The Man Who Made the Movies

by Vanda Krefft

  He had a more difficult time with the bankers from whom he’d borrowed money to buy the extra Loew’s shares. As security, they were holding Loew’s shares valued at $40 each, which had been about half the market price at the time of purchase. The deal had seemed perfectly safe, so Fox hadn’t worried that these were “call” loans—that is, subject to being called in at any time at the bankers’ discretion. Now that fact made a great deal of difference. In the worst-case scenario, the bankers could insist on immediate repayment, and if Fox failed to deliver, they could file receivership petitions against the Fox companies to get the money to satisfy the debts.

  But no one wanted to go down that road. The Fox companies were booming businesses, and Fox had always been a good banking customer. Aware of the windfall he’d received from the Warners, the bankers pressed him for most of the $3 million in cash he had left over after paying his brokers. They got it. The payment reduced the price at which they were holding the Loew’s shares from $40 to $30 each. Matching the brokers’ agreement, Fox’s bankers agreed not to call his loans at least until the New Year.* He now had nearly two months to get about $26 million to move all the Loew’s shares safely into his possession.

  “That was long enough for me,” he said. “I did not doubt at all that I would be able to raise all the money and get out of this difficulty long before December 31, 1929.”

  He immediately shared the good news with John Otterson and Harry Stuart. Because they were in this plight with him as a result of their companies’ loans, he believed he was delivering “a message of cheer.” He said, “I thought I was telling that to my friends and [that] they were happy about it.”

  CHAPTER 41

  Siege

  The two-month reprieve turned out to be meaningless. Instead, the Fox companies entered a state of financial siege. There was no money anywhere for them.

  Just as the commercial bankers had, investment bankers rejected Fox’s pleas for help. At Halsey, Stuart, which had a preferential financing agreement with the Fox companies, president Harry Stuart did have seemingly friendly conversations with Fox for three days shortly before November 15. The urgent matter was to raise the $26 million to take back the Loew’s shares from the brokers and bankers; that would keep the stock safe until the Justice Department approved the acquisition and financing for a Fox-Loew’s merger could proceed. On the fourth day, according to Fox, Stuart whiplashed. In Fox’s telling, he attacked Fox’s character as duplicitous, berated him for “reckless” behavior in buying the $20 million Gaumont chain—a purchase that Fox believed Stuart had enthusiastically supported—and announced, “We are no longer your bankers. Go where you like. We don’t care.”

  Several years later, Fox still felt the sharp sting: “From time to time during my career, I had been humiliated in one way or another. At least, I thought I had been humiliated. But never in all my life had I received such humiliation as I did that day from Mr. Stuart. He seemed to gloat at the fact that I was in difficulty.”

  Stuart’s attitude was not entirely incomprehensible. At the time of these meetings, more ominous clouds were gathering over the nation’s financial outlook. On Monday, November 11, without any particular spur of bad news, the stock market tumbled violently downhill as sell orders targeted such supposed strongholds of industry as U.S. Steel, Westinghouse, General Electric, and AT&T. Wall Street brokers were mystified. They had assumed that their weak margin accounts had already been eliminated and that, as of the previous Friday, the market had stabilized. The logical explanation seemed to be that Monday’s huge sell-off reflected a deep crisis of confidence. That is, over the weekend, rank-and-file investors had decided to run away even though they didn’t have to, and buyers refused to step in. More steep losses followed on Tuesday and Wednesday. Regarding this early to mid-November period, John Kenneth Galbraith would write, “Of all the days of the crash, these without doubt were the dreariest.”

  Investment trusts such as Halsey, Stuart’s Corporation Securities, formed in part at Fox’s insistence, were especially hard hit. Moreover, Fox had still not given Halsey, Stuart the promised $1 million back payment. In perspective, it was probably more remarkable that Stuart managed to speak calmly to Fox for three days than that he finally erupted on the fourth day.

