The Go-Go Years

by John Brooks

  That, it appears, is what the Leasco Data Processing Equipment Corporation hopes to do next in its dynamic acquisition program. The rumored target is one of the nation’s most prestigious banks, the Chemical Bank New York Trust Company, founded in 1824. …

  Try and get confirmation that something is going on … and you get nothing. In fact, Leasco’s public relations people called to get a statement from the reporter.

  Is Chemical in the bag? Hardly. William S. Renchard, chairman of the Chemical Bank, sounded like a Marine Corps colonel in presenting his battle plan for what he believes may well develop. … He said, “We intend to resist this with all the means at our command, and these might turn out to be considerable.”

  Understandably, the article was the talk of the banking world that day. Renchard went on with his planning, holding new strategy sessions at which one of the possibilities discussed, as phrased in a memo prepared for one of the meetings by McFadden, was the following:

  There is some question about the breadth of the market on the Leasco stock and it might be possible to attack its value if need be.

  Such an “attack”—carried out by making sales or short sales of Leasco stock over an extended period—would hit Leasco where it lived, since its high stock price was the source of its power and, above all, of the possibility of its taking over a firm like Chemical that was many times Leasco’s size. The difficulty lay in the fact that such an attack—a bear raid—would constitute stock manipulation and would be a violation of the securities laws punishable by fines and imprisonment. For obvious reasons, no one has ever been willing to say that at Chemical’s February 6 strategy meeting that particular recommendation was adopted for action. The striking and undeniable fact is, however, that on that very day, Leasco stock, which had been hovering in the stratosphere at around 140, abruptly began to fall in price on large trading volume. By the close the following day Leasco was down almost seven points, and over the following three weeks it would drop inexorably below 100. Rumors of impending mergers, particularly between titans, customarily drive a company’s stock price up, not down. Long afterward, Steinberg said of the curious coincidence in timing as to the proposed Chemical takeover and the beginning of the Leasco slide, “It is odd—so odd that Congressman Wright Patman asked me the same question. But we’ve never been able to pin anything down.” As for Renchard, he later told a Congressional committee that he thought the stock drop was simply the result of institutional holders beginning to lose confidence in Leasco; but still later than that, he pointed out, without elaboration, that one of the defensive techniques discussed in the Chemical strategy meetings had been drawn from a Harvard Business Review article called “multiple flogging.” “Multiple flogging,” in the context, was a fancy new name for an old-fashioned bear raid. By using various concealment devices, it is theoretically possible to carry out a bear raid without detection by the authorities. The evidence suggests, at least, that on February 6 somebody, identity unknown, started lowering a very heavy boom on Leasco.

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  Steinberg reacted to the Times article exactly as Renchard had planned that he should. Although Steinberg was not ready to make his tender offer and, in fact, was considering waiting several months before doing so, he decided that now he had no choice but to go ahead immediately—and from his point of view, prematurely—and, as a first step, he resolved to have an exploratory talk with Renchard early the following week.

  On Friday, February 7, the day after the Times article, Steinberg had lunch with Heinemann. By Steinberg’s account the timing was pure coincidence, since the lunch had been arranged weeks before; it was, however, an obvious windfall for Heinemann as a reporter to be seeing Steinberg at the very moment when the meteorically successful boy wonder was at the center of the biggest financial story in the nation. At the lunch, Steinberg insists that it was understood by both sides that everything was off the record; then he proceeded to discuss Leasco’s plans freely, not to say indiscreetly. When he had finished, he asked Heinemann, as a man knowledgeable about banking, for his impressions. According to Steinberg, Heinemann replied that in believing for a moment that he could get away with taking over Chemical Steinberg showed himself to be “an innocent.” At any rate, Steinberg later decided that he had been an innocent about Heinemann. That afternoon, Heinemann called up the Chemical Bank and talked to a public-relations officer there, to whom he reported in detail what he had heard from Steinberg. That same afternoon, the public relations officer sent Renchard a memo that read, in part:

  Heinemann just came back from lunch with Steinberg, and passed on the following results.

