his known Susquehanna holdings alone are valued at $32 million...
...But the “voting trust” never materialized...
...It also meant that on any issue on which Sloan and Korholz disagreed, there would not be anarchy...
...Only a few words were to be changed, in dusty files that no longer meant anything to anyone...
...Not only had he pocketed another fortune, but he had bequeathed an internal plague at Susquehanna that went by the name of Mike Coen...
...Lannan, Wirtz, and three others resigned their posts of trust a month after being duly elected and turned them over to unlikely newcomers planning basic changes in company policy...
...Behind these laws stands a vast array of prosecutors, courts, and regulatory agencies...
...For many a dark Calvinist decade, success in business was held to be a sign of righteousness and of God’s favor...
...Korholz would make a binding oral promise of immediate repayment, but it would be a secretfrom the SEC, the stockholders, even from the company auditors, to make sure they didn’t enter that $6.5 million in the books as a current liability...
...what he lacked was access to other people’s money...
...Such losses for Susquehanna, a corporation with an earned surplus of only $13 million at its highest, were calamitous...
...A series of circumstances as fickle as those which resulted in the last-minute selection of Hiroshima turned Korholz toward the Susquehanna Corporation, headquartered in Chicago...
...Henceforth, Thomson and Martin, Coen’s cronies on the Susquehanna board, would support every Korholz proposal until they resigned...
...Spring, 1972, should bring a revival of the stock market, which means a rebirth of speculative openings for Korholz and his friends...
...Korholz had not been the only suitor to aspire to control of the millions piling up in Suzy-Q’s treasury...
...Only the future could reveal the ultimate nature of Cohen’s new association with Korholz, but the elements of concealment surrounding its beginning were not auspicious...
...many suits would have ended there, but Schy and Dasho persevered in the appeals process and got a reversal...
...It must have seemed ironic to Maurice Schy that when a court case was finally won against Susquehanna management, he didn’t happen to be involved in it...
...once more he promised to desist...
...Korholz, in the process, acquired 141,700 shares of Atlantic Research at the price of $17.50 a share...
...The letter charged that the Lannan-Korholz stock sale was a fraud on Susquehanna...
...For instance, the three had been involved in a series of purchases where by Smith’s Wes tga t e-Cali fornia bought $70-million worth of stock and property from a group that included Korholz and Coen, at a spectacular profit to the latter two...
...In December of that year, Bastian-Blessing would fall captive...
...Lannan and his fellow directors had just been reelected after a bitter contest...
...Two scientist-entrepreneurs were the big stockholders and bosses...
...Rhyne himself, as general counsel, was legally responsible for this statement...
...Now in control of Susquehanna’s treasury, he laid siege to General Refractories, spending $10 million to comer 24 per cent of its stock in late 1965...
...Korholz was wont to discount mere annoyances like fraud suits or the blatherings of the Internal Revenue Service...
...Coen is bidding to take over Ozark Airlines...
...two others, A. D. Martin, a director of 30 companies, and Albert W. Thomson, once a lawyer for the SEC, and now Coen’s lawyer and chairman of the Board of Police Commissioners of Kansas City, were sitting on the board of Susquehanna as legates of Coen when Korholz, flushed with victory, arrived to take command as board chairman...
...Boshell brought Korholz together with Boshell, Jr., and President Raben Schenk of Susquehanna for preliminary talks...
...This time it wasn’t a case of a citizen-stockholder going against a great corporation on hostile territory...
...Prestige in the Pit In the triumphant years after his release from the federal prison camp at Florence, Arizona, in 1960, Korholz had not changed his basic tactics, only the scale of his operations...
...Korholz put the question frankly, according to later testimony: “Do you want to make some money on your who are in almost wordless communion, “You’re thinking along the right lines.’’ Having procured authorization from his board, Korholz introduced Coen to a power at Vanadium...
...For Korholz, Coen had the heavy artillery waiting-a formal broadside sent to all directors by his ally, Thomson...
...This, added to the dominions conquered in a 10-year run of corporate take-overs-Better Industries, American Gypsum, Treesdale Labora tones, Susquehanna, Atlantic Research, Greystone, Xebec, Pioneer Astro, Bastian-Blessing-gave him and his confederates sway over a virtual empire in uranium, gypsum, cosmetics, electronics, aerospace, missiles, fertilizer plants, building materials, railroad properties, bus companies, and brokerage houses, an empire of solid substances which, he could boast to himself, had been created out of things as tenuous as paper, borrowed money, promises, sleight of hand...
...On the same day, Korholz entered into the first of a series of merger pledges, first with the impecunious Scurlock, later with Sloan...
...Confronted with the various convictions, fines, penalties, and judgments against Korholz, the judge simply refused to admit them in evidence...
...Korholz had now grown large enough to sometimes dispense with cunning...
...There is a large file on Coen maintained by the National Association of Securities Dealers, an official body that works in tandem with the Securities and Exchange Commission (SEC) in policing the more outrageous swindles among stockbrokers...
...Explanations to the Susquehanna stockholders could be made later, when Korholz was in firm control of all the machinery...
...Korholz acquired 3 8 per cent of PASCO’s stock...
...By picking up Susquehanna’s debts, the Studebaker-Worthington group got right to the old stock warrants issued to State Mutual in consideration for their loans in the era of the Treesdale and American Gypsum mergers...
...On merger day, Korholz’s 1.4 million shares of American Gypsum, worth several million if a buyer could be found, were automatically converted into 736,000 shares of Susquehanna that, within 16 months, would have a market value of more than $20 million...
...The letter charged that the Lannan-Korholz stock sale was a fraud on Susquehanna...
...To the emerging tycoon such a feat is as intoxicating as is a double envelopment to the field marshal...
...Side deals and foraging did not long divert Korholz from grander designs, however...
...At the stockholders’ meeting Lannan had given his public assurance that he would not sell his stock “even for $18 a share...
...Dispensing with Cunning Maurice Schy, the dissenting stockholder, tried to force a court review of this latest merger by filing a suit which claimed that the Susquehanna shareholders had been deceived (by misleading statements from management) into approving the issuance of preferred stock to their own great disadvantage...
...Korholz determined that working control of PASCO could be achieved by purchasing 38 per cent of its stock...
...The equity of this ratio is still under challenge in the courts, but the effect of the merger on Korholz’s personal holdings is already a matter of public record...
...If the sentence seems anticlimactic after the findings, we must remember that businessmen trying other businessmen are like senators judging a peer, or judges giving suspended sentences to peculating D. A.s...
...He may not buy or sell stocks on the basis of inside information not available to the investing public...
...Notwithstanding this obvious imbalance of personal interest, Korholz was the principal actor in setting the conditions under which Susquehanna, the “surviving entity,” would take over American Gypsum’s assets and also the $12.5 million in debts Korholz had negotiated in recent months...
...But to one small stockholder, Maurice Schy, the sudden handing over of his company to Korholz just didn’t look right...
...The PASCO leadership immediately filed suit to enjoin Korholz from voting the stock they claimed he had obtained by misrepresentation...
