The Tales of Three Losers

"The faster they rise, the harder they fall." During these days of monetary stringency, that new version of the ancient saying might well apply to many entrepreneurs who have pursued the goal of growth. Those who overreached have been caught short by the Administration's tight-money policies. Last week three empire builders lost in varying ways:

New Pilot at LTV

In the midst of financial crisis, top executives are often forced to walk the plank. Stuart T. Saunders was ousted as boss of Penn Central. Bernard Cornfeld was pushed out of his I.O.S. mutual-fund complex. The latest to go is James J. Ling, who built Ling-Temco-Vought into a conglomerate with sales last year of $3.75 billion.

Two months ago, bankers for the impecunious company demanded that Ling be dumped as chairman and chief executive. In a face-saving gesture, he was permitted to remain as president. Now, after unsuccessfully maneuvering to regain power, Ling has agreed to step down to vice chairman, and he admits "I am no longer to be an active participant in the management of the company." Ling still owns $6,000,000 worth of LTV stock, but all of it is pledged to banks against loans. His $2.5 million house, a smaller Versailles set in Dallas, is reportedly for sale.

Making Waves in Acapulco. Troy V. Post, the Dallas insurance millionaire and longtime patron of Ling's, also resigned as vice chairman and chairman of the executive committee in order to devote more time to his investments. Besides his LTV holdings. Post is worried about an Acapulco resort project, which Cornfeld's I.O.S. reportedly backed out of financing.

Robert H. Stewart III, who had pressed for Ling's removal in May and replaced him as chief executive, also quit. Stewart had plainly been an interim choice though it was not anticipated he would step down so soon. His departure was hastened when the board of the First National Bank in Dallas, of which he is chairman, became nervous that his association with troubled LTV could damage the bank. During his short tenure, Stewart managed to repay $35 million of LTV's $110 million short-term debt and renew all of its subsidiaries' lines of bank credit. To accomplish that, he had to assure LTV's bankers that Ling was no longer in control of the company. Last week the company made an $11 million interest payment on its 5% debentures. Part of the money was cash on hand, but part was generated by reclassifying a block of stock of LTV Aerospace, a subsidiary, into a dividend-paying issue and then declaring a dividend to the parent company.

Sick Subsidiary. The leadership of LTV has passed from financial entrepreneurs to a shirt-sleeved production man. Paul Thayer, 50, was named president, chairman and chief executive. A chain-smoking former chief test pilot for Chance Vought Corp. who came along when that company was acquired by Ling in 1961, Thayer helped design LTV's A-7A attack plane. He became president of LTV Aerospace in 1965. Under Thayer, sales climbed from $195 million to last year's $714 million; more important, profits increased from $3.6 million to $28.7 million. Zealously profit conscious, Thayer recently has been firing about 75 workers every two weeks as Government contracts expired.

Thayer was in Pittsburgh recently studying Jones & Laughlin Steel Corp., the sixth largest U.S. steelmaker and LTV's biggest and sickest subsidiary. It is the key to LTV's chances for survival. A combination of high-cost old plants, start-up expenses at a new mill and labor problems produced nearly a $1,000,000 loss and a dividend omission at J. & L. in the first quarter; the second quarter is expected to show similar results. Early last month, Jim Ling personally promised the United Steelworkers local in Pittsburgh that there would be no major plant closings, layoffs or cutbacks as long as he was in control. Ling also made a deal with the Justice Department trustbusters that in order to hold onto J. & L., he would sell off Braniff Airways and Okonite Co. within three years. Thayer is not bound by Ling's pledges or plans. There are rumors in Dallas--which company officers do not explicitly deny--that the new management may sell J. & L. rather than Braniff and Okonite.

Wrong Foot Forward

Bustling young Charles F. McDevitt became president of the staid old A.S. Beck Shoe Corp. in 1968, and Wall Street reacted euphorically. When McDevitt renamed the company Beck Industries and unfolded his plans to diversify, the stock soared. But Beck, which now has well over 500 stores, swallowed more than it could digest. From the 1968 high to early this month, the shares plunged 90% (after adjusting for stock dividends). Then, to avoid further falls, Beck managers asked the American Stock Exchange to suspend trading in the stock while they talked with bankers alarmed by swelling debts and shrinking profits.