  They said they are beginning to feel the pressure. They knew there would be absolute opposition, and they fully believe that when they come in with their proposal it will be rejected. …

  Erich was told that it is a better than 50–50 chance that Leasco will announce their intentions and plan at the annual meeting next week. Steinberg took the position that their offer will be most beneficial for us. … Steinberg said flatly that the way we handle international business … is wrong and will be changed.

  (Heinemann’s version of the episode differs from Steinberg’s in several crucial respects. In the first place, he said later that his luncheon with Steinberg had not been arranged weeks previously but only four days before—at the urgent request of Steinberg’s public-relations counsellor. Moreover—and more crucially—Heinemann avows that at the luncheon he was not asked for and did not give any assurance that what was said be held confidential, and that he subsequently called Chemical, as a conscientious reporter, in an attempt to elicit additional information for a possible new story.)

  Steinberg said later that the memo gave a generally accurate account of what he had said at the lunch, with the notable exception that he had said nothing about pressure—that, indeed, he had felt no pressure from banks at that time, although he was to feel plenty of it later on. The nearest thing to pressure on Leasco as of February 7 was a conversation Steinberg had that day with Donald M. Graham, chairman of Continental Illinois Bank and Trust Company, a leading Leasco creditor, in which Graham expressed the view that a Leasco attempt to take over Chemical would not be a good thing for banking—and added, most unthreateningly, that his bank highly valued its association with Leasco and expected it to continue. (Renchard, in fact, had talked to Graham and urged him to discourage Steinberg.) The memo seemed to give Chemical a momentary edge; and, seizing the initiative, the bank took the comparatively drastic step of planning a full-scale strategy meeting at 20 Pine Street the following morning, even though the day would be Saturday.

  It turned out to be a wild weekend of feints and counterfeints. Steinberg was busy with a semi-annual conference of Leasco district managers, and on that account, he stayed in town at the Regency Hotel. By another coincidence, that same weekend was the occasion of the American Bankers Association’s annual trust conference, and consequently New York City was swarming with hundreds of important bankers from all over the country. At the Chemical strategy meeting—which was attended, this time, not only by Chemical’s in-house task force, but by invitees from other powerful Wall Street institutions sympathetic to the Chemical cause, including First Boston, Kuhn Loeb, and Hornblower Weeks—a whole array of defensive measures were taken up and thrashed out, among them the organizing of telephone teams to contact Chemical stockholders; the retaining of the leading proxy-soliciting firms solely to deny their services to Leasco; the possibility of Chemical’s making a quick merger of its own with some other computer-leasing company, to raise an antitrust obstacle for Leasco; and the possibility of getting state and federal legislation introduced through the bankers’ friends in Albany and Washington in order to make a Leasco takeover of Chemical illegal. Despite the availability of such weapons, the opinion of those present seemed to be that Leasco’s venture had an excellent chance of success. There was a sense of backs to the wall, of the barbarians at the gates, of time running out. Reports of the meeting fi
ltered out that evening to the bankers assembled around town at their cocktail parties, receptions, and dinners. One such report had it that a participant at the session had finally thrown up his hands and said, “Oh, let the kid have the bank. We’ll start a new one!” Levity, it seemed, with an edge of hysteria.

  On Sunday, New York City was hit by a fifteen-inch snowstorm, the worst in seven years, and as a result, airports were closed, roads were clogged, rail service was disrupted, and the bankers in town were trapped. There was nothing for them to do but stay and talk—largely about Leasco and Chemical. The bankers, and the subject, were caught in a kind of pressure cooker. That evening, Chemical held a large reception for the visiting bankers at the Plaza. (Steinberg, the subject of all the discussion, stayed at the Regency four blocks away; not being a banker, he wasn’t invited.) At the reception Renchard took considerable kidding; the prevailing attitude among the bankers he talked to seemed to be that the whole thing was ridiculous, an attitude that Renchard felt he had little reason to share. “Don’t joke,” he would say. “If this is successful, the next target may be you.”

