Armour, When, As & If

Hardly a week goes by that lawyers do not discover some new and unexpected wrinkle in the Securities Act of 1933. Last week they found something which looked like bad news for stock exchanges, already in the process of being engulfed by the Securities Exchange Bill of 1934 (see above). By reading Section 2 of the 1933 Act defining an offer to sell with Section 5 forbidding delivery of unregistered securities in interstate commerce, said the lawyers, it might be illegal to trade in securities on a "when, as & if issued" basis. In any event clients had better ask Baldwin B. Bane, chief of the Trade Commission's securities division. The New York Curb Exchange telephoned Mr. Bane for a ruling. Yes, said Mr. Bane, if the securities which would or might be issued were not exempt, trading was most certainly illegal. Hastily the Curb suspended trading in all when-issued securities, not stopping to learn whether the issues were actually exempt or not. The Produce Exchange and the Chicago Stock Exchange soon followed the Curb's example. The Big Board had none to suspend.

Most important issues affected were shares in the new United Aircraft units and Armour & Co.'s proposed preferred and common. After the first day of confusion it was apparent that the United units would be required to file registration statements, since they were new companies (TIME, June 4). Armour, which intended merely to exchange new issues for old, was evidently exempt. On this assumption the Chicago Stock Exchange gingerly resumed trading in Armour but the Manhattan exchanges took no chances. They felt that while Mr. Bane had told them what not to do, he had in no sense said what they could do.

For President Thomas George Lee of Armour & Co. Mr. Bane's oral ruling came as the final spasm in a year-long nightmare. Mr. Lee, who pulled profits out of Armour last year for the first time since 1930, tried to reorganize the packing company last summer but various stockholder groups blocked him at a rowdy meeting in August. Salaries next became the target for the protective committee's publicity. Months of wrangling over a new board revealed that Frederick Henry Prince, crusty septuagenarian banker of Boston, had become Armour's biggest individual stockholder. Last January another rowdy stockholders' meeting produced eight new directors and a reconstituted finance committee of which Mr. Prince was chairman. Ever since, Mr. Lee & directors have been wrestling with a new reorganization plan. Late last fortnight it was unanimously approved and submitted to stockholders for approval next month.

No one ever seriously denied that Armour should be reorganized but how to do it made the trouble. The company wished to write down assets by $55,000,000 so that depreciation charges might be pared, earnings thus improved. But if this were done, it would reduce Armour's net assets below stated capital, and under Illinois law dividends could not be paid. Also preferred dividend accumulations would amount to $24.50 by July 1.

To clear up back dividends and meet the Illinois law, Mr. Lee proposed to exchange one share of new $6 preferred for each share of old $7 preferred, throwing in two shares of new common as a bonus to help stockholders forget back dividends. Mr. Lee also sweetened his new preferred by making it convertible into six shares of common. Old Class A stockholders would get new common, share for share, and each share of Class B would be exchanged for one-half a share of new common. By assigning the new common a par value of only $5, Mr. Lee would also create sufficient surplus to make his big write-down. Mr. Bane's ruling did not affect Mr. Lee's plans but it provided very bad publicity.

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