by John Brooks
A hush filled the room; Steinberg broke it by asking for questions. A stockholder asked flatly whether Leasco was planning to acquire the Chemical Bank. Steinberg replied that Leasco had made no statement regarding that bank or any other. Then, a bit later, another stockholder asked whether Leasco had already had merger discussions with Chemical.
Steinberg was on the spot; over the weekend he had planned to announce his tender offer on this occasion, but now, with the door still open to possible agreement with Chemical officers at the meeting to be held in only a couple of hours, he had decided to hold off. For diplomatic reasons, it would be best to evade the question, but he rejected that course. “I said to myself, ‘Heck, I’m not going to lie,’” he recounted later. He answered, “Yes, we have met with the Chemical”—thereby publicly confirming for the first time what up to then had been in the realm of rumor and conjecture.
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But later that afternoon, at the private meeting between Leasco and Chemical officers, the crack in the door that Steinberg had discerned at the previous day’s luncheon seems to have narrowed perceptibly. The defense was gaining confidence. This time, the rival generals were accompanied by their chief aides; Steinberg came with three, including Roberts and Counsel Robert Hodes, and Renchard with four, including McCall, Aldrich, and Task Force Generalissimo McFadden. Steinberg went over much of the ground he had covered in the previous day’s luncheon with Renchard, this time putting more emphasis on his friendly intentions and his disinclination to threaten. (Aldrich’s personal notes on the meeting say: “Tender route loathesome to Leasco—but might have to go it to accomplish ends.”) Steinberg also made a further concession. He said he was prepared not to be chief executive officer of the merged company, and that all of his Leasco colleagues would be willing to put their jobs at risk on the basis of the merged company’s profit record. When Renchard said that he was unwilling to negotiate with “a gun at my head,” Steinberg insisted that no gun was intended, that this “wasn’t war.” Both sides later characterized the meeting as cordial, although Steinberg felt that it had been “not overly friendly.” According to Aldrich’s notes, it concluded with Renchard saying, in effect, “We have lots to consider. Will do so. They will hear from us—maybe end of week, maybe middle of next week.”
In fact, Steinberg would hear from Renchard again that Friday, February 14, but in the meantime the Chemical defense battalion was far from idle; on the contrary, it was now trundling up its big guns, those “resources” that Renchard had described at the outset as “considerable.” Chemical held another full-scale battle meeting at which the discussion centered on the possibility of changing Chemical’s charter in such a way as to make a Leasco takeover legally difficult if not impossible. There was also talk about perhaps buying a fire-and-casualty company to create an antitrust conflict with Leasco’s ownership of Reliance, or even, as a last resort, of arranging to have some giant insurance company take over Chemical—suggesting a positively Oriental preference for suicide rather than surrender.
As it happened, none of these schemes was carried out; certainly, though, the last one reflects the bankers’ mood of grim intransigence. As planned, the bank retained the two leading proxy-soliciting firms, Dudley King and Georgeson, to deny their services to Leasco. Renchard called Chairman Martin of the Federal Reserve Board to apprise him of the situation and, hardly incidentally, to try to persuade him that a Leasco takeover would be bad for banking as a whole. (Martin took no action.) And also meanwhile, from whatever cause, Leasco’s stock kept dropping; by Friday it was down to 123 and in full retreat. Probably the most effective of Chemical’s various salvos was on the legislative front. Beginning on February 14, Richard Simmons of the Cravath law firm, on retainer from Chemical, began devoting full time to the Leasco affair, concentrating his attention on the drafting of laws specifically designed to prevent or make difficult the takeover of banks similar to Chemical by companies that resembled Leasco, and to getting these drafts introduced as bills in the State Legislature in Albany and the Congress in Washington. Does it seem odd that a proposed new law, hand-tailored by a chief party at interest, should be accepted without question by tribunes of the people in a state or federal legislative body? Whatever the answer, Governor Rockefeller chose that very week to urge the New York Legislature to enact a law enabling the state to stop any takeover of a bank by a non-bank, within its boundaries, in a case where “the exercise of control might impair the safe and sound conduct of the bank.” By Friday, precisely such a proposed law, straight from Simmons’ desk, had been dispatched to Albany, and a national one of similar intent to Senator John J. Sparkman, chairman of the Senate Banking and Currency Committee in Washington. Apparently Chemical had reason to believe that in both cases the drafts would be introduced without significant alteration.