  Believing himself released from Halsey, Stuart’s preferential contract and on the advice of John Otterson, Fox approached Dillon, Read and Co., the bankers for Loew’s, Inc. In one day, a Dillon, Read partner drew up an $85 million financing plan that sounded to Fox “like Aladdin and his wonderful lamp.” The mirage collapsed just as soon as Fox asked Dillon, Read for a $500,000 loan to make a payment due the next day for some theaters he’d bought earlier. As collateral, Fox offered two of the six $250,000 notes he still had left from the First National shares sale to Warner Bros. (Of the original ten notes, he had given two to Albert M. Greenfield for arranging the deal and had sold two more.) Dillon, Read wanted all six notes, with a face value of $1.5 million. Fox protested. Dillon, Read held firm. All six notes or no loan. Fox said, “I left there and never went back.”*

  Weeks later, Dillon, Read head Clarence Dillon laughed in Fox’s face at the idea that his firm would ever have considered issuing $85 million in Fox-Loew’s securities. The firm’s plan had evidently been to extract as much money as possible from Fox via the Warner Bros. notes and then to stall on the securities issue so that, at year’s end, Fox would have no time to look elsewhere for the money to pay off his brokers and bankers. Then the Fox companies would fail and so would the possibility of a Fox-Loew’s merger. Then Dillon, Read could keep Loew’s, Inc., as its client.

  Wealthy, presumed friends also turned a cold shoulder. Multimillionaire stock market speculator Bernard Baruch had known Fox for several years, ever since they were both duped into investing in the Film Inspection Machine Company, which made equipment that was supposed to detect various flaws in motion picture film. From time to time, Fox and Baruch had met to commiserate about the company’s poor management. Now, when Fox asked for help, Baruch initially seemed “wildly enthusiastic” and offered not only to invest $10 million but also to raise additional money from his banker friends. Before firmly committing, though, he decided he wanted to hear the other side of the story. One morning, at his Fifth Avenue mansion, Baruch told Fox that Harry Stuart and brother Charles Stuart were on their way over. Fox pleaded unsuccessfully with Baruch to cancel the meeting. He left, waited across the street, and watched the Stuarts arrive. After that, Baruch didn’t take any of Fox’s phone calls.

  Fox also approached John D. Rockefeller Jr., asking not for money but for advice. “I felt I was drowning,” he said later. On November 12, 1929, he wrote Rockefeller Jr. a three-page letter, detailing the financial logic of the Loew’s acquisition and asking for an appointment to discuss “the most important step of my life.” He commented, “I feel it will be a great privilege and honor if you will accord me a personal interview.”

  Over the years, Fox had done many unsolicited favors for the Rockefellers. In addition to stepping aside during the 1918 Red Cross war relief campaign so that Rockefeller Jr. could publicly claim the highest fund-raising total, he had ordered Fox News to cover various events in the family’s history. In August 1921, for instance, Fox had spent several thousand dollars to document the trip that Rockefeller Jr. and his wife made to China to dedicate the Peking Union Medical College. Upon their return, he arranged a Christmas Eve private screening of the footage for the family in a church; he also gave Rockefeller Jr. his own copy of the film. Recently, on July 8, 1929, he’d sent a Fox News crew to Pocantico Hills, New York, to film John D. Rockefeller Sr.’s ninetieth birthday celebration. The silent footage showed the frail old man, looking somewhat bewildered, wearing a suit with a cutaway coat with a flower in the lapel, a vest, and a straw hat, tottering through his gardens on a cane, cutting a birthday cake with ninety candles on it, and smiling as he lifted a piece of cake toward the camera.

  Those were kind gestures, b
ut hardly enough to overcome Fox’s recent refusal to help Rockefeller Jr. with a major real estate project. Before the stock market crash, Rockefeller Jr. had been planning to develop “Metropolitan Square” on the city blocks from Forty-Eighth to Fifty-First Streets between Fifth and Sixth Avenues. In early October 1929, he’d offered to pay $1.45 million for the row of six old four-story buildings that Fox owned on Sixth Avenue, stretching from the corner of Forty-Eighth Street more than halfway down the block to Forty-Ninth Street. Fox refused to sell at any price. He wanted to build his own office tower there. After “Black Tuesday,” Fox decided to accept the $1.45 million. However, because part of his financing had fallen through, Rockefeller had scaled back his plans to a smaller collection of skyscrapers to be known as Rockefeller Center. He still needed Fox’s land, but he was now willing to pay only $800,000. Although earlier in 1929 Fox had bought the property for only $300,000, he declined.