...He proceeded with his plans, borrowed $6.5 million from the First National Bank of Boston, offering as his collateral the signed resignations of enough Susquehanna board members-and the designations of Korholz men to replace them-to guarantee access to the Susquehanna millions...
...With it, he laid claim to his first real corporate command...
...This is a formidable legal formula in a corporate trial which excuses much...
...And ASARCO pulled out of any merger discussions with Korholz...
...And so on...
...Lannan and Boshell and Ralph Bogan, another director, set up the covert change of management to be followed by the merger, but kept it secret from many of their fellow board members and from the stockholders...
...Schy in the Ointment Had it be& left to the regulatory and law-enforcement bodies that are supposed to police corporate transactions, Korholz’s conquest of Susquehanna would have passed unchallenged...
...may not leave the interests of the corporation undefended agai-nst the machinations of predators...
...as longtime chairman of the Committee for World Peace through Law, he had the patina of an international juridicist...
...Such a determination could block the merger...
...Caveat emptor...
...each principal gave advantageous stock options to the other and there were long-term guarantees to Scurlock and Sloan of salaries, offices, and other emoluments from the new Susquehanna that would result from the merger...
...But Korholz was satisfied that Lannan wanted to get out of Susquehanna if the price was right, and he was offering Lannan a price that would mean upwards of a millionanda-half dollars in instant profits for him and the select group of relatives and friends admitted to the deal...
...Korholz put the question frankly, according to later testimony: “Do you want to make some money on your companies, and Albert W. Thomson, once a lawyer for the SEC, and now Coen’s lawyer and chairman of the Board of Police Commissioners of Kansas City, were sitting on the board of Susquehanna as legates of Coen when Korholz, flushed with victory, arrived to take command as board chairman...
...Behemoth Which brings us back to that Friday in 1968 when our story began...
...Although I am not certain whether the firm’s representation will involve my appearance before the Commission, I believe that disclosure of this information at this time is in accordance with the spirit of the Commission’s rules affecting conduct of former Commission members...
...His employees and partners have access to the new President, clout with the regulatory agencies, influence with the courts...
...In 1966, he began his acquisition of Xebec and then of Atlantic Research...
...This came as a particular blow to Schy, first because it challenged his comfortable assumption that liberal heroes like Cohen, when it came to fraternizing with corporations that had once been under one’s official purview, behaved differently from run-of-the-mill Republican commissioners, of whom such things were routinely expected...
...Aris tocra t-banker Wheelock Whitney, a major Susquehanna stockholder and recently resigned director, was a governor of the Investment Bankers Association of America and in 1964 had been the Republican candidate for the Senate against Eugene McCarthy...
...Not at all...
...Lannan, the old manipulator, exited from Susquehanna laughing...
...It demanded that the board sue to recover for Susquehanna the “cash bonus” realized by the Lannan group, and urged the board to seek an injunction to restrain Korholz and his men from assuming office and to forbid the voting of the stock obtained in the “illegal agreement...
...If Korholz found the chicaneries of Lannan and Coen enticing, the attraction of partnership with Dr...
...Of the 92 findings in the Judge’s opinion, 84 were taken verbatim from Susquehanna’s offering and four others were almost verbatim...
...reads the judge’s opinion, “Korholz ordered the dismantling and removal of the Downey spinners from the plant...
...Korholz was not to enjoy the fruits, however...
...If he had lost some of his former subtlety, Korholz had raised his perfidy to new heights...
...But the penalty attached to the decision was merely that Susquehanna must amend the tenderoffer papers it had filed two years before...
...An SEC finding on Scurlock and Sloan’s management hummed with such phrases as “misrepresentation and fraud...
...Korholz resisted this retribution with characteristic ingenuity...
...Korholz undertook to convince them that all he had in mind was a good investment...
...To Korholz this was merely another “problem of presentation...
...But on this triumphant morning, the sharp features must have been wreathed in unaccustomed warmth...
...Patrick Lannan, at 59 a buccaneer of legendary machinations...
...And with Coen removed, only the formalities of ratification stood in the way of the merger between American Gypsum and Susquehanna...
...no sale of control, just an orderly change of officers in a normal way...
...The evasions required for successive victories had opened Korholz’s credibility to doubt in some quarters...
...and he had “employed devices, schemes, and artifices to defraud and engaged in acts, practices, and courses of business which would and did operate as a fraud or deceit upon” the stockholders of Susquehanna and PASCO...
...When the stripping process was completed, the Guthrie group had 30 per cent of Susquehanna’s stock, more than enough to take control from Korholz-as was demonstrated when they began to place their own men on the board, replaced Korholz’s chief of operations, and installed the former Nixon law firm (Mudge, Rose, Guthne, and Alexander) as general counsel for Susquehanna...
...Though Korholz now dominated the management of both corporations, his own money was sunk into only one-his family owned 58 per cent of American Gypsum’s stock, but they owned very little Susquehanna stock...
...And he had other prospects...
...Management had no present intention to create or issue the preferred stock, the statement went on, no plans to merge with anyone, especially Atlantic Research...
...First, Susquehanna would merge with Pan America Sulphur (PASCO), and then use PASCO’s assets to effect a merger with American Smelting and Refining (ASARCO) The result would be a $2-billion operation...
...In the fall of 1971, they bought Susquehanna out from under Korholz, in his own coin-in a Fellini-like evocation of Korholz’s past deals that resurrected to view all the faces one would like to forget...
...On November 6, he appeared before the PASCO board to allay any apprehensions that he intended to raid, or loot, or take control...
...The legal process had not yet had full opportunity to arrive at justice...
...In 1964, Coen again achieved public notice...
...seem younger and taller than his 55 years and his five foot ten...
...one of them, William Morriss, is now the lieutenant governor of Missouri...
...American Gypsum had lost $303,264 in 1960-61 and had liabilities of $2 million...
...His incoming neighbors will be potentates in the new Nixon Administration...
...On March 29, 1967, he sent out an ambiguous proxy statement which asked for “authorization” of a new class of preferred stock, just in case it was ever needed, a class for which management would set the terms...
...This was stiff competition for Korholz to meet, but with his exquisite nose he smelled out the soft spot in Atlantic Research’s defenses-its leadership...
...Whatever his reduced position at Susquehanna, he was still the nominal president, with a foothold...
...may not benefit himself at the expense of his corporation...
...but not impediments...
...Korholz liked what he heard well enough to begin to set things up with his New England bankers...
...At the time the statement was made, 40,000 shares had already been traded and 352,313 more were being put up for sale...
...may not borrow money to buy stocks beyond the limits of margin requirements...
...Coen’s censured partners in Kansas City Transit were pillars of the midwest business community...
...Now, at first look, this seems a Pyrrhic progress, an advance toward ever- greater insolvency...
...First he approached Scurlock...
...The first was the reliability of the board chairman and real power at Susquehanna-J...
...Three-Finger Marx Coen was a substantial foe...
