Young v. Morgan

For 13 years competitive bidding by underwriters has been mandatory under ICC regulations for new issues of railroad equipment trust securities. For many more years than that it has been routine in municipal financing. Meanwhile, a growing number of private corporations have cut ties with their traditional banking houses and put new issues on the block, or placed them privately, often getting better prices for their securities.

Conservative banking houses like Morgan Stanley & Co. (divorced underwriting half of J. P. Morgan & Co.) and Kuhn, Loeb & Co. have held themselves coolly aloof from competition for security issues. Their position is that terms reached in direct negotiations with a single underwriter, thoroughly familiar with the financing company, are more likely to be best for borrower and investor than those that come out of a fierce competition among a group of bidding underwriters. Competitive bidding, they hold, "tends to overpricing the issue . . . and to subsequent dissatisfaction and losi of credit and good will of the borrower."

Riding the competitive bidding wave today is red-faced Board Chairman Robert Ralph Young of Allegheny Corp., who has been in the middle of a hectic three-year fight to get control of Allegheny's railroad substructures, notably prosperous Chesapeake & Ohio R. R. Bob Young believes that at every turn Morgan interests blocked his way. One of his retaliations has been to get in the way of Morgan Stanley & Co. every time it goes after a railroad securities issue.

By artful use of newspaper publicity, and by telegrams, letters and phone calls to directors, Broker Young forced competitive bidding for a $30,000,000 C. & O. issue last December. Morgan Stanley, who had had the issue sewed up, stepped out, and C. & O. got an extra $1,350,000 on the issue. Last February, by the same means, Mr. Young forced competition for a $12,000,000 Cincinnati Union Terminal issue; Morgan Stanley withdrew again, and the Terminal got $45,000 extra for its bonds. Last week, after a barrage of letters, wires, phone calls, the directors of Terminal Railroad Association of St. Louis voted for competition on another $7,000,000 bond issue. Again Morgan Stanley, for whom the issue was originally intended, stepped out, and Robert Young cut another notch in his gun.

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