The Go-Go Years (34 page)

Thus alerted, Renchard went into vigorous if belated action. He set up an eleven-man task force to devise strategy for fighting off any such takeover attempt, under the direction of the Chemical's chief loan officer, J. A. McFadden—“a bright fellow, good at figures,” as Renchard described him later, “not exactly a tough guy, but no pushover, either.” He assigned another bank officer, Robert I. Lipp, to prepare a memo outlining all of the possible defensive strategies available to Chemical, and on February 3 Lipp came through with a list of seven different courses of action. (Out in Great Neck, almost at the same moment, Leasco was putting the finishing touches on its proposed tender offer, and was making further extensive purchases of Chemical stock—to be precise, 19,700 more shares at a cost of $1,422,207.) Renchard said long afterward, “At that time we didn't know how much of our stock they had, or what kind of
a package of wallpaper they were going to throw at our stockholders in their tender offer. We were guessing that they would offer stuff with a market value of around $110 for each share of our stock, which was then selling at 72. So we knew well enough it would be tough going persuading our stockholders not to accept.”

On February 5, Renchard made his move, and a drastic and risky one it was. He decided to force Leasco out into the open by leaking a story to the press. That afternoon, H. Erich Heinemann, banking specialist on
The New York Times'
financial reporting staff, telephoned him to say that he had heard rumors of an impending takeover attempt and to inquire whether there was anything in them. Rather than make the routine denial that he would have made under ordinary circumstances, Renchard replied that there was, indeed, something in the rumors. He went on to give a few details and some pointed comments, and the following morning the
Times
carried a piece, under the by-line of Heinemann's colleague Robert Metz, that read in part as follows:

Can a Johnny-come-lately on the business scene move in on the Establishment and knock off one of the biggest prizes in sight?

That, it appears, is what the Leasco Data Processing Equipment Corporation hopes to do next in its dynamic acquisition program. The rumored target is one of the nation's most prestigious banks, the Chemical Bank New York Trust Company, founded in 1824. …

Try and get confirmation that something is going on … and you get nothing. In fact, Leasco's public relations people called to get a statement from the reporter.

Is Chemical in the bag? Hardly. William S. Renchard, chairman of the Chemical Bank, sounded like a Marine Corps colonel in presenting his battle plan for what he believes may well develop. … He said, “We intend to resist this with all the means at our command, and these might turn out to be considerable.”

Understandably, the article was the talk of the banking world that day. Renchard went on with his planning, holding new strategy sessions at which one of the possibilities discussed,
as phrased in a memo prepared for one of the meetings by McFadden, was the following:

There is some question about the breadth of the market on the Leasco stock and it might be possible to attack its value if need be.

Such an “attack”—carried out by making sales or short sales of Leasco stock over an extended period—would hit Leasco where it lived, since its high stock price was the source of its power and, above all, of the possibility of its taking over a firm like Chemical that was many times Leasco's size. The difficulty lay in the fact that such an attack—a bear raid—would constitute stock manipulation and would be a violation of the securities laws punishable by fines and imprisonment. For obvious reasons, no one has ever been willing to say that at Chemical's February 6 strategy meeting that particular recommendation was adopted for action. The striking and undeniable fact is, however, that on that very day, Leasco stock, which had been hovering in the stratosphere at around 140, abruptly began to fall in price on large trading volume. By the close the following day Leasco was down almost seven points, and over the following three weeks it would drop inexorably below 100. Rumors of impending mergers, particularly between titans, customarily drive a company's stock price
up,
not down. Long afterward, Steinberg said of the curious coincidence in timing as to the proposed Chemical takeover and the beginning of the Leasco slide, “It
is
odd—so odd that Congressman Wright Patman asked me the same question. But we've never been able to pin anything down.” As for Renchard, he later told a Congressional committee that he thought the stock drop was simply the result of institutional holders beginning to lose confidence in Leasco; but still later than that, he pointed out, without elaboration, that one of the defensive techniques discussed in the Chemical strategy meetings had been drawn from a
Harvard Business Review
article called “multiple flogging.” “Multiple flogging,” in the context, was a fancy new name for an old-fashioned bear
raid. By using various concealment devices, it is theoretically possible to carry out a bear raid without detection by the authorities. The evidence suggests, at least, that on February 6 somebody, identity unknown, started lowering a very heavy boom on Leasco.