...When the U. S. Supreme Court refused to hear his appeal on the Atlantic Research decision, he pressed on with his appeal of the Marovitz decision on the Gypsum merger...
...But Korholz was not daunted by such conventionalities...
...Now in his sixties, Boshell had in his prime been head of a vast utility, Standard Gas and Electric, then president of Westinghouse Air Brake...
...Of such homely deeds, industrial baronies are born...
...Korholz talked it over with the indispensable Boshell, who had been designated to “act for” Susquehanna and protect its interests in the merger (the ironies of finance are even more delicious and sadistic than those of politics...
...Cohen had built up a reputation as a crusader for the public interest that should prove highly useful to Herb Korholz...
...Suppose this stock was personally owned by the chairman and key directors of Treesdale and suppose he paid them an above-the-market price for it, a bonus or “premium” that meant a big profit for the sellers...
...Susquehanna IOUs were trading at one-third of their face value and its stock had plunged from a high of 80 in 1968 to a low of 5 1/8 in mid-1 970...
...Thus was the real repayment date expunged from the public records, although secretly retained, and the merger pushed through without the stockholders or the SEC being informed of its most vital aspect...
...With the leadership divided and vulnerable to infiltration, Korholz moved in...
...Atlantic Research was the prime Air Force contractor for the Athena four-stage rocket vehicle system, as well as a maker of tactical missiles, bombs, incendiaries, and other weaponry...
...Even when this assumption began to lose hold, corporate leaders were still invested with an aura of legitimacy, respectability, and capability not accorded to politicians, academics, or professional men...
...Unfortunately, it was too spectacular and Westgate had to rescind^' $62.4 million of the purchases after its auditor committed lese majesty by filing a report that cast doubt on, rather than praised, these transactions...
...Or so we have been led to believe...
...The Johnnycome-latelies would get it all...
...This article is adapted from his chapter in In The Name of Profit: Profiles in Corporate Irresponsibility, to be published this month by Doubleday...
...instead, it was papered over with chaff about the trust being observed in fact, though not in form...
...He was sued by stockholders for diverting corporate funds to his own use through the establishment of a dummy corporation, and for building a $100,000 house for himself at company expense (which he later bought from the company for $55,000...
...The tender offer was launched on November 26 with advertisements in the Wall Street Journal which repeated Korholz’s “no takeover” pledges...
...Better still, Rhyne was already the general counsel at Atlantic, so the principals knew his mettle...
...A Wall Street Journal investigative report on this self-made millionaire had labeled him a “self-dealing tycoon” who “uses publicly owned firms to aid private ventures...
...He is a Survivor...
...Still, one must always be careful...
...Since there was no trial at which the issues could be developed, and since the decision was based in part on a technicality regarding Schy’s eligibility to represent Susquehanna stockholders as a class, the proceedings do not edify...
...To get there, and all the places beyond, he needed collaborators by the dozens-in corporate board rooms, in banks, among high government officials, even among friends of Presidents of the United S ta tes-collabora tors who would bring him prestige and respectability along with wealth and power...
...Few of us would dare rely on an insurance policy that was said to exist informally, though not formally entered into, even if the assurance came from a presidential confidant...
...Besides, Coen gave signs of being a gentleman on the right wavelength, one he could work with profitably...
...The PASCO management, apparently unaware of Korholz’s history, accepted his words at face value and made no opposition, despite a catch-all escape hatch the wily Korholz had included thereafter: However, if at some subsequent time, it should appear the interests of Pan American stockholders would be better served by any of the foregoing courses of action, Susquehanna may propose or adopt such a course...
...And there was a greater hazard here than the threat of dampened connubial ardor...
...No reason was given for this dereliction...
...But Korholz would have his day in court, and this belated attention by the SEC might yet prove another exercise in wrist-slapping...
...All the transactions described above were judged in that light...
...So he invested another $12 million and continued to buy until he held 51 per cent...
...Before Korholz and Sloan went before the stockholders, therefore, it was decided to bring in a nationally renowned lawyer, Charles S. Rhyne...
...He wanted a partner, as he said, “with heavy resources and widely scattered and diffuse stockholders” -that is, lots of cash and thousands of shareholders so disorganized that control could be seized by another inside deal...
...This ratio was justified on the grounds that Susquehanna’s strong cash asset position was minimized because the company was a “liquidating concern,” and in reverse, Gypsum’s weak balance sheet was upgraded on the basis of expected future profits...
...secret profits...
...How to Succeed in Business Without Really Bribing by James Boyd Every society proclaims a close relationship between its dominant group and Almighty God...
...Upstairs Korholz had sworn that a certain discussion had taken place on May 1; downstairs he swore with equal vehemence that the date was May 3. Alternate diaries proving both cases had been subrnitted by Rhyne as evidence...
...Boshell agreed that they had “a problem of presentation...
...Caught in the act of using the pa tented spinning machines and processes of a competitor, he promised to cease and desist...
...the precariously balanced house of cards might come tumbling down...
...For instance, Sloan was guaranteed a high office with a salary of $80,000 a year for a minimum of three years...
...Presidential confidants, like the gods, don’t answer their mail...
...Not Herbert F. Korholz...
...And a federal judge found that he had acted with “bad faith and malevolent posture” in a patent-infringment ruse...
...Who was protecting their interests...
...Rhyne would cast the deciding vote and the combined stock would always be voted as a unit on any major question facing the corporation...
...On September 23, 1969, after learning that Schy had been in touch with the SEC on the matter, Cohen wrote to Schy confirming their phone conversation in these words: “Neither I nor my firm represents the Susquehanna Corporation or any of its subsidiaries...
...A res torative was required-regulatory laws...
...He sent emissaries to Korholz to complain that he had not been let in on the deal add to ask Korholz to buy his 25,000 shares at the special price, even though the offer had run out...
...Susquehanna had its first day in court, in Chicago, before federal Judge Abraham Marovitz, it was summarily thrown out...
...Korholz agreed to fix him up with a loan of $1.8 million...
...In 1952, however, Korholz emerged from a series of undistinguished soda pop and ice cream vending ventures with $100,000-or at least the use of it...
...Once Korholz was in control of Susquehanna’s board, the merger with Gypsum would be little more than a formality...
...This represented, for Rhyne’s 15,000 optioned shares, an appreciation of $577,500...
...Korholz, the president and real boss...
...J. Earle May and Francis Woolard, two other directors, did not sell their own stock, recognizing the impropriety involved, but they used their inside information to urge the clients of their brokerage firms to sell holdings in Susquehanna stock at the fancy price...
...but such mumbo jumbo is often gotten by with in high finance...
...How do you persuade your stockholders to disenfranchise themselves...
...Every Board Has Its Price As we watch our hero, knife in teeth, boarding Susquehanna from one side and Coen scaling up the other while Captain Lannan and his officers abandon ship, a moment’s silence may be in order for 9,145 passengers entrusted to the care of these gentlemen...
...Coen had won only two places on Susquehanna’s 15-man board, but in Coen’s hands they represented a. beachhead from which a free-swinging assault could be launched against Korholz...
