Large Ghost Laid

Not even the stately halls of the world's largest banks are free from corporate ghosts. For almost a year one of them has lurked disturbingly in the recesses of Chase National Bank. Were it articulate this ghost might well have slid into the offices of Governor Albert Henry Wiggin and whined: "I am the ghost of William Fox's mismanagement of Fox Film Corp. I was created during the wild days of 1929 when he expanded quickly and without funds. Last year I was temporarily silenced when Fox Film fought off receivership by selling $55,000,000 notes to mature in twelve months. Since then I have haunted Harley Lyman Clarke, who is president of Fox. Also I have haunted Halsey, Stuart & Co. and Pynchon & Co. who played close to Fox. If you fail to silence me, nobody else can. What are you going to do, Banker Wiggin, when those $55,000,000 notes fall due?"

Knowing well what the ghost might be saying, knowing well how much was at stake. Wall Street guessed that Banker Wiggin, hero of many emergencies, would rise to the occasion. Yet how he would do it remained a mystery for many months. Even eleven days before the notes fell due they sold $2 below par, indicating there was still considerable doubt on how the problem would be handled. Last week, however, shrewd Banker Wiggin was glad to announce a ghost-laying party. The notes were redeemed as promised.

Preparation, Late in March, Fox Film Corp. began to prepare for the ghost-laying by electing Glenn Griswold, long time editor of the Chicago Journal of Commerce, to vice president in charge of publicity (TIME, March 23). Swart Mr. Griswold is so familiar with the ways of the press that soon many items got them selves into newspapers, to the effect that the financing would be taken care of in due time. President Harley Clarke gave out an interview. "The motion picture business suffered remarkably little from the period of depression," said he. Al though reliable figures on motion picture attendance are not available, Wall Street, judging by the market, did not agree with that opinion. Warner Bros. Pictures bonds may be bought for 50-c- to 60-c- on the dollar. Paramount Publix common stock yields almost 10% at its current price. Many mortgage bonds of Fox Theatres, sold by Halsey, Stuart & Co., can be purchased at between 50-c- and 70-c- on the dollar. Loew's common sells at less than 52 times earnings.

Withdrawal. Last year when Fox Film was hovering near receivership, its old bankers, Halsey, Stuart & Co., put up a marvelous fight. But this year Halsey, Stuart & Co. did not behave as intrepid ghost-layers should. On the eve of Mr. Wiggin's party an announcement was made that Halsey, Stuart & Co. had retired from the entire proceedings. Wall Street became a little more nervous. The ghost, it seemed, must indeed be a big ghost if Halsey, Stuart & Co. backed out, for the firm was one of the first houses to finance motion picture enterprises. Rumored as the chief reason for the withdrawal was Halsey, Stuart & Co.'s objection to the relationship between Fox Film and General Theatres Equipment, which sells much equipment to Fox-controlled theatres.

Recruits, Banker Wiggin, however, had no idea of meeting the ghost alone. Hardly had Halsey, Stuart & Co. withdrawn than President Clarke called upon Fox's shareholders to elect six new directors. At the head of the list was Banker Wiggin, director of a myriad of mighty companies, also of less prosperous ones such as American Woolen, Armour & Co., International Agricultural Corp. Proposed to stand beside him were General Cornelius Vanderbilt, whose directorships include Chase National Bank, Illinois Central Railroad, and Saratoga Association for the Improvement of the Breed of Horses; Phillip Ream Clarke, president of Central Trust Co. of Illinois; Frank Overton Watts, chairman of First National Bank in St. Louis; George Monroe Moffett, vice president of Corn Products Refining Co.

No More Plum, When such financially august gentlemen were elected to the Board it was certain that the ghost would be laid. But there soon was evidence that it was a trying party. In Wall Street there is a phrase well known among bankers--"O. P. M." which means "Other Peoples' Money." Usually O. P. M. is used to solve problems, but in the Fox case although a total of $75,000,000 was put up last week, only $30,000,000 was 0. P. M., obtained by selling new bonds to the public. And Fox stock instead of being strong on the announcement of the party dropped from $33 to a new low of $24 1/4. Searching for reasons for these two developments, Wall Street decided that perhaps a prime cause lay in the fact that Fox's big holdings in Loew's, previously considered a rich plum, henceforth are no longer strictly Fox's.

Film Securities Corp, A new company was formed last week, christened Film Securities Corp. From Fox Film it took the 660,900 shares of Loew's which Cineman Fox bought in 1929. In return, it gave Fox $28,800,000 cash, also nine-tenths of its common stock. The common stock, however, was divided into voting and non-voting classes, and that which Fox received may not vote for Film Securities' directors. The other one-tenth went to the Chase-headed syndicate which underwrote the $30,000,000 worth of Film Securities notes and preferred stock. Thus Fox no longer controls the 660,900 shares of Loew's which amount to working control (48%) of that company. Although a Government suit against Fox's investment in Loew's was thought to have prompted this deal, many Fox holders last week regretted it; they had always thought that Fox could sell its Loew's investment any moment at a fancy price.

Figures. The recently weak condition of the bond market probably prohibited the bankers from attempting to sell more than $30,000,000 worth of Fox securities last week. But there may have been other reasons why O. P. M. was not forthcoming at once for the $30,000,000 Film Securities Co. issues and a $15,000.000 bond issue of a Fox subsidiary which the bankers also bought last week. Fox Film has always carried its Loew's investment at the price which Mr. Fox paid. Yet the market is now less than half that price, and if Fox were to rewrite its Loew's investment down to market, its $5,000,000 surplus would become a $35,000,000 deficit. Another factor which made O. P. M. scarce last week was the absence of any Fox balance sheet later than Sept. 27, 1930. The stated reason for this absence was a difference of opinion on how to depreciate talking films. The bankers for Fox said that their accountants have deducted more than $3,000,000 from previous Fox earnings because of a more conservative system. Accounting difficulties were also cited as the reason why bankers and company could make no estimate of the per-share Fox earnings even for the prosperous Sept. 27, 1929-Sept. 27, 1930 period.

Essence. Thus the ghost-laying party was expensive to both the company and its bankers. The company has surrendered one-tenth of its equity in Loew's, also sole voting power for its Loew's stock. The bankers have apparently temporarily invested $45,000,000 in the Fox structure, although they are expected to sell these holdings to the public later. Yet Wall Street last week was inclined to view the whole affair as masterful handling of a tremendous problem. Men shuddered to think of what would have happened to the stock and bond markets had Fox defaulted on a $55,000,000 issue.

Probably the least concerned person in the whole affair was William Fox, who is still a director of the company which bears his name, who for four more years will be given a salary of $500,000, and who can still go to the village movie-house in Woodmere, L. I. to see Fox productions bearing the once magic legend: "William Fox Presents. . . ."

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