International Intrigue

In his fight for control of Fairbanks, Morse & Co., Financier Leopold Silberstein operated with all the cloak-and-dagger tactics of international intrigue. He masked his buying of F-M stock by using Swiss banks, which are forbidden by law to reveal names of customers, and by making purchases from a handful of mysterious sellers who collected hundreds of thousands of dollars in profits for helping Silberstein. All told, said Silberstein last week, his Penn-Texas Corp., a grab bag of 20 companies has bought--or agreed to buy--some $35 million in F-M shares. He can count on 669,270 shares (48.7%), or enough to give him control of the $135 million family-run company at the annual meeting next week. Last week, in his reports to the Securities and Exchange Commission, Silberstein was forced to reveal how he had collected all his shares--and who many of his mysterious helpers are.

Among them is Dutch-born Jacques Sarlie, 41, of New York who calls himself an investment specialist and an old business friend of Silberstein. Drawn into the limelight by SEC reports, Sarlie called in reporters last week to tell them that he is in the proxy battle only to make a fast buck--and he has done wonderfully. So far, he says, he has cleaned up at least $1,000,000 on his stock buying, thanks to agreements to sell to Silberstein at far more than the purchase price.

Silberstein has to have his stock, said Sarlie, because it is the "controlling" block. Early in the fight Sarlie was smart enough to see that the battle would be close, since President Robert Morse Jr. and his family own 34% of the stock. At first Sarlie bought 70,000 shares with his own and borrowed money. He sold 20,000 shares to Silberstein and agreed to sell the other 50,000 after the annual meeting--at a profit of $369,200. When his computations showed that Silberstein was still short some 60,000 shares of what he needs, Sarlie said he bought this amount in the open market at up to $60 a share. Silberstein was glad to buy it from him at $68.87 1/2, thus giving Sarlie another $532,500 in profits.

Other Silberstein deals were also profitable for those who sold to him:

P: Through Zurich's Union Bank of Switzerland, Silberstein bought a total of 210,000 shares from undisclosed sellers. The Swiss bank bought the stock through

Broker Francis I. du Pont & Co., where Silberstein's son-in-law, Peter M. Cats, is a customers' man. For one batch of 50,000 shares, Silberstein contracted to pay $52.75 when the market price was $45, thus netting his unidentified sellers $387,500. He has so far paid the Swiss bank $2,600,000, still owes $10,487,500, due next June and July.

P: To get an option on 25,000 Fairbanks, Morse shares held by David L. Subin, wealthy Lansdale (Pa.) hosiery manufacturer and former director of one of his companies, Silberstein paid Subin a premium of $100,000 more than the market price.

P: From Simon Jaglom, New York importer-exporter, Silberstein took another option on 49,750 shares at $47.75 v. $43 market price. Profit to Jaglom: $236,312.

Such tactics were heavily criticized by Washington Attorney Alfons Landa, a Penn-Texas shareholder and expert proxy fighter (TIME, Dec. 17). He heads a Penn-Texas "protective committee," financed with $80,000 from Robert Morse Jr., which was formed to start a backfire and perhaps oust Silberstein from his own company. Landa charged that Silberstein himself has shared secretly in huge, illegal profits from his stock deals, is putting Penn-Texas in the hole by overborrowing and selling off company assets to finance the campaign against Morse. Some examples:

P: By selling off the property of a Penn-Texas subsidiary, Colt's Patent Firearms of Hartford, Conn., Silberstein raised $2,000,000 in cash, then leased back the plant at $231,264 a year for 20 years--or a total of $4,625,280.

P: By selling off plants of Pratt-Whitney, a subsidiary machine-tool maker (no connection with the aircraft-engine firm), Silberstein raised $4,500,000 in cash, then leased back the plants for 30 years at a total rental of $30.9 million.

Under oath before SEC, Silberstein angrily denied any personal profit, said that his operations are perfectly legal methods of buying stock without paying more cash than Penn-Texas can afford. The stock, said he, was bought through the web of intermediaries to 1) avoid pushing the open-market price higher, and 2) get it from sources who would sell it on credit or agree to later delivery and payment. Despite the high premiums, said Silberstein, Penn-Texas bought Fairbanks, Morse stock (now about $57) at an average $52 a share.

Penn-Texas has spent about $17 million for F-M stock, owes "under $18 million." The stock buying has not helped Penn-Texas' own stock. From a high of $22 it is down to $12--even though the company's net income rose to $4,813,000 (including $1,390,000 from the sale of fixed assets and tax credits) in the first nine months of 1956 v. only $1,940,000 for all of 1955. To buy control of Fairbanks, Morse with a total $35 million, insists Silberstein, "is what I call a smart investment. The company is sound, with excellent growth possibilities. But it is terribly mismanaged. When we move in, we will put it on its feet."

If Silberstein does succeed in his goal--electing six directors to the eleven-man Fairbanks, Morse board--his victory might yet be Pyrrhic. Penn-Texas may control Fairbanks, Morse, but since Illinois law requires a two-thirds vote of shares for corporate merger, the Morse family holdings are enough to block any real union between the two companies. Moreover, if F-M stock drops after Silberstein wins--and Morse himself says it is much too high--the Morse-financed Landa committee may yet put Silberstein in hot water at Penn-Texas' own meeting in May by confronting him with some huge paper losses.

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