4

Steinberg reacted to the
Times
article exactly as Renchard had planned that he should. Although Steinberg was not ready to make his tender offer and, in fact, was considering waiting several months before doing so, he decided that now he had no choice but to go ahead immediately—and from his point of view, prematurely—and, as a first step, he resolved to have an exploratory talk with Renchard early the following week.

On Friday, February 7, the day after the
Times
article, Steinberg had lunch with Heinemann. By Steinberg's account the timing was pure coincidence, since the lunch had been arranged weeks before; it was, however, an obvious windfall for Heinemann as a reporter to be seeing Steinberg at the very moment when the meteorically successful boy wonder was at the center of the biggest financial story in the nation. At the lunch, Steinberg insists that it was understood by both sides that everything was off the record; then he proceeded to discuss Leasco's plans freely, not to say indiscreetly. When he had finished, he asked Heinemann, as a man knowledgeable about banking, for his impressions. According to Steinberg, Heinemann replied that in believing for a moment that he could get away with taking over Chemical Steinberg showed himself to be “an innocent.” At any rate, Steinberg later decided that he had been an innocent about Heinemann. That afternoon, Heinemann called up the Chemical Bank and talked to a public-relations officer there, to whom he reported in detail what he had heard from Steinberg. That same afternoon, the public relations officer sent Renchard a memo that read, in part:

Heinemann just came back from lunch with Steinberg, and passed on the following results.

They said they are beginning to feel the pressure. They knew there would be absolute opposition, and they fully believe that when they come in with their proposal it will be rejected. …

Erich was told that it is a better than 50–50 chance that Leasco will announce their intentions and plan at the annual meeting next week. Steinberg took the position that their offer will be most beneficial for us. … Steinberg said flatly that the way we handle international business … is wrong and will be changed.

(Heinemann's version of the episode differs from Steinberg's in several crucial respects. In the first place, he said later that his luncheon with Steinberg had not been arranged weeks previously but only four days before—at the urgent request of Steinberg's public-relations counsellor. Moreover—and more crucially—Heinemann avows that at the luncheon he was not asked for and did not give any assurance that what was said be held confidential, and that he subsequently called Chemical, as a conscientious reporter, in an attempt to elicit additional information for a possible new story.)

Steinberg said later that the memo gave a generally accurate account of what he had said at the lunch, with the notable exception that he had said nothing about pressure—that, indeed, he had felt no pressure from banks at that time, although he was to feel plenty of it later on. The nearest thing to pressure on Leasco as of February 7 was a conversation Steinberg had that day with Donald M. Graham, chairman of Continental Illinois Bank and Trust Company, a leading Leasco creditor, in which Graham expressed the view that a Leasco attempt to take over Chemical would not be a good thing for banking—and added, most unthreateningly, that his bank highly valued its association with Leasco and expected it to continue. (Renchard, in fact, had talked to Graham and urged him to discourage Steinberg.) The memo seemed to give Chemical a momentary edge; and, seizing the initiative, the bank took the comparatively drastic step of planning a full-scale strategy meeting at 20 Pine Street the following morning, even though the day would be Saturday.