  That rejection occurred less than two weeks before Fox sent his three-page letter, which didn’t mention the Sixth Avenue land.

  “Your letter of November 12th was duly received,” Rockefeller Jr. began in a frosty two-paragraph reply dated November 18, 1929. Unfortunately, he continued, he and his associates didn’t invest in movie companies. Consequently, “Under these circumstances . . . I regret that it would be out of line with our established policies even to consider a participation in them.”

  Fox groveled. In a second letter, dated November 22, 1929, he thanked Rockefeller Jr. for his “very prompt response,” even though it hadn’t been very prompt, and he heaped all the blame on himself for not having clearly stated that he didn’t want money, but simply “your splendid counsel and advice.” He still didn’t mention the Sixth Avenue property.

  This time, Rockefeller dashed off a memo referring Fox to his brother-in-law Winthrop Aldrich, president of the Equitable Trust Company, which was then in negotiations to merge with the Chase National Bank. Don’t bother, a knowledgeable lawyer advised Fox. Aldrich was the bank’s “no” man. He turned down every proposal regardless of merit. Fox didn’t bother.

  Shaken by his inability to raise money on faith in his companies’ future, Fox decided to sell a half interest in West Coast Theaters. The company was on track to earn $5.5 million for 1929, and following the standard formula of calculating price as ten times annual earnings, Fox anticipated receiving $27.5 million—enough to get him out of danger. It wouldn’t be easy to let go of full control, not when he’d worked so hard and wanted for so long to acquire it, but he planned to stipulate that West Coast’s new co-owner guarantee to use Fox movies at the current level of rental fees. The main impact, then, would be a loss of income to Fox Theatres. And so Fox convinced himself he would be “happy to sell” because West Coast was “just one of the many children that the Fox companies had and [they] could well afford to let someone adopt one of these children, particularly . . . if all the other children of the Fox company were to be insured against any troubles.” If that rationale wasn’t exactly heartfelt, it was necessary.

  Warner Bros. was the most likely buyer. It was well known that its bankers, Goldman Sachs, intended to build the studio up for a run at industry domination. Black Tuesday hadn’t squelched that ambition. As of November 1929, according to Fox, Goldman Sachs was “printing bonds for the Warner Company as freely as water comes from a faucet.” Fox asked his friend Albert M. Greenfield, who had brokered the First National sale just two weeks earlier, to handle the negotiations.

  First, however, Fox had to explain to Greenfield why he needed to sell such a valuable asset. Fox hadn’t yet divulged the depth of his troubles. When he did so, over dinner at the Ambassador Hotel, Greenfield became violently ill. Bankers Securities might not get back the $10 million (half its capital and surplus) it had loaned Fox to buy the Loew’s stock. Setting aside his other business troubles at home in Philadelphia to tend to this crisis, Greenfield made good progress. The Warners were “vitally interested,” and soon raised the possibility of buying all of West Coast Theaters in a fifty-fifty partnership with Paramount’s Adolph Zukor. By now, this, too, was acceptable to Fox. He really needed the money.

  Then, he said, “I fell into a trap.” It was too hard to give up the habit of a lifetime—always thinking he could do better than everyone else, even a highly capable friend such as Greenfield—and too hard to relinquish entirely such a valuable asset, West Coast Theaters, to his main competitors. Consequently, it was too easy to listen when John Otterson, who didn’t want to see Warner Bros. enhanced, presented a rival offer. To “prove our friendship,” Otterson told Fox, AT&T would buy West Coast Theaters for $55 million, sell half of it to Paramount, and then give Fox three years to buy back the AT&T-owned half.

  Elated at having two prospective buyers—surely one deal would work out—Fox wondered, “How could a man be luckier than I was?” Greenfield warned that Otterson would just string Fox along and leave him empty-handed. Greenfield even offered to forgo a commission, as long as Fox proceeded with the Warners because only they were serious buyers. Fox didn’t listen.

  Then Warner Bros. and AT&T found out about each other and both withdrew.

