Monday, Jun. 17, 1935

Paramount Salvage

Late in the 1920's Wall Street suddenly awoke to the fact that cinema was Big Business. It was financially fashionable for brokers to call this discovery to their customers' attention in elaborate analyses of the new industry. Some people cocked a skeptical eye at the mushrooming of William Fox or the Brothers Warner but certainly Paramount Publix seemed a citadel of cinematic conservatism. Indeed, Paramount was the $300,000,000 medium through which the House of Kuhn, Loeb & Co. had seen fit to lift the film industry to the financial equal of steel and railroads. But Paramount had an Achilles heel. In the process of acquiring the world's longest theatre chain (1,600), the company had wisely paid in common stock instead of in cash from the proceeds of bond issues as did other film concerns in the wild scramble for their own screens. Unwisely, however, Paramount agreed to buy back that stock within two years, at an average price of $80 per share. Of course, the company hoped that its shares would rise above that figure in the open market. Paramount shares never hit $80 on the New York Stock Exchange but they dropped to a Depression low of 12 1/2-c-. And the $12,000,000 liability involved in the repurchase agreements came due when Paramount earnings were dropping fastest.

Paramount did not go down without a struggle. There was nothing fundamentally wrong with its first & foremost function-- making, distributing and exhibiting films. Its troubles were almost wholly financial. And in 1931 its bankers cajoled John Daniel Hertz into taking the Paramount command as chairman of the finance committee. The thickset, sinewy Chicago financier had been making half-hearted attempts to retire since 1926 when he sold his Yellow Cab Manufacturing Co. to General Motors for more than a few millions.

In 14 months Taximan Hertz lopped $39,000,000 from the Paramount budget--$6,000,000 in salaries alone. He wangled reductions in rentals and interest, ordered executives to file expense vouchers--a startling innovation--and marched through the payroll with a big blue pencil. In the film industry, which is notorious for its nepotism, such Hertzian tactics were bound to stir up trouble. And having made enemies right & left, Mr. Hertz finally called for a showdown on his right to hire & fire. He lost. So horsy John Hertz retired to his polo and his racing. Early in 1933, unable to pay its bond interest and loaded to its Plimsoll line with bank loans, Paramount finally foundered.

Yet in the confusion of receivership, bankruptcy and endless litigation, it was apparent that John Hertz's heroic efforts had made the Paramount hulk worth raising. The studios were unaffected, theatres were open and by the end of 1933, with the help of Mae West's first hit (She Done Him Wrong), the company was making money. Upshot was that a number of people began to take a hand in the salvage operations.

One was John D. Hertz, who, putting all thought of retirement from his head, had in the meantime become a partner in the Manhattan banking house of Lehman Brothers. Another was Floyd Bostwick Odium, who smelled a bargain for his Atlas Corp. And finally there was Harold A. Fortington, financial secretary of Britain's Royal Liverpool group of insurance companies. An exceedingly rich and somewhat mysterious Briton, Mr. Fortington has been in the U. S. since 1920. He has a home in England, an apartment in Manhattan and a 1,400-acre estate in Pawling, N. Y., where he has the biggest apple orchard and the finest pheasant preserve in that part of the State. Whenever the weather permits he goes to work by way of the Newark Airport in one of his three planes. He flies a little himself, though his personal pilot for years was the late Jimmy Collins. He owns a private salmon river in Labrador where he usually spends six weeks every summer.

Messrs. Hertz, Odium & Fortington also had rich friends who liked the looks of the Paramount wreck. Stockholders, bondholders, trade creditors, and the big banks all had conflicting claims. But the importance of Messrs. Hertz, Odium, Fortington & friends was the fact that together they owned nearly $20,000,000 face value of defaulted Paramount debentures and other claims. What was more, they had shrewdly purchased most of the bonds after the company went bankrupt. Thus it was that Messrs. Hertz, Odium et al. had much more to say about the reorganization plan which went to the courts last November than the orthodox protective committee on which sat Kuhn, Loeb Partner Sir William Wiseman.

No secret was John Hertz's cordial dislike for the banking house at No. 52 William Street, Manhattan, but Kuhn, Loeb was an enduring tradition in Paramount. Not until last January was the final Kuhn, Loeb fade-out effected. Then the slate of new directors was proposed without a Kuhn, Loeb partner. The $6,000,000 of underwriting involved in reorganization was handled by Mr. Odium's Atlas Corp. for a nominal 1% (TIME, May 6).

After the court approved the plan (which includes a change of name to Paramount Pictures), the only missing jig in the Paramount puzzle was the executive staff. Last week Paramount's 17 new directors got together in Manhattan, attended to this final detail. Old Mr. Zukor was given a berth as board chairman but key job of executive committee chairman went to Mr. Fortington. Picked for president was John Edward Otterson, 54, a tall, quiet, iron-haired onetime Naval officer who has long headed Electrical Research Products, Inc., American Telephone & Telegraph's spectacular subsidiary. He it was who boosted A. T. & T. to its dominant position in the film industry's sound equipment field. His only hobbies are learned cinemas, showing, perhaps, the actual explosions in a gasoline engine or the development of a child from infancy to adolescence. Annapolis graduate though he is, he lives in New Haven, Conn., commutes 70 miles to Manhattan and 70 miles back every day.

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