The Search for Aunt Jane

The battle for control of the New York Central turned into a standup, knockdown fight last week. Squared away on one side was suave, ambitious Robert R. Young, 57, whose mastery of high finance and knowledge of corporate infighting won him control of the $65 million Alleghany Corp. in 1941. Young boldly demanded to be named chairman of the Central's board because he owned 100,200 of its shares (which he claimed was the largest individual holding) and because he had the support of the 100.000 shares owned by his associate. Allan P. Kirby, and could also vote the holdings (more than 100.000) of Alleghany Corp. Lined up against him were the Central's 15-man board of directors, headed by President William White, 57, crack railroader who knows his job from the ties up.

A shrewd tactician, Young opened his campaign by trying to win White over to his side. He invited him to lunch in the lofty Cloud Club dining room atop Manhattan's Chrysler Building. There he painted a glowing picture of the Central's future, with business booming enough so that the price of Central stock would quadruple to 100. Young's plans for the Central call for borrowing $250 million and replacing all passenger cars with his "Train X" (a low, two-wheeled car that "flows around curves").

Special Inducement. Young had plans for White, too. Young thought that White was doing a good job and wanted to keep him on as the railroad's chief operating man. This raised the first obstacle. Under his present contract, White is boss of the Central until 1962 (at an annual salary of about $120,000 and retirement pay of $75,000 for five years and $40,000 thereafter). To make room for Young, White would have to move down to the job of chief operations officer, while Young would dictate the Central's overall policies. As inducement, Young offered White an option to buy the company's stock at a fixed price. White turned it down because, as he said afterwards, "Anyone who can't work loyally without a stock option, I don't want around. I consider myself an employee like all employees, and I don't want a plan that favors a few in top management."

A few days later White met for 5 1/2 hours at Manhattan's University Club with other members of the Central's board. Although newspapers made a mystery out of the long meeting, most of the time was taken up by lunch. Young's demands and White's account of his meeting with Young. When he was through talking, the directors needed only 15 minutes to make up their minds. They unanimously turned Young down. "The board," said their public statement, "is not willing that Mr. White relinquish his position as chief executive officer . . . The board is generally favorable to the policy ... of recognizing large holdings of ... stock by inviting . . . owners ... to become directors. But the terms and circumstances of the present request . . . make any such recognition undesirable."

"Imperious Demand." Young heard the news at his winter home in Palm Beach, Fla., and said: "I am really basically gratified. I'd rather have my own board of directors than work with the present one." He blamed the turndown on "Morgan interests" on the board.

White came right back at him, told newsmen in Chicago: "If Bob Young is looking for a fight, it will be bare-knuckled . . . and no punches pulled. We're not pushovers and we're not punching bags . . . You can't handle the problems of a railroad and be in Palm Beach and Newport." (Young has palatial homes in both places; White lives in a ten-room brick-and-stucco house in Scarsdale, N.Y., is a New York Central commuter.) White also denied that Young is the largest individual stockholder, saying that there is another who owns more shares and "who has been very friendly to me."

That evening White departed from the text of a prepared speech to tell members of Chicago's Traffic Club: "You probably have read about the myth that New York Central's board is ... Morgan-controlled . . . One of our . . . board members is George Whitney, who is chairman of J. P. Morgan & Co.* George Whitney is away on a cruise, and he could take no part in the deliberations ... in regard to . . . Young's demand."

No Magic Touch. White's decisive action impressed most people in the railroad business, who had known him as a straight-talking but reserved individual with a solid record of railroading behind him. The son of Dutch immigrants, he started out as an Erie Railroad clerk when he left the Ridgewood, N.J. high school, became a division superintendent by the time he was 30. Eleven years later, in 1938, the Virginian Railway hired him away and made him a vice president. In 1941 he moved into the presidency of the ailing Delaware, Lackawanna & Western Railroad, cut down heavy overhead costs by merging 18 subsidiary lines into the system, built up profits and enabled the Lackawanna in 1948 to pay its first dividend in 16 years.

