How to Loot a Company

A prime example of how a raider loots a company was spread on the record in the U.S. District Court in St. Louis last week. The raider: Sydney Albert, 49, who in the past two years, through a jumble of fantastic stock swaps, stitched together 70 companies into the Bellanca Corp., then saw most of it crash last June (TIME, June 25). The victim: St.Louis' venerable N. O. Nelson Co., a large plumbing-supply house. Only last autumn Nelson had twelve-month earnings of some $200,000, plus $500,000 in cash surplus, more than $2,000,000 in accounts receivable, $5,000,000 in inventory. But last week N. O. Nelson Co. was smothered in a huge debt and had been forced to file under the bankruptcy act for more time to pay its debts. Said Bankruptcy Referee William J. O'Herin: "This company was looted."

Double Loan. Syd Albert was attracted to Nelson a year ago by its fat assets. The founding family that controlled the company snapped up his offer to pay $43.50 a share for 97% of Nelson's stock or a total of $4,850,000. To raise most of it, Albert borrowed $4,500,000 from Mas-tan & Co. of New York, pledging his Nelson holdings as collateral. -Then he got Chicago's Walter E. Heller & Co., a factoring house, to lend $3,600,000 to Nelson. When Heller's agents came to inspect the Nelson plant and books, the officers protested that they needed no loan, were loaded with cash. But Albert had his hand-picked executive vice president, Keith Munroe, sign the Heller note when Nelson's president was sick in a hospital.

Nelson never even saw the $3,600,000 borrowed in its name. Munroe directed Heller to deposit the check in the bank account of Albert's Bellanca Corp., which used it to pay off the bulk of the Mastan debt. But Nelson had to start paying back the $3,600,000 loan in monthly installments of more than $100,000, including 12% interest.

Paper Deal. In return Nelson got only an I.O.U. from Bellanca for the $3,600,000. Albert worked a slick trick to pay off the note without using any cash. He ordered Nelson's board to vote a $33-per-share dividend, even though Nelson did not have that kind of money. Since Bellanca held all but 3% of the stock, its dividend totaled just about $3,600,000. Instead of paying the dividend, Albert told Nelson to credit Bellanca with the amount. The declared but unpaid dividend would in effect cancel out the $3,600,000 debt to Nelson. Thus Nelson was committed to pay $3,600,000 of its $4,850,000 purchase price, while Albert's Bellanca Corp. paid the remaining $1,250,000.

Later Albert sold Bellanca's holdings in Nelson to Automatic Washer Co. in exchange for 687,000 shares of Automatic, then worth about $5,600,000. Automatic also canceled an I.O.U. it held from Albert in the amount of $1,525,000. Therefore, Albert's investment in Nelson of $1,250,000 brought him a return of more than $6,000,000.

For Nelson, cleaned of its cash and burdened by debt, there was no course left but the bankruptcy courts. Last week, after he took over, Bankruptcy Referee William J. O'Herin ordered that no more payments be made on Nelson's debt until the courts can determine whether the original stockholders can legally win back possession of Nelson and the $1,000,000 the company has already paid out on the loan.

Slow-running Waltham Watch Co. last week ticked off its sixth major management switch, in the last ten years. Control of the oldest U.S. watch company was sold by Sydney Albert's Bellanca Corp. to a group headed by Joseph Axler, 44, who owns three wholesale watch companies, claims to be the largest U.S. watch distributor. He became Waltham president. In as board chairman went Max A.

Geller, 57, who was president of New Haven Clock & Watch Co. from 1949 to 1954.

Axler, Geller and friends paid $600,000 for 16.6% of Waltham's stock, almost exactly what Bellanca paid for it a year ago. They got a company with 483 employees, sales of $4.8 million in 1955 (down from $11.2 million in 1947), and earnings last year of $70,764 (just 4-c- per share). Axler hopes to win back Waltham's almost nonexistent consumer trade in the $39.75 to $125 watch market, also expand the industrial division (speedometers, gyroscopes, aircraft equipment) that now does 90% of Waltham's total business.

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