  On Monday, with the city still snowbound, Renchard and Steinberg, who had previously never so much as talked on the telephone, met at last. That morning Steinberg, carrying out his plan, called Renchard at his office and asked if they could get together. Renchard said, “Sure. I’ll buy you lunch, but I have to go to a meeting right afterward. Do you have transportation?” Steinberg said he hadn’t. “I’ll send my car to get you,” Renchard replied. So Renchard sent his car to the Regency, Steinberg got in and sloshed comfortably downtown, and the lunch that Renchard “bought” him took place that noon in the Chemical Bank’s private dining room. One may imagine the first reactions of the antagonists to each other. One was lean, iron-gray, of distinctly military bearing; a North Shore estate owner, very conscious of the entrenched power of the nation standing behind him, very much a man of few and incisive words. The other was round-faced, easy-smiling, a man of many words who looked preposterously younger than his already preposterous twenty-nine years, and given, as he talked, to making windmill gestures with his arms and suddenly jumping galvanically up from his chair; a South Shore estate owner (twenty-nine rooms, tennis court, two saunas, Picassos and Kandinskys—as Steinberg himself characteristically described it, “a modern mansion just like that of any other successful kid of twenty-nine”); a young man bubbling with energy and joy in living. (Contrary to repeated press reports, he was not fat, only chunky; photographs of his jowly face deceived people.) Now he seemed to be, in the tragicomic fashion of that year, the corporate version of a campus radical informing the university president, with a mixture of amusement and pity, that the times had changed and the freshmen were taking over.

  The two men’s accounts of the ensuing meeting, as told to me several years later, differ to some extent as to content, but to a greater and perhaps more interesting extent as to style and emphasis.

  Renchard: “Steinberg, at some length, gave his ideas on how commercial banking was going to be revolutionized over the next few years. Mostly I just listened, and so did my colleagues [President Howard] McCall and [Vice Chairman Hulbert] Aldrich, who joined us toward the end of the session. The whole industry was to benefit greatly, Steinberg said. I asked him why he had singled out Chemical. He said he liked our philosophy, that is, we were in the process of forming a one-bank holding company that would enable us to diversify, thereby showing that we believed in the principle of bank diversification. He had evidently ruled out Citibank and Chase as too big. Bankers Trust and Irving were out for technical reasons, and Morgan probably because it was strictly a wholesale business. He seemed to like us better than Manufacturers Hanover.

  “I said I wasn’t sure he appreciated what might happen to our business when someone with no banking experience moved in on a takeover basis. Directors and officers might leave. I made it clear that I didn’t think I’d be around. In the trust area, for people to leave their estates with a bank you need confidence built up over many years. Will appointments would leave in droves, I said, not because of anything about him but because it was a takeover. Then there was the worry about somebody acquisition-minded having access to our stockholder lists. The confidential relationship of banker to client might be endangered.

  “I think it impressed him a little bit. Steinberg said he had no intention of making an unfriendly takeover—that is, that he didn’t want to, but might. There was the hint of a threat. I said, ‘If you want to get into a fight, I’m a pretty good gutter fighter.’ He said, ‘I’ve already found that out.’ He said he wanted to make a full presentation of Leasco’s plans the next afternoon, after his company’s annual meeting, in the hope that Chemical would change its mind and want to cooperate, after all. I enjoyed the luncheon. There was some kidding around, too.”

  Steinberg: “When I got to 20 Pine Street that morning, I got out of Renchard’s car and walked into the bank. It was a day when not many people were there, because of the snowstorm. Renchard’s secretary was very friendly—‘Oh, hello, Mr. Steinberg, I’m so glad to see you.’ Renchard came out and shook my hand and said, ‘Hello, Saul. Call me Bill. Can I take you around and show you the place?’ Well, I wasn’t terribly interested in looking at the real estate right then. So we went and talked, first in his office and later in the bank’s dining room.

  “We did some kidding at first. He asked me why I wanted to become a banker and I said, ‘God looks after drunks and bankers, and I don’t want to be a drunk.’ Then I started in giving the facts. I told him how many Chemical shares Leasco had—more than three hundred thousand. I said we weren’t going to accumulate much more because it was getting too expensive. I told him frankly that the Times piece had disrupted Leasco’s plans; we had wanted to wait until the forthcoming new law regulating bank holding companies was passed, and that might be six months or a year. Now our hand was forced, and I volunteered that for us it was premature.