...Not a single member of the board took any step to alert the stockholders to all this critical information or, except for the strategems of Martin and Thomson, to protest the covert self-dealing taking place on all sides...
...When Dasho vs...
...no dishonor in the Coen sale, just removal of a divisive influence for the good of the company...
...may not misrepresent the facts to other directors or stockholders...
...Yet on July 3, 1969, Cohen had written to the SEC, formally notifying it of his new affiliation with Korholz: Pursuant to Rule 6B of the Securities and Exchange Commission’s Conduct Regulations...
...Therefore, his lawyer, attorney Charles Rhyne, had made one opening argument upstairs, and the opposite argument downstairs...
...The plan was for a leapfrog merger with two titans...
...On one of his trips to Washington in 1969, Schy heard through the grapevine that Cohen, under whose chairmanship the SEC had begun investigating Susquehanna’s activities, had just been retained as counsel by Susquehanna...
...Arch Scurlock and Dr...
...In this case, the cost to Susquehanna stockholders is the easiest to trace...
...What went on upstairs had nothing to do with what went on downstairs...
...Boshell had assisted Korholz in a previous merger attempt and was again available...
...In the meantime, the SEC had started an investigation...
...Susquehanna, which was tried in the same courthouse, upstairs...
...This would cost about $72 million...
...Schy had for years been trying to stimulate SEC action against Susquehanna...
...Tucked away in another company report, dated August 16, 1968, is an entry recording that Charles S. Rhyne had received an option under the Employees’ Option Plan to purchase 15,000 shares of Susquehanna at $41.50...
...His investment in the company was small, but the principles seemed to him fundamental...
...Although the book value of a share of Susquehanna’s stock was four times that of American Gypsum’s, the two stocks were exchanged at a 1.9-to-one ratio...
...Its General Refractories stock had to be sold, at a loss of $5 million...
...Some are saying that Korholz is worth more than $50 million...
...For one thing, he needed financing for the half million he had to return to his company treasury in order to settle various stockholder suits against him...
...He had made life miserable for the great Lannan by having his surrogates on the board vociferously oppose every routine measure Lannan brought up...
...Skeptics might argue that Treesdale had thus paid for its own takeover, but it was unlikely that such simplistic reasoning would find sympathy with the courts...
...He was adjudged the culpable officer in fraudulent evasion of Interstate Commerce Commission regulations...
...It demanded that the board sue to recover for Susquehanna the “cash bonus” realized by the Lannan group, and urged the board to seek an injunction to restrain Korholz and his men from assuming office and to forbid the voting of the stock obtained in the “illegal agreement...
...Regrettably, even the assurance that the voting trust was being observed informally was leaky...
...Profit-making firms can cut their taxes magnificently by merging with big losers...
...In 1961, Korholz merged Better Industries with the American Gypsum Company, a humble maker of wallboard with 66 employees...
...Martin and Thomson used their directorships to engineer the sale of Vanadium stock to their ally Coen at a fantastic profit to Coen and a serious loss to Susquehanna...
...He had deals of great promise underway out West with Mike Coen and C. Arnholt Smith...
...In 1971, Susquehanna had to declare a loss of $40 million for the previous year, and Fortune magazine listed it as the top money loser in its class (the second 500 largest industrials)-and by a mile...
...All went like clockwork...
...Nothing could be clearer...
...Aksel Nielsen and C. Arnolt Smith had in the past served this purpose for Korholz and the Kansas City group, but now a fresh presidential friend was needed...
...As he savored his morning coffee, the Wall Street Journal was trumpeting to all who mattered the news of his $2-billion proposal to seize control of the American Smelting and Refining Company, giant of copper, silver, lead, and zinc...
...A more timid soul would have paled at the thought of asking a great bank and two distinguished insurance companies to participate in deception, but Korholz knew his bankers well...
...Borrowing heavily, he merged Rock Wool into Better Industries, Inc., a New England manufacturer of hair brushes and toiletries that had once enjoyed a $3-million annual business volume but had been in serious decline for several years, until its net worth had dropped to $8,363...
...There was a chance of trouble here...
...Since Korholz controlled both managements, had bought out all serious opposition, and had control of the official information the stockholders would receive-the “decision” of the stockholders was almost as preordained as the result of an election in the AFL-CIO...
...His hair was brown, his figure was trim, his dress dapper, making him James Boyd is a contributing editor of The Washington Monthly...
...Scurlock needed money, big money...
...he could annex corporations by frontal assault...
...But even as he made these solemn pledges, Korholz was assuring his lenders that he would use PASCO’s assets to acquire yet another corporation...
...Marovitz was upheld only on his dismissal of the claims against four of the 13 defendants: Michels, who had died, and Lannan and two lesser directors, on the grounds that their resignations from the board removed them from legal responsibility for what was done thereafter...
...It made the ruling in the face of the Fifth Circuit Court of Appeals’ decision to the contrary...
...Three weeks later, PioneerAstro moved to annex BastianBlessing via a “tender offer”-a public offer to buy, at an above-the-market price, enough stock to gain working control (since stock ownership is scattered and divided, working control can be achieved with far less than 51 per cent of all stock...
...All the consequences that flowed from the false statements-the successful stock purchase, the takeover of PASCO, the commandeering of its board and its assets-were to stand...
...As we have seen, he had gained control of Pan American Sulphur Company and its $60 million in cash...
...Smith has been asked, according to the New York Times, to bail out the Republican National Convention for San Diego, after the ITT fiasco...
...The stock was exchanged and the insider fortunes were made once more...
...George Bard was president of Kelso-Burnett Electric...
...Further, Korholz promised not to replace the existing board of PASCO...
...The merger was ratified on November 27, 1967...
...Adam Smith’s Revenge The reckoning which had not come at the hands of corporate trustee or federal judge or SEC commissioner came in the marketplace...
...Five weeks later, Korholz unabashedly made a formal proposal to merge with Atlantic Research, a deal by which Susquehanna would issue three million shares of preferred stock and exchange it for Atlantic’s common stock...
...To win it, they had sent proxy solicitations to the 9,145 stockholders which warned that any change in management could “seriously hamper merger negotiations now in progress with several major corporations whose stocks are listed on the New York Stock Exchange...
...may not conceal relevant information from the stockholders on matters requiring their vote...
...The trick was to get big enough to be within the sanctuary of high corporate law...
...One can exercise it only by mortgaging one’s financial future to meet crushing legal expenses, and by sacrificing years of life contending with revolving teams of corporate law firms which, being immortal, thrive on delay...
...At the conclusion of the trials each side submitted its proposed findings to the court...
...He was now in silver, a large stockholder of Golconda...
...Mergers with several other impecunious firms followed, and when the dust partially cleared, Korholz and his wife and three daughters were the sole owners of a curious agglomerate...
...The lower court was duly reversed as the legal system once more affirmed, in effect, that actions that are unspeakable affronts to personal morals are unobjectionable in corporate transactions...
