Amexco Stalled

But the fight may go on

If American Express Co. is to win its battle for McGraw-Hill Inc., the magazine, book and information-services giant, it will have to be by way of a revolt of Mc Graw-Hill shareholders against their own management. That was the upshot of fast-moving developments last week that abruptly switched the tide of battle in one of Wall Street's biggest takeover wars ever.

Amexco initially seemed likely to win. But its managers appeared stunned by the fury of McGraw-Hill Chairman Harold McGraw Jr.'s attacks on Amexco's "corporate morality" and unwilling to take the chance that further such assaults would blacken its reputation during a drawnout struggle. At the start of the week, Amexco Chairman James D. Robinson III raised the company's bid for McGraw-Hill stock from $34 a share to $40, or a total of almost $1 billion in cash. But he promised not to make a tender offer to stockholders unless the majority of McGraw-Hill's board approved the bid-- or at least agreed "not to oppose it by propaganda, lobbying, litigation or otherwise."

The 13-member McGraw-Hill board did the exact opposite. At a 3 1/2-hour meeting that some present described as "intense," the directors voted unanimously to reject the $40 offer. McGraw apparently won unanimity by harping on his two main arguments: 1) that an Amexco takeover would undermine the editorial independence of McGraw-Hill publications, especially Business Week and the Standard & Poor's bond-rating service, and 2) that Amexco President Roger Morley had committed a "serious breach of trust" by serving as a McGraw-Hill director while Amexco was preparing its bid--a charge that McGraw repeated in a letter to share holders announcing the rejection.

So American Express will suffer a stunning defeat--if McGraw-Hill shareholders are satisfied.

A good number apparently are not; the $40 bid is far above the market price of McGraw-Hill shares ($30 last week). Harold McGraw's cousin Donald, who was forced out of his posts as a company group president and director, but still owns 2.5% of the stock, said he was "annoyed" that the board did not at least negotiate with American Express.

Though the chairman has called the Amexco bid illegal, Donald McGraw dis missed that charge as "a ploy that Harold is using to pass by the stockholders be cause he does not want to sell at any price."

At least one stockholder has already filed suits against the McGraw-Hill management and others are expected to follow, claiming that they were financially damaged by the turndown of the $40 bid. Said Abraham Pomerantz, a New York lawyer who makes a specialty of class action suits: "There are squeals all over America from frustrated shareholders of McGraw-Hill. My telephone has been ringing all morning with calls from people who want to join the [lawsuit] parade."

Though the suits are likely to drag on inconclusively for years, there also is talk of a proxy fight, possibly led by Donald McGraw, to unseat Harold McGraw at the annual meeting in April and install a board that would negotiate with Amexco. Two factors that will work in Harold's favor if a proxy fight does begin: last week he announced a 24% jump in McGraw-Hill's 1978 profits, to a record $63.7 million, and an increase in the quarterly dividend from 25-c- a share to 32-c-.

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