White Flag

In his fight to control Fairbanks, Morse & Co., Raider Leopold Silberstein ran up the white flag. He seemed to have little choice, even though he claimed to have bought enough stock (50.4%) to control the company. The trouble was that he had overextended himself to do so. He had tied up nearly 30% of the assets of his Penn-Texas Corp. in Fairbanks, Morse stock, and still owed $12 million, much of it payable in the next few months. So Fairbanks, Morse President Robert H. Morse Jr. played a delaying game. He won a court injunction barring Silberstein from voting his stock on the ground that the purchases through Swiss banks had been illegal, suspected that if Silberstein did not get control of Fairbanks, Morse he would have trouble raising the cash to pay for his F-M stock. His calculation proved right. Silberstein began peace talks two weeks ago; last week he signed a pact that was a clear victory for Morse.

Under the five-year agreement Robert H. Morse Jr. will continue as president and chief executive. Silberstein, who last year voted four of his men on the eleven-man Fairbanks, Morse board, won only one more. Bob Morse will also have five directors, and the board will have an impartial member, Chicago Investment Banker J. Douglas Casey, president of A. C. Allyn & Co.

Even more important, Penn-Texas must give up its Fairbanks stock control, and must agree to drop the proxy fight. It will sell 300,000 of its 692,000 Fairbanks shares to Fairbanks, Morse at $50 a share v. the $56 market price, a sharp cut below the $69 that Silberstein paid for some of the shares during his 15-month buying spree. To finance the purchase, which reduces Fairbanks, Morse outstanding shares to 1,072,000, the company will issue $15 million in convertible debentures, underwritten by Board Member Casey's investment banking house.

On the sale of the stock Penn-Texas lost heavily, but the fight had also been costly to Fairbanks, Morse. When the battle started, its stock was selling for only about $40. Thus, it was buying Penn-Texas stock at an inflated price caused chiefly by Leopold Silberstein's buying during the proxy fight.

Having bowed to Morse in his own company, Silberstein also faced trouble from him in Penn-Texas, where Morse had financed a stockholders' protective committee. At the annual meeting last week in tiny Cresson, Pa. (pop. 2,569), four days before the peace pact was signed, the Penn-Texas stockholders sharply questioned Silberstein's tactics in the Morse fight. They cited the protective committee's report that Penn-Texas stock had dropped from $19.62 to $11.25, that cash dividends dropped from $1.30 in 1955 to 35-c- in 1956, with none in sight for 1957.

In bland reply, Silberstein promised that all would be well, but conceded one seat on the eight-man Penn-Texas board to his Morse-led stockholders. They claimed that they control more than 1,000,000 of 4,700,000 Penn-Texas shares outstanding, may even end up with as many as three seats when the proxies are counted.

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