...I wish to inform you that the firm of Wilmer, Cutler & Pickering, of which I am a partner, has been asked to consult with counsel for Susquehanna Corporation with reference to prospective registration statements for new offerings by subsidiaries of Susquehanna...
...mockery of the truth...
...On a Saturday or a Sunday in the privacy of their golf-club locker rooms, they may disdain a Korholz-but for his uncouthness, the obviousness of his greed, never for his rapacity itself...
...The adverse suits and internal scuffling that had raged around Sloan for years also evoked both apprehension and a longing for decorum and serenity...
...When the trial at last got underway, Judge Marovitz persisted in describing the cast of characters assembled in this tale as “men of unchallenged integrity and veracity...
...Boshell’s son-Ed, Jr.-happened to be the Susquehanna official in charge of seeking merger prospects...
...Court defeats of his challenges in the Gypsum and Atlantic Research mergers had not discouraged Schy, nor quite extinguished his faith in the legal process...
...In consideration for its loans to Treesdale and American Gypsum, State Mutual required the issuance to itself of stock warrants entitling it to purchase 160,000 shares of stock at sweetheart prices...
...false and misleading statements...
...So Susquehanna began stripping off its assets to raise money...
...In 195 1, when Coen was a stockbroker, he was fined $1,000 and had his license suspended for a year for a series of shady practices that, as the judgment said, “cannot be too strongly condemned and should be severely punished...
...before his advent, Coen had accumulated 250,000 shares of Susquehanna stock...
...The offer was successful and another corporation had suddenly fallen into Korholz’s orbit...
...The Aspiring Tycoon It was Friday the 13th of December, 1968, but to Herbert Korholz, president of the Susquehanna Corporation, the portents had never seemed so favorable...
...This was borrowed money that had been lost, money that had to be paid off...
...On August 8 the sale papers were signed...
...Harold Stuart, a director of Greyhound and Skelley Oil, could say casually that among his law partners over the years, one had become Secretary of the Air Force, another governor of Missouri, a third a federal judge, and two others United States senators...
...The early Korholz, with insights beyond ordinary understanding, saw that the way to wealth lay in massive indebtedness...
...In none of it did Judge Marovitz find any departure from normal, acceptable business practice...
...Arthur Sloan must have been irresistible...
...With it, he had harassed the Lannan leadership for months and led the proxy fight that called forth from Lannan those assurances to the stockholders he so routinely discarded after election day...
...Many of its names are recognized throughout the business world...
...In bygone times a United States senator or retired governor might have sufficed, but in these ungrateful days such offices inspire more suspicion than confidence...
...But its portent lies equally in the immaculate accessories in the shade, whose part is lesser, safer, but indispensable...
...Unrebuked, Korholz used his control of the PASCO board to achieve his ends on the sly (or so SEC investigators would later charge) by forcing PASCO to purchase certificates of deposit from the First National Bank of Boston and three other banks in exchange for loans of $42 million by those banks to Susquehanna...
...Moreover, Schy’s persistent demands on the SEC for the release of documents relating to Korholz’s possibly illegal collaborations with various banks kept that issue before the SEC staff...
...The solution, they decided, was to persuade the First National Bank of Boston to help them conceal the requirement of immediate payment...
...Here, as in Treesdale and in later raids, we see the lenders going beyond their accepted role to become the prime catalysts in mergers, using their financial muscle to force corporations to operate not so much in their own interest as in that of the banks...
...Smith, who would later join Korholz on the Susquehanna board, agreed to have his bank make the loan to Scurlock...
...Scurlock and Sloan were not so prudent...
...By late 1968, some of Korholz’s transactions were being looked at by the SEC, and Korholz would soon hire as Susquehanna’s lawyer no less than the respected Manuel Cohen, who was about to retire as chairman of the SEC...
...Embarrassments, yes...
...He was convicted and sentenced to federal prison for unlawfully giving money to a Teamster chief...
...Wheelock Whitney is today president of the Investment Bankers Association of America...
...These agreements were similar in that Scurlock and Sloan pledged to vote their stock in support of an Atlantic Research-Susquehanna merger...
...Aksel Nielsen had been head of the Federal Reserve Board in Denver and was known among businessmen as a frequent golfing partner of President E i senhower...
...We do not know the date this option was given, for it is omitted from the report-though the dates of all other options are listed and the report was prepared under Rhyne’s aegis...
...Did Whitney, that elegant gentleman, protest the traffic in stock and office...
...Now for the big plunge...
...Six months after Susquehanna borrowed $72 million to buy PASCO stock, the value of that stock was down $30 million...
...they call it tax-loss carry-forward...
...On December 6, 1966, the loan papers were signed...
...The union between Korholz and Treesdale was consummated in December, 1964...
...Thus, the essential prerequisite was present-the possession by the merger victim of liquid assets greater than the costs of its takeover...
...Leapfrog into PASCO The next step was to neutralize the PASCO management...
...they had even committed such heretical affronts as demanding audits of directors’ expense accounts, opposing the chairman’s selection of an insurance company, and voting against the pro forma complementary resolutions without which business moguls seem unable to proceed...
...Now he was a “financial consultant...
...At the time Korholz appeared on the scene, all 15 directors-except Martin and Thomson of Coen’s Kansas City group-were informed that Korholz was clandestinely buying up large amounts of Susquehanna stock at a price way above the market...
...One of the first to fall, the Atlantic Research Company of Alexandria, Virginia, was a diversified manufacturer of electronics, plastics, aerospace, and food-processing systems...
...Sloan would be the board chairman of the new Susquehanna...
...It was inevitable, therefore, that in America businessmen would somehow expropriate the Lord...
...Suppose Korholz had his American Gypsum Company borrow enough money to buy, not 51 per cent of Treesdale stock, but 20 per cent...
...His reputation as a man who never loses in a deal was marred just once-when his wife in 1962 won Illinois’ biggest divorce settlement from him-$3 million...
...His coplaintiff, William Dasho, would die in the course of the litigation, years before its resolution was even in sight...
...Royally enthroned in the Susquehanna board room on Chicago’s North Wacker Drive, he followed up the Gypsum-Susquehanna merger with a seven-front offensive, gradually encircling ever-fatter targets...
...On October 30, 1968, he paid a courtesy call on the president of PASCO, Harry Webb, to discuss a “friendly” tender offer...
...no hiding of material facts, just prudent reticence...
...He had made life miserable for the great Lannan by having his surrogates on the board vociferously oppose every routine measure Lannan brought up...
...He was an old confederate of Mike Coen and the Kansas City gang in some of their censured activities referred to earlier, and a close personal friend of Richard Nixon...
...Such an arrangement seemed to assure unity of purpose between the two chief stockholders, as well as the restraint of a prudent and prestigious hand on the reins...
...But not without suffering the sort of indignity that strews the path of the aspiring tycoon...
...The battle plan, cleared in detail with the bankers, was to be a rerun of the Treesdale campaign, though the stakes were much higher...
...Some clerk at the SEC might study the proxy statement all the way through and decide that cash reserves were insufficient to pay off Gypsum’s debts and still have enough left over to meet this obligation...