It turned out to be a wild weekend of feints and counterfeints.
Steinberg was busy with a semi-annual conference of Leasco district managers, and on that account, he stayed in town at the Regency Hotel. By another coincidence, that same weekend was the occasion of the American Bankers Association's annual trust conference, and consequently New York City was swarming with hundreds of important bankers from all over the country. At the Chemical strategy meeting—which was attended, this time, not only by Chemical's in-house task force, but by invitees from other powerful Wall Street institutions sympathetic to the Chemical cause, including First Boston, Kuhn Loeb, and Hornblower Weeks—a whole array of defensive measures were taken up and thrashed out, among them the organizing of telephone teams to contact Chemical stockholders; the retaining of the leading proxy-soliciting firms solely to deny their services to Leasco; the possibility of Chemical's making a quick merger of its own with some other computer-leasing company, to raise an antitrust obstacle for Leasco; and the possibility of getting state and federal legislation introduced through the bankers' friends in Albany and Washington in order to make a Leasco takeover of Chemical illegal. Despite the availability of such weapons, the opinion of those present seemed to be that Leasco's venture had an excellent chance of success. There was a sense of backs to the wall, of the barbarians at the gates, of time running out. Reports of the meeting filtered out that evening to the bankers assembled around town at their cocktail parties, receptions, and dinners. One such report had it that a participant at the session had finally thrown up his hands and said, “Oh, let the kid have the bank. We'll start a new one!” Levity, it seemed, with an edge of hysteria.

On Sunday, New York City was hit by a fifteen-inch snowstorm, the worst in seven years, and as a result, airports were closed, roads were clogged, rail service was disrupted, and the bankers in town were trapped. There was nothing for them to do but stay and talk—largely about Leasco and Chemical. The bankers, and the subject, were caught in a kind of pressure cooker. That evening, Chemical held a large reception for the visiting bankers at the Plaza. (Steinberg, the subject of all the
discussion, stayed at the Regency four blocks away; not being a banker, he wasn't invited.) At the reception Renchard took considerable kidding; the prevailing attitude among the bankers he talked to seemed to be that the whole thing was ridiculous, an attitude that Renchard felt he had little reason to share. “Don't joke,” he would say. “If this is successful, the next target may be you.”

On Monday, with the city still snowbound, Renchard and Steinberg, who had previously never so much as talked on the telephone, met at last. That morning Steinberg, carrying out his plan, called Renchard at his office and asked if they could get together. Renchard said, “Sure. I'll buy you lunch, but I have to go to a meeting right afterward. Do you have transportation?” Steinberg said he hadn't. “I'll send my car to get you,” Renchard replied. So Renchard sent his car to the Regency, Steinberg got in and sloshed comfortably downtown, and the lunch that Renchard “bought” him took place that noon in the Chemical Bank's private dining room. One may imagine the first reactions of the antagonists to each other. One was lean, iron-gray, of distinctly military bearing; a North Shore estate owner, very conscious of the entrenched power of the nation standing behind him, very much a man of few and incisive words. The other was round-faced, easy-smiling, a man of many words who looked preposterously younger than his already preposterous twenty-nine years, and given, as he talked, to making windmill gestures with his arms and suddenly jumping galvanically up from his chair; a
South
Shore estate owner (twenty-nine rooms, tennis court, two saunas, Picassos and Kandinskys—as Steinberg himself characteristically described it, “a modern mansion just like that of any other successful kid of twenty-nine”); a young man bubbling with energy and joy in living. (Contrary to repeated press reports, he was not fat, only chunky; photographs of his jowly face deceived people.) Now he seemed to be, in the tragicomic fashion of that year, the corporate version of a campus radical informing the university president, with a mixture of amusement and pity, that the times had changed and the freshmen were taking over.

The two men's accounts of the ensuing meeting, as told to me several years later, differ to some extent as to content, but to a greater and perhaps more interesting extent as to style and emphasis.

Renchard:
“Steinberg, at some length, gave his ideas on how commercial banking was going to be revolutionized over the next few years. Mostly I just listened, and so did my colleagues [President Howard] McCall and [Vice Chairman Hulbert] Aldrich, who joined us toward the end of the session. The whole industry was to benefit greatly, Steinberg said. I asked him why he had singled out Chemical. He said he liked our philosophy, that is, we were in the process of forming a one-bank holding company that would enable us to diversify, thereby showing that we believed in the principle of bank diversification. He had evidently ruled out Citibank and Chase as too big. Bankers Trust and Irving were out for technical reasons, and Morgan probably because it was strictly a wholesale business. He seemed to like us better than Manufacturers Hanover.