Thus it was with a sense of a turning tide of battle that Renchard telephoned Steinberg again on Friday the fourteenth, to make a new appointment. This time there was no further talk of gutter fighters and the like. Doubtless Renchard no longer felt the need for such talk. Was Steinberg still going on that vacation? Steinberg said he was—leaving the next day, and remaining in Puerto Rico until the following Wednesday, the nineteenth, when he had appointments in Washington. Renchard said amiably, “What’s the use of busting up your trip?” and invited Steinberg to come in and see him again on Thursday the twentieth. And so it was agreed.
By the following Monday and Tuesday, the would-be attackers were plainly on the defensive. A Wall Street Journal article published on Monday raised questions as to the future earnings prospects for Leasco. Leasco stock dropped eight points that day, to 115, and two and a half points more the following day. Simmons’ anti-bank-takeover bill was duly introduced in Albany on Tuesday. (It was subsequently passed, and became law in mid-May.) Leasco suffered a further setback when the company got a letter from the Department of Justice saying it had heard of Leasco’s plans to merge with Chemical and commenting, “Although we do not suggest that such a transaction would violate the antitrust laws, questions under these laws are raised thereby, particularly under Section 7 of the Clayton Act.” (Section 7 prohibits combinations that may restrain trade by reducing competition; its applicability to a Leasco-Chemical merger, as it was generally interpreted at that time, would appear to be highly questionable. Just how the Justice Department came to send such a letter at that particular moment has never been explained.) While these things were happening, Steinberg was with his family at the Dorado Beach in Puerto Rico, playing tennis, swimming, and, he insisted later, talking on the phone to his office in Great Neck only twice. It is hard, though, to imagine that he did not learn one way or another about the Journal article, the continuing Leasco stock drop, the bill introduced in Albany, and the ominous letter from Justice. For all of his impulsiveness, Steinberg is a reflective man, and it seems not impossible that, relaxing by the pool at the Dorado Beach, he reflected with irony that, having conducted his company’s annual meeting the previous week at a (David) Rockefeller bank, he was now paying top rates to another (Laurance) Rockefeller hotel for a quick vacation from the battle lines while a third (Nelson) Rockefeller was urging on the State Legislature a law intended specifically to thwart him in what he considered to be a legitimate and even socially beneficial enterprise.
Steinberg’s day in Washington—Wednesday the nineteenth—was a depressing one. All occasions now seemed to inform against him. For one thing, the mysterious decline in Leasco’s stock price was reducing the company’s takeover power day by day. But the situation was not yet hopeless on that front. Steinberg calculated that he could put together a tender offer that would be attractive to Chemical stockholders, and that would not cut Leasco’s earnings, down to a Leasco stock price of 85. As of February 19 the price stood at around 110, so that an interesting offer remained entirely feasible—provided some way could be found to prevent the stock’s downward toboggan ride from continuing. The other pressing concern was the national legislati
ve situation—the matter that had brought Steinberg to Washington—and here he found a bleak picture indeed. The nation’s legislators were in a grimly anticonglomerate, antitakeover mood. During the day Steinberg talked to half the members of the Senate Banking and Currency Committee and to several members of the Federal Reserve Board; without exception, he found his interviewees adamantly opposed to a Leasco takeover of Chemical on grounds that seemed to him to be entirely unreasonable. Time and again, he explained that his object was not the destruction of a bank but its revitalization, and he argued that takeovers of one company by another, far from being automatically bad, are a valuable and necessary part of the free-enterprise system, and in some cases the only way by which backward and outmoded management methods can be replaced by aggressive, forward-looking ones. Time and again, he found his arguments going unanswered, and himself being treated as a sort of business pirate bent on seizing and looting property that did not belong to him. The climax of these brief and sketchy dialogues was one with the key man, Senator Sparkman, part of which went, according to Steinberg’s account, as follows:
SPARKMAN. A couple of weeks ago I had a fellow in here complaining that somebody moved in and took over his bank and then fired him. Now, we can’t have things like that.