  “I went into my philosophy of how Chemical’s management, and all commercial-bank managements, should be more responsive to stockholders and customers, and how I thought we could make it that way. I said I thought that adding a broad range of services to a bank’s regular functions would add to the intrinsic value of its money, and on that he expressed absolute agreement in principle. He began to talk about the possible detriments to the bank’s business from a hostile takeover. He said top management would probably resign. He mentioned losing customers, and I said they would hardly leave in a hurry at a tight-money time like that. He talked about damage to the trust business. I asked, ‘Does it make money?’ He laughed, and said he wasn’t sure. He said if I wanted a fight he was a pretty good gutter fighter, and I said my record as a gutter fighter was considered to be pretty good, too, at least for my age. But then I said I wasn’t planning a hostile takeover, although I wasn’t ruling one out. I told him that in four days I was going to Puerto Rico on vacation with my wife and kids—it was the kids’ winter semester break—and that I was professional enough not to be planning such a thing as that if I were thinking of attempting a hostile takeover. He looked surprised and asked, ‘Are you really going to Puerto Rico?’ I said yes. He was obviously relieved. Everything became very relaxed. I thought it was a rather constructive meeting. Everything was friendly and affable. The atmosphere was dampened at the end, though, when McCall and Aldrich came in—McCall for lunch with us, and Aldrich at the end of lunch. McCall just didn’t seem to want to have anything to do with me one way or the other, and Aldrich seemed downright hostile. But Renchard interrupted them to say, ‘Look, Saul has stated that he has no intention of a hostile takeover.’ McCall’s face lit up, and he said, ‘Well, when can we meet again?’ I suggested after my trip to Puerto Rico, and he and Renchard said, ‘Oh, let’s do it before that,’ and we arranged for the following afternoon, after our stockholders’ meeting. I came out in a positive frame of mind. The only thing was that Aldrich was still cold. But wait—come to think of it, h
e wasn’t any too cordial to Renchard, either.”

  So the first meeting of the rival chieftains was a standoff. That afternoon, Renchard heard from Roberts of Reliance Insurance. The apparently satisfied subject of Leasco’s previous conquest said he thought a merger of Leasco and Chemical would be a fine thing for the bank. “I told him he was off his rocker,” Renchard said later. “I said computer leasing has nothing to do with banking. He said the Leasco-Reliance merger hadn’t hurt Reliance. I was disappointed in him.” Also that afternoon, McCall had someone at Chemical prepare for him a list of Leasco’s creditor banks, and when the list later came to the attention of a Congressional committee, it was found that checkmarks had been made beside the names of certain of the banks; the purpose of the list, and the meaning of the checkmarks, is not known, but the fact is that on that very afternoon Steinberg began to feel “pressure” from the banking business in the form of calls from Leasco’s two investment bankers, White, Weld and Lehman Brothers, informing him that they would refuse to participate in any Leasco tender offer for Chemical.

  That evening, there was more socializing among the bankers. Renchard went to a dinner of the Reserve City Bankers Association at which, he said later, he may have spoken to three hundred bankers. “I have no recollection of anything except general conversation about this development,” he recounts, denying that he used the event as an opportunity to spread anti-Leasco propaganda or solicit support for Chemical. (He had not, however, shown such restraint during working hours; the anti-Leasco announcements of White, Weld and Lehman had followed urgent appeals from Chemical.)

  At Leasco’s annual stockholders’ meeting, held the following afternoon in the auditorium of the Chase Manhattan Bank Building, matters proceeded smoothly enough, with no mention of the subject that was in everyone’s mind, until Steinberg observed that Leasco’s commitment to becoming a comprehensive financial-services organization included the objective of entering the field of banking. “The realization of so large a plan,” he went on, “requires the exercise of careful and deliberate judgment. At the present time, we have not made a decision as to a particular bank.”