The Central brought White in as president in August 1952 to replace hard-working Gustav Metzman, who had brought the road back from a 1946 deficit of $10.4 million to a net of $14.7 million in 1951. Metzman also had a $140 million-a-year rehabilitation program under way. White decided to cut the capital program, concentrate on improving the mainline roadbed. He trimmed out layers of top management and shut down some non-paying passenger lines. Last year net income hit $34 million, highest in nine years. Dividends of $1 a share were paid, and another 50-c- was declared this year. White readily admits that the Central still has some basic troubles: a big passenger deficit ($50 million in 1952), extensive repairs needed in the roadbeds, high terminal costs. Says he: "We have problems that will not respond to a magic touch from Palm Beach."

Frenzied Trading. As if in answer, Young closed down his Palm Beach home this week and moved to a four-room suite in Manhattan's Waldorf-Astoria Towers. As he headed North, he fired one more shot at White, demanding that he "get back to running the railroad or resign." Meanwhile, both sides prepared proxy statements for the Securities & Exchange Commission, got ready to solicit proxies in preparation for the Central's annual meeting May 26.

The joining of the battle churned up some frenzied activity in the stock market. The New York Central became the most active issue on the Exchange, with 345,400 shares traded last week. It shot up from 21 to 25 1/2, moved up another -L- point on 140,000 shares of trading as the market opened this week. Neither side would talk about its purchases, but with 6,447,410 shares outstanding, it did not look as if anyone could buy outright control of the Central. The big push probably came from speculators who hoped that the proxy fight would bring enough buying to boost the price still more.

What About Aunt Jane? Young still hoped for the votes of the 800,000 Central shares owned by the Chesapeake & Ohio, which Alleghany controlled until its interests were sold last month to Young's old friend, Cyrus S. Eaton, Cleveland financier. The stock is now voted by the Chase Bank as trustee, appointed by the Interstate Commerce Commission. But there seemed little chance that the ICC would take the stock out of trusteeship, since it regards the C. & O. and Central as competing roads. And last week President Ebbott of the Chase Bank voted against Young.

From here on. the Central's fate depends on what Young likes to call the "Aunt Janes"--the thousands of small stockholders scattered across the land. The Central has 41,000 of them, and Young confidently claimed support of 90%. Less cocksure, he said: "If I'm not elected chairman on May 26, I will be on some future May 26."

But Wall Streeters, who have a healthy respect for Young's ability to get what he wants, thought that the odds were against him in this fight. It looked as if he may have waited too long to wage it. When he had first demanded a place on the Central's board, back in 1947, the road was not doing well; it paid no dividends that year, and the stockholders were discontented. But now that dividends are being paid again and there is chance of an increase out of the road's ample earnings ($5.27 a share last year), Young might have trouble rallying a majority of Aunt Janes to his side.

White has 700 shares of Central stock and Whitney has 100. Other members of the board and their stock holdings: Alexander C. Nagle, president of the First National Bank, New York, 150 shares; Lawrence N. Murray, president of the Mellon National Bank, Pittsburgh, 100; Percy J. Ebbott, president of the Chase National Bank, New York, 100; Robert F. Loree, Madison, N.J., president of Afton Dairies, Inc., 100; Malcolm P. Aldrich, New York, president of the nonprofit Commonwealth Fund, 100; James A. Farley, chairman of Coca-Cola Export Corp., 100; William E. Levis, Toledo, Owens-Illinois Glass Co. director, 1,000; Carl P. Dennett, Boston, president of Capital Managers, Inc., 100; Elton Hoyt II, Cleveland, of Pickands, Mather & Co., 250; Harold S. Vanderbilt, great-grandson of the Central's Commodore Vanderbilt, 10,000; William H. Vanderbilt, a great-great-grandson, 1,000; Albert B. Dick Jr., Chicago, chairman of A. B. Dick Co., 100; Earle J. Machold, Syracuse, president of Niagara Mohawk Power Corp., 100.

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