STEINBERG. But, Senator, the whole economy runs on profit. If a bank president isn’t delivering, he should be replaced just like anyone else. Unless you want to change the whole system—
SPARKMAN. No, no, I don’t want to do that. By the way, have you seen the bill I’m going to introduce against bank takeovers? (Calling to his secretary) Miss———, where’s that bill the lawyer for Chemical Bank sent in? I want to show it to Mr. Steinberg.
It was thus that Steinberg learned for the first time of the bill Simmons had drafted at Chemical’s behest and, as Senator Sparkman so candidly put it, “sent in.” As it happened, Sparkman introduced the bill in late March; unlike the New York State legislation, it was never passed; but on March 19, the knowledge that a lawyer on Chemical retainer was apparently functioning as a sort of unofficial legislative assistant to the chairman of the Senate Banking and Currency Committee served to deepen Steinberg’s gathering despair. Only much later did he come to see his conversation with Sparkman as a piece of high Washington comedy.
“I came back to New York that night feeling that I had been given a very clear message,” Steinberg said later. In fact, that day, with the realization that the national powers of government as well as those of business were solidly aligned against him, Steinberg decided on surrender. The following morning, he went as scheduled to his third meeting with the Chemical’s top officers, at 20 Pine Street. As things turned out, it was to be his last such meeting. Again let us hear two versions:
Steinberg: “I came into the meeting with a public statement in my pocket—a surrender statement. I told them I’d been in Washington the previous day, and I told them whom I’d met. I said I’d concluded as a result of those conversations that the only way we could proceed with a tender offer was with Chemical’s great enthusiasm for the merger, and I wasn’t sure even that would help. I waited a few moments. To put it mildly, nobody from Chemical expressed great enthusiasm. Then I said that in half an hour I was going to release a statement of withdrawal. I pulled the statement out of my pocket and read it to the Chemical men. You could sense the relief—almost touch it. There was a kind of quiet pandemonium. Everybody shook hands. I haven’t seen any of them since then.”
Renchard: “Steinberg came in with a couple of henchmen. He said he’d decided it wasn’t the time to pursue the matter, and he was going to make an announcement to that effect later that day. It was a very friendly and satisfactory meeting.”
The announcement that Steinberg released later—which, in view of the fact that its last part largely negates a philosophy that he had expressed previously and would reaffirm later, suggests that he had been temporarily brainwashed—read as follows:
GREAT NECK N. Y., February 20, 1969—Saul P. Steinberg, chairman of Leasco Data Processing Equipment Corporation, stated today that he has no plans to acquire control of the Chemical New York Corporation. Without the support and enthusiasm of the management, Leasco has no interest in pressing for an affiliation with Chemical.
Mr. Steinberg observed that hostile takeovers of money-center banks were against the best interest of the economy because of the danger of upsetting the stability and prestige of the banking system and diminishing public confidence in it.
It was presumably with satisfaction that Romnes, Copeland, Tyson, Long, Learson, Funston, and the other Chemical directors that afternoon read the following telegram:
PLEASED TO REPORT LEASCO HAS ANNOUNCED WITHDRAWAL OF PLANS TO PRESS FOR AFFILIATION WITH CHEMICAL
BILL RENCHARD
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So it was over, just two weeks after it had formally begun. “They”—the Chemical Bank, most of the banking business, the Cravath law firm, a cross section of Wall Street power and influence, the leading proxy solicitors, the governor and legislature of New York State, the members of the Federal Reserve Board and the Senate Banking and Currency Committee, and sundry more or less related forces—had combined to beat Saul Steinberg of Leasco, and apparently to cause him to lose his nerve at the last moment. (He and Leasco came back—gamely, although disastrously from a financial point of view—to take over control that summer of Pergamon Press, a British publishing giant.)