...Schy called Cohen in August, 1969, and Cohen denied any association whatever with Susquehanna...
...Upon merger, the debts of both would be assumed by the new entity, including the debt incurred by Gypsum to buy the control stock from Treesdale’s resigned directors...
...It assured stockholders that the authorization of the new preferred stock would in no way affect the interests of the common shareholders...
...Only 24 hours before his bid for American Smelting, Korholz had consummated his capture of Pan American Sulphur, a quarter-billion-dollar complex with $60 million in cash in its treasury...
...This seemed to mean that neither of the principals could sell their shares so long as the trust existed, thus assuring a management free of manipulation and self-dealing...
...Merge Now, Explain Later But lowering over this golden prospect were two clouds of misgiving...
...Scurlock and Sloan insisted that the stock which they and the other Atlantic Research stockholders would receive as a result of the merger be preferred stock, with a par value of $5, a guaranteed annual dividend of $1 per share, and a fixed liquidating value of $32 a share, right off the top, if the company ever collapsed...
...The Journal headlines atoned for much that had been hard and humiliatingthe long years of wandering through blind alleys, working for minor ad agencies and jostling for fringe businesses that, in the telltale phrases of the dossiers, “closed down with no forwarding address,” or “discontinued” in the wake of lawsuits and creditor settlements...
...On August 10, Coen formally withdrew his muchtraveled letter, stating as his reason that “further investigation of facts and law indicated this action is not warranted...
...He was nailed by Internal Revenue for $38,774 in undeclared personal income taxes and for larger sums on his corporate returns...
...Coen quickly sold Vanadium the stock just bought from Susquehanna, for $681,000 more than he had paid Susquehanna...
...Vast blunders and indescribable rogueries slowly dispelled that aura...
...Emissaries from the great man announced that he was taking over after all...
...he did not even wait for the tender sale to be concluded before he began proposals to merge PASCO and ASARCO...
...And so the corporate officer or director has become ringed about with legal prohibitions...
...It found that, contrary to Marovitz, the Schy group had offered prima facie proof of its main allegations and was entitled to a jury trial on them...
...But there are deals and deals...
...And on Monday morning, back at the office and behind the big desk, they are once again in league with him, once again gladly selling him their principal commodity, the honor that other men bear them...
...for a business society, a nation of investors, must retain belief in the integrity of corporate processes and of the men who manage them...
...Sniffing his vulnerability and savoring his mounting tax-loss carryforward, the directorate of StudebakerWorthington, Inc., graced by ex-Nixon law partner Randolph Guthrie, began to circle around...
...During that period, the stock hit $80...
...On July 20, 1970, the SEC officially determined, after lengthy hearings, that Susquehanna had violated the securities laws by making false and misleading statements in connection with its takeover of PASCO...
...Opportunity is everywhere...
...Moreover, since the stockholders had been assured that mergers were being considered with companies listed on the New York Stock Exchange-an important status, testifying to a degree of stability and durability-how could Susquehanna management turn around and merge with American Gypsum, a firm very definitely not listed on that exchange...
...Korholz, in his own way a statesman, borrowed some more money, and in concert with an associate, bought Whitney’s, stock, at $75,000 above the market...
...Finally, they paid $7 million to buy up $lO-million wort of Susquehanna IOUs-convertible debentures that could be redeemed in common stock at 100 per cent of face value...
...In essence, the court found that the defendants were respected businessmen of integrity and veracity acting in good faith on the basis of an informed business judgment...
...After that they bought up, for $25 million, the PASCO shares that Korholz had paid $84 million for...
...He retained a kind of sinister handsomenesseagle eyes, aquiline features, straight mouth...
...Korholz’s banker, First National of Boston, was also banker for Treesdale and now used its influence there to have Boshell installed on the Treesdale board of directors...
...To arrange this opening gambit of his takeover strategy, Korholz went to a friend, C. Arnholt Smith, president of the National Bank of San Diego...
...There was a law that required merged companies to maintain an unobligated cash reserve sufficient to pay off all dissatisfied stockholders who opted to turn in their stock rather than stay with the merged firm...
...Was anyone laughing now...
...Smith, an important GOP contributor who would give $200,000 to the 1968 presidential convention and raise a million more, would be one of the select few invited to hear the 1968 election returns with the Presidentelect...
...while downstairs it was equally essential for Korholz to prove that he had bought the 430,000 shares not for American Gypsum, but for himself...
...But like the inspired sapper who can divine the live bomb from the dud, he perceived Coen as a serious hazard that must be defused instantly...
...We witness large loans generated by piratical designs for which First National of Boston and the insurance companies profit handsomely in interest, commissions, and the use of corporate deposits...
...Being opposed by Coen is not unlike being simultaneously set upon by Three Finger Brown and the Marx Brothers...
...The option was granted sometime between February and August, 1968...
...All he wanted, he said in writing, was to fill two present vacancies on the 14-man board...
...There remained only the detail of submitting to the SEC the required proxy statements to the stockholders which purport to present all relevant facts about both companies...
...Even then he had the winning formula in his head...
...Korholz must have appreciated the footwork...
...And, then, there was the troublesome Schy...
...When he spoke, there was an enigmatic quality enhanced by a trace of native German in his voice -a blend of toughness and masked intentions...
...the purchase money was borrowed, the stock sale was concluded, the existing management resigned, the new management took over, a merger was duly effected, the purchase loan was assumed by the surviving entity which would retain the grandiose name, “American Gypsum...
...We have noted Boshell’s extensive corporate background and that of A. D. Martin...
...Mudge, Rose, Guthrie, and Alexander should prove as useful as Rhyne has been, maybe more...
...As for Korholz, and the other defendants cleared by Marovitz, “the judgment is reversed and the case is remanded for a jury trial...
...Within six months, this stock would appreciate by $1,750,000...
...Even if such a fact were hidden in a footnote, amidst tables and graphs at the bottom of page 65 of a monstrosity so unedifying that only a nit-picker would plow through it to the end, it would have a certain sore-thumb quality that might attract troublesome notice...
...Korholz and Sloan were enough the statesmen to realize that a figurehead was needed, someone whose reassuring image would lend an aura of probity and unity to what soured minds might otherwise regard as a prospect of mendacious and divided rule...
...they had even committed such heretical affronts as demanding audits of directors’ expense accounts, opposing the chairman’s selection of an insurance company, and voting against the pro forma complementary resolutions without which business moguls seem unable to proceed...
...Pat Lannan was a top figure in ITT and the Crowell-Collier-Macmillan publishing empire...
...To fill the void, tycoons have developed a new institution-“ friend and confidant of the President...
...On January 18, 1972, the Seventh Circuit Court of Appeals at last gave him a victory, by reversing Marovitz...
...And suppose he used his preeminence to bring off a merger of the two companies he thus controlled-fair Treesdale and spare Gypsum...
...Thus it was pledged in the proxy statement that the Honorable Rhyne would come together with Korholz and Sloan in a “voting trust” that would jointly control the 7 12,433 shares owned by Korholz and Sloan...