  Angry and uncomprehending, Fox suspected a hidden plot. As he interpreted events, Otterson and Zukor had merely pretended to be interested in West Coast Theaters in order to foil the sale to the Warners. Otterson’s ERPI was tied up in acrimonious arbitration hearings over its alleged sabotage of the Warners’ Vitaphone system, and Zukor wanted both to suppress Warner Bros.’ growth and ensure the destruction of the Fox companies. On the other side of the equation, Fox believed that the Warners “were too stupid” to thwart the action against them by snapping up at least half of West Coast Theaters.

  “You have an idea that everybody is planning to destroy you. You think everybody is against you,” Greenfield argued. In fact, Greenfield said, Fox had plenty of friends who were willing to help him. For instance, he had seen Zukor turn to one of the Warners, say he was sorry to see Fox in trouble, and ask Warner to give Fox (as he himself would) an unsecured personal loan of $2.5 million. Greenfield chided Fox, “You have misconceived the attitude of these men entirely. You are just angry because they won’t pay you $55 million for your company.”

  “I reached for his hat and coat and told him to go right back and bring me that $5 million and out he went,” Fox recalled.

  Returning half an hour later, Greenfield sheepishly conceded, “You were right and I am wrong. They wouldn’t loan you 250 cents apiece. That was just a bluff.”

  “I want you to go back once more,” Fox said. “I want you to deliver a message to these two gentlemen. You tell them that I never had a right to suppose they would ever loan me $5 million and that I was not making application for the loan.” Tell them, Fox said, that although their companies were now prosperous, someday “the people of this country” would blame them for trying to ruin him. “The day will come when these two men will be down on their knees and asking for money and I will have it when they do not have it, and I will loan them money.”

  “Will,” not “won’t.” He would not sink to their level, and they were not to have the satisfaction of thinking that he might.

  There was only one thing to do: sell the Loew’s shares. “That was the last thing I wanted to do, particularly in view of the fact that those were the shares that caused all my difficulty and to dispose of those would to me seem defeat,” Fox said. “However, I reached the conclusion I would have to forget my ambition.”

  The market consisted of only two prospects because Fox needed the full $73 million he had paid, and the market value of the Loew’s shares had dropped to about $24 million. Only a company that wanted to consolidate with Loew’s would be willing to pay $73 million. Other than Fox, only Warner Bros. and Paramount had that ambition.

  Despite the rancorous end to the West Coast Theaters negotiations, Fox expected both studios to jump at the opportunity. After all, Warners Bros. had been his main rival to buy the Loew family’s s
tock at the beginning of the year, and shortly before the stock market crash, Paramount had started taking steps to acquire Warners Bros., a company considerably inferior to Loew’s. To allay antitrust worries, Fox promised to make the sale contingent on Justice Department approval.*

  Neither studio wanted the Loew’s shares. Otto Kahn, head of Kuhn, Loeb, Paramount’s Wall Street banking firm, turned Fox down on the spot, and the next day, the Warners told Fox that Goldman Sachs could not raise enough money. This was a lie, Fox thought. “At this time, Warners had their printing presses running day and night for bonds. Here was a chance for Warner Bros. to achieve the position of the greatest corporation of its kind in the world. Of course they wanted these shares.”

  No one who knew would ever say what really happened. Looking back several years later, Fox speculated that Kahn must have been under orders from AT&T, which must also have pressured Goldman Sachs to refuse the Loew shares.

  Reportedly, Fox also tried to sell his Loew’s shares to William Randolph Hearst and Louis B. Mayer. They also turned him down.

  As the days sped past, as door after door closed to him, Fox’s moral armor cracked. He’d always prided himself on following the law, now; he deliberately cheated. In the stock market crash, he personally had lost $3.3 million on 210,300 shares of Fox Theatres stock. On November 19, 1929, he had the Fox Theatres board of directors, which consisted of him and several relatives and employees, adopt a resolution ratifying his purchase of those shares on behalf of the company. Fox Theatres thus assumed the $3.3 million loss. There were several problems with this maneuver. None of the records of Fox Theatres showed that the company had ever authorized Fox to buy the stock for it. By contrast, when Fox was buying Loew’s stock for Fox Theatres, all the entries had gone on the books. Then, on his 1929 personal income tax return, Fox would claim the loss as his own.