Last week, after days of acrimonious meetings at Manhattan headquarters, the 38-year-old McDevitt resigned under fire. The man who brought him down--and replaced him--was the man who had brought him into Beck, Newton Glekel, 55, Beck's chairman.

In 1967 Glekel sold Divco-Wayne, a manufacturer of mobile homes, to Boise Cascade Corp. Among the Boise Cascade officers whom he met was "Chuck" McDevitt, the secretary and general counsel. Glekel lured him to Beck with a five-year contract at $80,000 a year, plus bonuses and stock options. With boundless verve, McDevitt started to buy companies, aiming to turn Beck into a diversified concern. Last year he acquired 19 companies in furniture, men's and women's wear and discount retailing. Beck's sales rose 59% in 1969, to $198.5 million; profits went up 24%, to $5.6 million. In his haste to diversify, however, McDevitt had paid too much for some companies and examined others too cursorily. Glekel is now trying to sell Disco Fair, a group of discount stories which are a heavy drain on cash. Some other divisions may soon go on the block.

The crunch started this spring. Beck was forced by lack of buyers to withdraw a convertible-debenture issue that would have brought it $15 million in badly needed long-term money. As of last week Beck still owed the banks $29 million, and notes are coming due every month. Glekel is trying to keep the company afloat, largely by persuading creditors to be patient. Beck's sorry experience should at least warn other aggressive managers that uncontrolled growth can lead to financial anemia.

Kerkorian's Cold Streak

When he was young, Kirk Kerkorian was a high roller on the Las Vegas craps tables. Then he switched to another game: parlaying a dealership in renovated DC-3s into a profitable charter airline. Two and a half years ago, at the age of 50, he became a financial operator of national stature. In a series of bold maneuvers, Kerkorian:

> Sold his Trans International Airlines, a nonscheduled carrier, to Transamerica Corp. and then sold his Transamerica stock for $104 million.

> Bought control of Western Air Lines for $67.5 million.

> Bought control of MGM, the ailing movie and television company, for $70 million.

> Bought his way into the Las Vegas hotel and casino business in a big way. First, he purchased the Flamingo, and then he started to build the International. Next, he sold to the public the stock in the company that owned these casino-hotels, International Leisure Corp.

Then his luck began to turn. As the stock market slid and money became scarcer and costlier, Kerkorian showed increasing signs of strain. To pay for some of his ventures, he had borrowed $72 million in Europe and agreed to put up as collateral stock with a market value of 140% of the loans. Every time the value of his holdings shrank, Kerkorian was compelled to deposit more shares with the banks. He still owes banks in England and Germany about $62 million. The value of his holdings in International Leisure, MGM and Western has shrunk from a high of half a billion dollars in 1969 to $79 million last week--a paper loss of some $400 million.

Slump in Las Vegas. To raise cash, Kerkorian has been trying to sell International Leisure Corp. and its hotels, which are his only profitable ventures. Last week he made a sale to Hilton Hotels Corp.--at fire-sale prices. Hilton will buy 44% of International's stock from Kerkorian at $6.08 a share. At that price, Kerkorian stands to collect only $17.7 million. Last year the 2.9 million shares that he is selling were worth $193 million.

In a complex deal, Hilton agreed to pay an extra premium if International Leisure's 1970 net earnings, multiplied by eight, come to more than $6.08 a share. But Las Vegas is feeling the recession. There are almost as many visitors as usual, but they are spending less, and the International and Flamingo casinos are often busy mainly with penny-ante gamblers. Las Vegas hotelmen are so worried that they have called a meeting this week to discuss emergency plans for grandiose promotions designed to lure more tourists.

Kerkorian, the quiet, taciturn son of an Armenian immigrant, admits that he did not see the recession coming. He does not believe in economic forecasting: "If economists were any good at business, they would be rich men instead of advisers to rich men." Kerkorian's view of business: "Sometimes you lose, but that's the nature of the game. There's always another game and another chance to win."

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