Battle for MoPac

Of all the major railroads that went broke during the Depression, the Missouri Pacific is still the only one in bankruptcy, despite the fact that it is fat with profits. What's wrong? The trouble is that holders of $223 million worth of top-claim MoPac bonds and holders of 828,395 shares of its common stock cannot agree on who should control the road after reorganization. At stake is a rich prize. MoPac has 10,000 miles of track tapping the Midwest and Southwest, $104 million in the till, and what looks like a bright future ahead.

No one has fought harder to grasp this prize than Railroad Juggler Robert R. Young, who owns 51% of MoPac's outstanding common stock. For two years he has opposed a plan, tentatively approved by the Interstate Commerce Commission, which would wipe out the common-stock interests, give control of the reorganized road to the bondholders. Last week the fight erupted in a rash of full-page ads across the nation and a flurry of charges and countercharges at an ICC hearing.

The big question before ICC was: Have MoPac's earnings improved enough to warrant a change in ICC's reorganization plan and give common stockholders a cut of the pie?

Dim Future? In ICC's Washington hearing room, Paul J. Neff, MoPac president and chief operating man for the road's court-appointed trustee, took the stand to answer the question. His answer: no. MoPac's net profit, he agreed, had hit $22 million last year, but this year it would be closer to $13 million. It would drop still more in the future, said Neff, as the business boom tapers off and Korean war shipments decline. As President Neff's damaging testimony continued, Bob Young held whispered conferences in the back of the hearing room with his longtime friend, MoPac Chairman T. C. Davis. When Neff stepped down from the stand, Young and Davis called a press conference. President Neff, they said, had just been fired.

Actually, all Neff lost was a title. He will stay on as operating boss of MoPac at $75,000 a year, under Guy A. Thompson, the 76-year-old St. Louis lawyer, Democratic politico and court-appointed trustee for the road. As majority stockholder, Young can pick a president. But it is an empty title. The real bosses are Trustee Thompson and his man Neff. Nevertheless, the dramatic move set the stage nicely for Young when he took the witness stand to fire back.

Five-Year Plan. True to form, Young charged, in ads and in his testimony, that a bunch of "bankers" were out to take over MoPac to cash in on rich banking & insurance business with the road. In this case, the bankers were operating through a "New York Financial Group" of insurance companies, led by Metropolitan Life. The insurance companies, said Young, held only $20 million worth of MoPac bonds. Young's own cash investment is small; he acquired his MoPac stock when he and some friends bought Allegheny Corp. for $4,000,000. If the "New York Financial Group" has its way, said Young, and the ICC plan is accepted, holders of bonds worth $1,445 apiece would get only $158 in cash, $722 in fixed-interest bonds, and the rest in bonds bearing interest only if it is earned. Common stockholders would get nothing. Thompson, Young added, was siding with the bankers to put through this plan. This Thompson denied.

Then Young advanced his own plan for MoPac. It would give him control, by cutting in common stockholders, but he insisted it would also give bondholders a better deal too. He would give each bondholder $445 in cash and a $1,000 bond with a fixed annual interest rate. There was a rub to Young's plan; the bondholders might have to wait a while before they got their cash. While paying them off with some of the $104 million in MoPac's till, Young would use most of the road's cash to improve MoPac's financial condition.

He would buy up bonds and retire them, thus improving the road's credit so that he could refinance all MoPac's bonds at a lower interest rate, cut carrying charges. Said Young: "Within five years all of its bonds would be selling on the low interest basis, and its preferred stock would be making marked progress in the payment of accumulated dividends, and the common stock [now traded over the counter at around $5] would be selling from $50 to $100 a share." Young said he had done it before. In the case of the Nickel Plate Railroad he took over when its first-mortgage bonds were selling below 30, its common stock at $7. Nickel Plate bonds which replaced the old issue are now around 90, its common stock had sold above $200 before it was split 5 for 1. With MoPac, said Young, he could "make clover" in the same way.

Insurers' Insurance. Young may have been somewhat over-optimistic about what he could do for MoPac, but he did have one strong point. Ex-President Neff's profit figure of $13 million in 1951 was misleading, said Young. It gave the impression that the road had a comparatively small margin over its fixed charges. Actually, said Young, MoPac's gross of almost $60 million (equal to four times the interest on its top bonds) was the real indication of the road's earning power.

Up till last week, Young had not seemed to be making much headway in his battle for the road. In the last vote on ICC's plan, the bondholders had heavily opposed him, were skeptical of his promises. But last week, there were signs of a shift. Word spread that MoPac bondholders had started buying MoPac common stock, just in case Young should win.

This file is automatically generated by a robot program, so reader's discretion is required.