...Just how Korholz got control of it has “never been fully or satisfactorily explained” to Dun and Bradstreet...
...Beyond the attritions of time, money, and unequal combat, there lives the tolerance of some courts for corporste offenders...
...It was behemoth against behemoth, and the case was tried, not in Susquehanna’s Chicago ballpark, but in the federal district court in Dallas, where PASCO was the home favorite...
...It was all right for the public at large to be gulled by business, under the rule of caveat emptor, but for stockholders to be bamboozled by their own management, that was intolerable...
...His plans for the seizure of the great ones, Pan American Sulphur and American Smelting and Refining were steadily maturing...
...Our tale perforce centers on the grappling of Korholz and the begrimed malefactors with whom he schemes and strains in the pit...
...Whatever the instigation, on March 2, 1972, the SEC ordered hearings on charges by the SEC staff members that Kcrholz and four of his bankers were involved in securities laws violations in connection with those PASCO certificates of deposit used to promote the loans to Susquehanna with which Korholz sought to stem the great slide of 1970...
...Students of Korholz’s past could well suspect that those things he said he wouldn’t do would immediately be done...
...Gobbled by Giants Korholz’s grip on his edifice was slipping...
...Korholz’s defeat lasted only as long as it took him and Rhyne to get into the Fifth Circuit Court of Appeals in New Orleans, where Korholz’s semantical ambiguities and theory of business were better regarded...
...Then the newcomers bought out Sloan and Scurlock (though not without guaranteeing to Sloan that if they paid a higher price to Scurlock they would have to give Sloan the difference, too...
...Mueller was suing Korholz for the return to the company of profits he had made from trading in stock as an insider...
...For reasons too complicated to go into here, it was necessary upstairs for Korholz to prove that he had bought the 430,000 shares not for himself, but for American Gypsum...
...How these directors met that responsibility tells much about the standards of corporate leadership in America, for the Susquehanna board was no aberrational collection of the shabby or obscure...
...And so a new and serious hazard faced Korholz as 1972 opened...
...The second cloud had to do with the recent history of Susquehanna...
...Twenty-four hours after the Coen letter of accusation was distributed in Chicago, Korholz was conferring with Coen in Pueblo, Colorado...
...A Problem of Presentation’ There was one embarrassing fact that somehow must be hidden from the Susquehanna stockholders- the $6.5-million debt American Gypsum had incurred to buy out Lannan, which was repayable by the surviving “Susquehanna Corporation” immediately after the merger...
...A year later he was caught at it again...
...But it was like talking to the Sphinx...
...In a decade he has risen from unsavory obscurity to control of 10 corporations and to a place among those select few whose net worth is so great it can never be accurately de termined-marke t fluctuations may raise or lower it a million or two on any given day...
...Schy, feeling like the man in Kafka whose eyes were “aching from the strain of finding his way about,” tried to have the Mueller testimony inserted in the record to refute what was being said in front of him, but Judge Marovitz would have none of that...
...But like the inspired sapper who can divine the live bomb from the dud, he perceived Coen as a serious hazard that must be defused instantly...
...Korholz Merges Onward Korholz had now reached a point where he and his friends could make millions on side deals that required little more than the stroke of a pen...
...Korholz, by making his bid for ASARCO and seizing control of the PASCO board, had revealed his designs earlier than was prudent...
...And the record of State Mutual reveals huge side profits attached to loans-profits for the company and its key officers...
...In his headlong pursuit of PASCO’s $60 million in cash, Korholz had paid no attention to the shaky condition of its main lines of business-sulphur mining and fertilizer production-which prudent investigation would have shown was suffering world-wide disaster...
...All we know are the coincidences that Rhyne allowed his name to be used to decorate a nonexistent voting trust and that he allowed himself to accept a stock option from the hands of the two officials he was presumed to be restraining in that trust, but wasn’t...
...The board was cut from 14 to 11 members, and enough incumbents were kicked off to make room for six Korholz men and one representative of First National of Boston...
...Nine months later, in one of those company reports the law makes necessary from time to time, conscientious shareholders might have noticed on page 27 an admission that the voting trust had not been formally entered into...
...The tender offer turned out to be a rousing success...
...But no hosannas, please...
...The possession of Treesdale made him a more appealing suitor, giving his agglomerate an annual profit, a look of solidity and health...
...Worse, it augured ill for the ongoing SEC inquiry into Susquehanna to have its former chairman, who had for years dominated the Commission and its staff, possibly exerting influence in Korholz’s behalf...
...A Fiscal Pacifier Whatever the deal’s effect on Susquehanna’s treasury, it dramatically improved the management’s relations with Coen...
...His name is this day gaudily flashing across the financial heavens like one of his Athena missiles...
...Immediately prior to the inspection visits...
...Besides, Coen gave signs of being a gentleman on the right wavelength, one he could work with profitably...
...According to these charges, Korholz had filed reports with the SEC that contained “untrue statements” and omitted material facts...
...Other documents reveal that both Korholz and Sloan had been wheeling and dealing with the stock...
...Smith has several credentials for skullduggeries of this sort...
...Behemoth vs...
...And suppose, as a condition of the sale, the directors agreed to resign, to be replaced by Korholz and his men...
...The hallowed right of a small stockholder to sue errant management is in practice among the most circumscribed of all our rights...
...Curious stockholders have been unable to getto the bottom of all this...
...Korholz is awaiting the response from ASARCO...
...Then Xebec was sold at a multimillion-dollar loss...
...He lives, in these last days of the Johnson Administration, in Washington, in the posh Watergate complex, not far from the White House...
...Indeed, Sloan would later be found liable to the company and forced to make restitution for insider profits made from trading in this stock during his first six months under the trust...
...With the merger with American Gypsum, Korholz had at last pyramided his liabilities high enough to go hunting valuable properties...
...On every contested point, Judge Marovitz decided in favor of the Korholz faction...
...The decision confirmed only the impotence of the law...
...The Chicago Daily News described Lannan as “a self-made multimillionaire with fingers in scores of corporate pies and seats on the boards of more than a dozen companies...
...The stated purpose of the SEC was to protect the stockholder and the public from fraud and misrepresentation, so Schy had kept after them, officially calling to their attention innumerable irregularities...
...Law, ethics, and custom impose that responsibility on the Susquehanna board of directors...
...Korholz had found such a man in Edward T. Boshell...
...The bank loan had to be met, if Korholz was ever to merge again...
...Not only did no director see fit to inform the general stockholders, the investing public, but most directors traded the stock on the basis of their inside information...
...Korholz knew too well the inconstancy of corporate managements, the inattention of stockholders, and the supineness of regulatory bodies to be daunted by anything said at annual meetings or written in proxy solicitations...
...he had crossed that line when he took Susquehanna...
...Korholz was willing to pay up to $6.5 million in borrowed money for 430,000 shares-to assure enough resignations to give him the chairmanship...
...no looting, just normal profit on a large block of stock...
...Korholz would offer key Susquehanna directors $15 a share for the stock they personally owned, which was worth $1 1.75...
