Rookie of the Week

Such major-league conglomerates as ITT, Litton and Textron are veterans on the playing fields of corporate acquisition. But last week's biggest merger news came from a relative rookie.

In the space of two bold days, Manhattan-based City Investing Co. announced plans to acquire not only one of the largest U.S. shipping companies, Moore & McCormack Co., but also Milwaukee's Allis-Chalmers, lately the nation's most warred-over corporation.

Those were mighty targets indeed for a 64-year-old company that, until barely two years ago, had pretty much stuck to real estate dealings (primarily in the New York area), with yearly revenues of less than $10 million a year and only modest ambitions. No longer. A flock of acquisitions in container making, aerospace equipment and other areas has rocketed City's sales from $8,500,000 in 1966 to a current rate of $400 million a year. If they get formal stockholder approval, last week's moves for Moore & McCormack (1967 sales: $100 million) and Allis-Chalmers ($822 million) will propel City to sales of some $1.3 billion a year--ranking it among the nation's 50 biggest corporations.

New Act. All this represents a dramatic shift in City's sights. Run since 1943 by Robert W. Dowling, son of the founder and the company's biggest (8%) shareholder, City had traditionally handled its properties as much with a sense of proprietary pride as for profit. Himself one of the nation's most highly regarded real estate planners, Dowling won fame for his design of Philadelphia's pioneering downtown Penn Center project. He also put City deep into such investments as Sterling Forest, a 30-sq.-mi. sylvan tract 40 miles from Manhattan being developed for corporate research facilities (among its tenants: International Nickel, Reichhold Chemicals). Other City properties range from Florida retirement communities to shopping centers as well as two Broadway theaters.

City's own new act began two years ago when Dowling and his directors, anxious for higher performance in the sales and profit column, hired George T. Scharffenberger to replace Dowling, now 72 and company chairman, as president. Scharffenberger already knew the role: he was hired away from a seven-year career at Litton, where he had worked up to senior vice president, handled the company's big defense business. Intrigued by the possibilities of an "asset-rich, earnings-poor company," Scharffenberger moved East and, with a few other West Coast recruits, laid plans for diversification.

One of the recruits, 32-year-old Vice President Peter Huang, says that "our approach is a little different" from other conglomerates: "We're building faster." In Scharffenberger's first 24 months, City has opened talks with more than a dozen companies, has bought its way into fields as varied as military ordnance (American Electric Inc. of La Mirada, Calif.), magazines and comic books (St. Louis' World Color Press) and steel containers (Manhattan's Rheem Manufacturing Co.).

Old Friend. Still, nothing quite approached last week's performance. Talks began last October with Moore & McCormack, which is expected to report a loss for '67 partly because of heavy containerization expenses. City's proposed $80 million deal for the potentially profitable company would put Scharffenberger in fo'c'sle-to-fo'c'sle competition with another Litton alumnus: Walter Kidde & Co. President Fred Sullivan, who last month won ailing United States Lines' consent to a merger.

City's big stroke was the tentative agreement to acquire Allis-Chalmers. If the stock-swap deal, worth some $366 million at current prices, comes off as planned, one of the nation's longest-running merger dramas will come to an end. Since last summer, the huge farm-and industrial-equipment maker has spurned the courtship of Dallas' LingTemco-Vought, been dropped by General Dynamics and forcefully wrenched from a third merger prospect, Signal Oil. That, reportedly, was the work of Kleiner, Bell & Co., a Beverly Hills brokerage firm, which holds some 15% of Allis-Chalmers stock. Kleiner, Bell President Burt Kleiner, who had apparently bought in when Allis-Chalmers was selling at around $40 a share, protested that Signal's $46-per-share offer was not enough. Now, though City's offer amounts to only $37 a share, Kleiner has given his blessing. Since Signal's withdrawal, Allis-Chalmers has reported an earnings drop of 80% from 1966--down from $26 million to $5,000,000 last year. Its stock, which sold last week in the $32 range, has suffered accordingly. Anxious for a merger to stem a further slide, Kleiner played Cupid for Scharffenberger and a very willing Allis-Chalmers.

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