Stockyards Meeting

Last week a notable meeting of stock-holders was held in a gymnasium. The gymnasium (no longer used on account of Depression) is on the second floor of Armour & Co.'s main building in the Chicago stockyards, faces on one side the packing firm's general offices, on the other a cowpen. The meeters were Armour & Co.'s stockholders. President of Armour & Co. is T. G. Lee. Thirty-eight years ago as Thomas G. Lee he became a stenographer in Armour & Co.'s beef department under the late F. Edson White. Through the ranks he rose as one of Mr. White's proteges, in 1913 was sent as sales manager to Philadelphia, in 1921 to Manhattan, in 1926 was called back to Chicago as a vice president of the company. As he rose Mr. Lee became T. George Lee, following the fashion in nomenclature set by J. (for Jonathan) Ogden Armour and by F. (for Frank) Edson White who succeeded Mr. Armour to the presidency.

One morning in January 1931, F. Edson White plunged out of his bathroom window. The directors of Armour & Co. met to pick his successor. After a stormy session they named not Philip D. Armour III, 37, who was first vice president, but Mr. Lee who was 52, had served in nearly every department of the business. Another change followed: T. George Lee became simply T. G. Lee and took up a tough job. He did more than stare down his nose at subordinates and say, as he liked to, "You're all wet." In his first report to stockholders he had to report a $2,682,000 operating deficit, but he went in for economy. For 1932 with sales only two-thirds as great as the year before, he was able to show $9,255,000 in operating in.

A $9.000,000 operating profit is handsome but it is wholly inadequate for Armour & Co. In the post-War slump when J. Ogden Armour lost his fortune, Armour & Co. took a terrific beating, emerged from reorganization with a debt of $144.000,000. Its funded debt is still $91,000,000. T. G. Lee could do this simple bit of arithmetic: add to $6,000,000 (interest charges), $4,000.000 (guaranteed dividends on the preferred stock of its subsidiary, Armour & Co. of Delaware) and $7,000,000 or $8,000,000 (for deprecia- tion) and the total makes over $17,000,000 that Armour & Co. must earn before it will have any profits to pay dividends on its own preferred and common stock. Adding the fact that some $10,000,000 of unpaid dividends have accumulated since 1931 on Armour & Co.'s preferred stock, Mr. Lee was conscious that save by a re-organization there was small prospect of any Armour dividends for a long time to come.

So two months ago he proposed to his stockholders a reorganization to allow assets to be written down, reduce depreciation charges, make dividends possible.

Two things happened to spoil his plan: 1) A new law went into effect in Illinois giving minority stockholders the right in case of a reorganization to demand a fair appraisal of their equity and to be paid the amount thereof in cash. 2) Three groups of stockholders cropped up to object that the terms of the reorganization were un- fair.*

First to organize was a Stockholders' Protective Committee headed by Charles F. Tuttle of Manhattan which circularized stockholders objecting that the preferred stockholders were being deprived of their prior claims on the company's income without adequate compensation, that common stockholders were to be deprived of their proper equity in the company, that the plan was "unscientific" and unfair to all classes. Chase Ullman of St. Louis got together another group of dissenting stockholders. Finally a third group, a Stockholders' Advisory Committee headed by M. W. Borders, Kansas City lawyer, and William Morgan Butler of Boston, got into action. More noisy than the others they carried their fight to the Press, asked embarrassing questions: Had Albert Henry Wiggin, Samuel McRoberts and Arthur Reynolds each been paid $100,000 a year as voting trustees for Armour's stock? Had the management manipulated the price of Armour stock? Had not the management tried to deceive stockholders about the reason for the reorganization? Ought stockholders not to have been told that they could demand cash for their shares? How could the company justify having used its employes throughout the country to get proxies from stockholders?

When the date for the stockholders meeting arrived it was adjourned. Last week when the meeting was held the outcome was already settled. Mr. Lee had announced that although the management held proxies for 65% of the stock (66 2/3% were needed to authorize the reorganization) to 10% for the opposition, so many stockholders had announced their inten- tion of demanding cash that the plan could not be satisfactorily carried through.

Mr. Lee got to his feet in the gymnasium with a large Blue Eagle hanging up behind him. He rapped for order with a water glass. Three hundred assorted stockholders seated on folding funeral chairs looked up at him. There was no business to transact, but he made a little speech: "Certain criticisms of your company's management have appeared in newspaper advertisements. ... I believe stockholders are entitled to know the facts. ... I propose to send, as soon as possible, a full statement to all stock-holders of the company giving an answer to the criticisms. . . ."

While he spoke a cow in the cowpen outside went, "Moo, moo. mooOOOooo."

The stockholders did not mooo but they asked boooing questions: Would they soon get dividends? Would another reorganization be proposed? Mr. Lee could give no answer.

Said Jack Lewis Kraus II, counsel for the Protective Committee: "If the management continues headstrong and obdurate, if it indicates the desire to take the part of a spoiled child and refuses to play the game at all unless it can be played its way, we give that management solemn warning that no such government can continue."

*The terms: 572,000 shares of $100 old preferred stock to be replaced by 4,292,000 shares of new common; 2,000,000 shares of common A to be replaced by 333,000 shares of new common plus rights to buy 3,000,000 shares of new common at $12.50; 2,000,000 of old common B to be replaced by 166,000 shares of new common plus rights to buy 2,000,000 shares of new common at $12.50.

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