K-F Backfires

Kaiser-Frazer presented Wall Street with a first-class mystery: Who had bought 900,000 shares of new K-F stock?

The foundation for the mystery was laid fortnight ago when K-F announced that it had dropped plans to issue 1,500,000 new shares of stock; the dull market for new issues had scared it off.

Yet in last week's queasy market, the demand for K-F seemed exceptionally good. In one day nearly half the trading on the Curb was in Kaiser-Frazer--and the price held steady at $13.50 a share. Soon after 7 p.m. that day, K-F surprised everyone by announcing that it was going to float 900,000 shares of its new stock after all, at $13 a share. (SEC had approved the registration only two hours before.)

The underwriters, said the announcement, were Otis & Co. of Cleveland, First California Co. of San Francisco, and Allen & Co. of New York City. They had agreed to buy 900,000 shares at $11.50 a share, had taken an option to buy the rest for $11.60. Kaiser-Frazer also made another interesting announcement: it had caused the activity in K-F stock all by itself, by buying 186,200 shares of its own stock to "stabilize" the market for the new issue.

By the time the new stock went on sale in the falling market next day (see Commodities), K-F shares had lost their stability: they dropped to 11 3/4. Nevertheless, the New York City office of Otis & Co. announced that the new issue had been "sold to the public" at $13 a share. By what supersalesmanship had the underwriters managed to sell 900,000 shares at a point or more above the market price?

A day later, the home office of Otis & Co. in Cleveland cleared up that part of the mystery. Statements that the stock "had been sold to investors," it confessed, "are incorrect." Most of the issue, apparently, was still held by the underwriters and some 300 dealers in the underwriting syndicate. They still hoped to get the public to buy it. But they were not happy about the outlook. Unless the price of K-F stock picked up, they stood to lose plenty.

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