...In due course, Boshell informed Korholz that the chairman and key directors of Treesdale would happily entertain an above-the-market offer for their stock, to be accompanied by the appropriate resignations and replacements...
...30 days after the Lannan group won reelection on a “don’t change management now” plank, the stockholders read in the newspapers that it had abdicated and turned the chairmanship over to the stranger with the eagle eyes and enigmatic smile...
...if they regarded the tender offer as hostile, as attempted takeover, they would fight it and might be able to defeat it...
...Larger size, whether measured in profits or losses, can give the gifted a greater range for maneuver, which is what Korholz continually sought...
...and “sham transactions designed to embellish its financial statements...
...On July 8, 1968, along with Mike Coen and the Kansas City crowd, he bought 61 per cent of the stock-absolute control-of PioneerAstro...
...by January, 1965, Korholz was tumescent again with plans for his next liaison...
...He set the familiar operation in motion by calling on the First National Bank of Boston, who agreed to arrange for the credit with a number of domestic and foreign banks...
...But how does one overpower or inveigle the fair one into such a betrothal...
...Its annual revenues were running at $75 million and it was sought after as a merger partner by such estimable companies as Singer, Whittaker, and the Ogden Corporation of New York...
...His infiltrator, Boshell, happened to be a director of Susquehanna...
...Korholz’s solution would be portentous...
...Without having risked a stockholders’ election, Korholz would have control of Treesdale in every sense necessary to himthe power to manage, to hire and fire, to dictate the agendas of board meetings, to dominate the board and the company through his chairmanship, his control of information, his manipulative skills, and the allegiance of the trusted directors he brought with him...
...Prestigious associates are at work effacing the humiliations of the murky past...
...and as a friend of Richard Nixon from lawschool days at Duke (he would soon organize and run Citizens for NixonAgnew and would be highly touted in press speculation as a likely Supreme Court nominee when Nixon became President), Rhyne was the man to inspire confidence...
...he has taken to publicly lamenting “a loss of values and disciplines” in the investment world, and to exhorting bankers to “self-regulation” and “self-discipline...
...Twenty-four hours after the Coen letter of accusation was distributed in Chicago, Korholz was conferring with Coen in Pueblo, Colorado...
...Then there was the element of Olsen and Johnson burlesque-the other suit against Korholz, Mueller vs...
...But such students are few, and the stock kept rising under Korholz, so on April 21, 1967, the proxy request received the perfunctory ratification that 99 per cent of such requests receive...
...This time the wary patent holders arranged for a tour of inspection...
...The lenders swiftly agreed...
...Being opposed by Coen is not unlike being simultaneously set upon by Three Finger Brown and the Marx Brothers...
...A Friend of the President Whenever corporate executives exchange favors with each other, someone has to pay-the stockholders, the consumers, ultimately the national economy...
...As Korholz would later say, “I was Gypsum, and I was Susquehanna...
...Korholz then turned the stock over to the company in pursuance of an “oral contract” he claimed was entered into before the Wisotsky suit was filed...
...One more technicality remainedratification of the merger itself by stockholders of both companies...
...To bring about so bloodless a victory required a deft helper on the inside of Treesdale, a confidenceinspiring figure possessed of the background that corporation snobs call “quality...
...and Susquehanna happened to be in the process of liquidating its major asset, the North Shore Railway, the sale of whose properties had boosted Susquehanna’s liquid assets to $23 million, $12.5 million of it in cash...
...Here Korholz’s use of indirection was not treated so sympathetically, and the judge found in favor of PASCO, condemning Korholz’s tactics and enjoining him from voting the stock he controlled...
...it would be like a man’s learning on his wedding eve that his thickly veiled bride not only had no dowry, but owed vast debts that had to be paid off right after the marriage...
...Five days later, while his bogus written promises were circulating among PASCO officials, he wrote to Andrews of his real plans: Earnings will be substantially increased when the $60-million cash plus the ability to borrow substantial long-term money on Pan American assets is used for acquisition purposes...
...For Korholz, Coen had the heavy artillery waiting-a formal broadside sent to all directors by his ally, Thomson...
...One of the offending spinners was hid in the slag pit and the other was put in the junk pile...
...In Treesdale Laboratories, a profitable Pennsylvania manufacturer of casting rings earning $2 million a year, Korholz found a voluptuous mate for his undernourished American Gypsum...
...An alert stockholder named Wisotsky filed suit to recover this $1,750,000 for the company on the grounds that it was a result of insider trading...
...Such men are rich before a Korholz comes among them, but for the sake of further enrichment they suavely, routinely betray the very principles they are presumed to embody...
...The case was dismissed without trial by Chicago federal Judge J. Sam Perry, and Perry was sustained on appeal...
...On November 7, the day after he made his promises to the PASCO board, he told Richard J. Andrews, vice president of the Security Pacific National Bank, that the cash assets of PASCO were not available as collateral for loans because he planned to commandeer them for acquisitions...
...Schy had repeatedly seen and heard Susquehanna directors assure the stockholders of one thing and then do another, and it nagged him...
...The again-reborn Susquehanna changed its headquarters to Alexandria...
...They were sued and found liable to the company for profits arising from insider trading and were assessed judgments of $736,5 19 and $67,539, respectively, at six per cent interest...
...One of the largest corporate transactions in history,” said the Journal...
...his early thrustings for corporate leadership were not dissimilar from Korholz’s...
...His prison term served, he returned to the command of Rock Wool Insulating Company in 1960 and immediately began those rapid marches and encirclements that would become his trademark...
...The stewardship of these gentlemen had occasioned a series of tax penalties, fraud settlements, and injunctions to warm the heart...
...He and six fellow owners of Kansas City Transit, Inc., hereinafter called the “Kansas City group,” were censured and restrained by the Missouri Public Service Commission for profiteering and piracy, or, in the softer words of the Commission, for “a ruthless raid on the assets of the transit company in utter disregard of its responsibility as owner of a public utility...
...On November 27, though, he as yet held no position whatever with PASCO and though the results of the tender offer would not be known for two weeks, Korholz assumed command by making an offer to the president of ASARCO to merge PASCO with it and to use PASCO’s assets as security...
...Moreover, Scurlock and Sloan had fallen to feuding with each other, and Scurlock was actually in the process of being forced out as a director...
...The suppositions detailed above smoothly became realities...
...But it was not enough...
...Korholz was wont to discount mere annoyances like fraud suits or the blatherings of the Internal Revenue Service...
...This court decided that there were ways the stockholders could have found out Korholz’s true intentions no matter what the tender-offer statement said...
...with W. C. Fields mien and blue-chip past, he moved comfortably between operators like Korholz and board-room grandees...
...In July, 1968, his forces would annex Pioneer-Astro...
...It was called the Rock Wool Insulating Company, of Pueblo, Colorado...
...Massachusetts Mutual and State Mutual would have to agree, too, because Gypsum owed them another $6 million, and their permission was required for any change in Gypsum’s loan picture...
Vol. 4 • April 1972 • No. 2
