A Clever Deal

Into the U.S. Senate's buff-and-marble caucus room one day last week marched the New York Central Railroad's pink-and-silver Robert R. Young. Railroader Young was there to answer the questions of a Senate Banking subcommittee investigating the recent rash of proxy battles. The Senate subcommittee, headed by Wall Street Alumnus Herbert H. Lehman, wanted Bob Young to explain just how he had managed to win control of the $2 billion New York Central last year, and especially how he made his big deal whereby Texas Oilmen Clint Murchison and Sid Richardson cast a whopping 800,000 votes in his favor.

Whose Money? Almost from the first question, the sparks started flying. Democrat Lehman began by asking how Murchison and Richardson had bought the 800,000 shares of Central stock, then selling at around 25. Gloated Young: "It was one of the cleverest deals I have ever made in my financial history." Replied Lehman: "I am not looking for clever deals, Mr. Young." How, Lehman wanted to know, was the purchase financed? How much of their own money did they put up? The Texans borrowed the money, said Young. His Alleghany Corp. had lent $7,500,000; Alleghany's President Allan P. Kirby had anted up another $5,000,000, while a banking syndicate headed by Cleveland's Central National Bank had put up the rest. "Well," said Lehman, "as I understand it, Messrs. Richardson and Murchison did not actually put up any of their own cash."

With that, Bob Young lost his temper. Red-faced and angry, his silver hair ruffled, he roared: "How does the U.S. Treasury finance its transactions? It's all done on credit, but their credit is good--and it isn't any better than the credit of Murchison and Richardson." Under the deal, said Young, the two Texans agreed to pay Alleghany 4 1/2% interest on their borrowed funds.

Everybody Wins. With Central stock now selling at around $43 a share, the deal turned into a bonanza for all. "We have made $10 million without one dollar of risk, and I am proud of it," said Young. Countered Lehman: "Certainly there is a very grave question in my mind whether a stock can be legitimately voted by people who have not any real ownership of that stock save as there might be an equity if the market advances . . . That deal, which you described as clever, seems too clever by my old-fashioned standards." At one point, Bob Young could take it no longer. Bounding to his feet, turning to newsmen and spectators in the caucus room, he cried: "I would offer any of you gentlemen here the same deal--anyone in this room. Anyone that will come in with good credit and guarantee me against loss, I will be glad to advance them the money if they will give me half the profits and 4 1/2% interest. Anyone that would like to please hold up your hand. Come in." Not a hand was raised.

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