And yet it wasn’t really quite over; for American business and society alike, it had reverberations, some perhaps beneficial, others certainly purgative and self-revelatory. Renchard said later, “I took the whole thing very seriously, although a lot of people I know didn’t. At the bank we’re more on the alert now for that kind of thing. I took a lot of kidding about it. If Steinberg had gone ahead, it could have resulted in quite a fight. I’m not saying we would have been defeated. I still think we could have successfully fought them off. I’m just as glad not to have had to go through the process, though.”
What Steinberg, for his part, chiefly remembers about the whole episode is the aura of hysteria that seemed to pervade so many people’s reactions to it. “Nobody was objective,” he says. “I wanted objective opinions, and I couldn’t get them. All through those two weeks, bankers and businessmen I’d never met kept calling up out of the blue and attacking us for merely thinking about taking over a big bank. Some of the attacks were pretty funny—responsible investment bankers talking as if we were using Mafia tactics. And it went on afterwards. Months after we’d abandoned our plans, executives of major corporations were still calling up and ranting, ‘I feel it was so wrong, what you tried to do—’ And yet they could never say why. We’d touched some kind of a nerve center. I still don’t know exactly what it was. Once, at a party, the head of a huge corporation asked me if there had been any anti-Semitism in the campaign against us. I said, not that I knew of. There are bankers and businessmen who are anti-Semitic, but it was more than that. I think now it would have been a good thing if we’d done a hostile takeover, and then there had been Congressional hearings, to get all those rancid emotions out in the open air.”
Ruefully, Steinberg summed up his emotional reaction when he said, immediately after his surrender, “I always knew there was an Establishment—I just used to think I was a part of it.” As for the Establishment, perhaps its last word on the affair was the apothegm allegedly pronounced on it by an officer of a lordly commercial bank, who is supposed to have said, with a lordly mixture of misinformation, illogic, and sententiousness, “Never trust a fat man.”
CHAPTER XI
Revelry Before Waterloo
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While Steinberg was finding out that he did not belong to the Establishment, and that in its old age it was neither too gentlemanly nor too toothless to fight, the investment revolution of the nineteen sixties was all but completed, and the era was having its last great speculative fling.
By 1969, institutional investors had effectively tak
en over the New York Stock Exchange business. At the beginning of the decade their share in it had been less than a third; now they had 54 percent of total public-share volume and 60 percent of total public-dollar volume. The mutual funds, the fastest-growing of the investing institutions, now held assets of some $50 billion, and were moving in and out of the market at a turnover rate of 50 percent, or half of their portfolios per year, as against less than 20 percent as recently at 1962.
The market was beginning to unravel in earnest. The Dow, after peaking out at 970 in May—only a few points below the all-time high of January 1966—went into a steep three-month decline that left it just above the 800 mark late in July. The Federal Reserve, worried about accelerating inflation, kept constricting the money supply, driving interest rates through the roof without apparently accomplishing its purpose, and there came to be the specter—confounding to classical economists—of a recession accompanied by runaway inflation, the worst of two apparently opposing worlds. The failure of the blue-chip Dow to reflect the true situation was becoming more pronounced all the time; the advance guard of the former high flyers were already crashing not 20 percent like the Dow but 50 to 75 percent, and even more. Transitron, which had peaked at 60 early in the decade, could be bought below 10 by June 1969. Early in the year, National General had sunk from a high of 66 to 35, Ling-Temco-Vought from 135 to 62, Litton Industries from 100 to 50. The Stock Exchange, which for some years had used the motto “Own your share in American business,” suddenly dropped it in 1969, without explanation.