Rubber Issue

Because Rubberman Benjamin Franklin Goodrich, sometime physician, had been dead 18 years, no one at B. F. Goodrich Co. realized that a chunky, broad-shouldered young man who reported for work at the Akron factory one day in 1906 was the founder's nephew. James Dinsmore Tew, just out of Harvard and anxious to prove his worth, did not take the trouble to remind his employers that B. F. Goodrich Co. had once been called Goodrich, Tew & Co. At the end of two years, when young Tew was making $75 a month, he asked for a raise. "I'm sorry, Tew," was the reply, "but I'm afraid you've reached your limit." Presumably unqualified for further advancement in Goodrich, he walked over to Diamond Rubber Co. where he got a better job at a better salary. Four years later Diamond Rubber was merged with Goodrich and young Tew found himself back with his old company. Alert, ambitious, quick-thinking, he was soon moved up to the position of works manager and finally, in 1928, became president. Quiet, conservative Mr. Tew kept on living in comparative modesty at nearby Hudson where, always investigating new ways to make rubber, he used to putter with latex on the kitchen stove.

Last week publicity-hating President Tew was chagrinned to find his name very much in the news. Two months ago he asked Goodrich stockholders to authorize a $45,000,000 first mortgage, of which $28,000,000 was to be raised immediately, the rest at some indefinite future date. The purpose of the issue was to retire at a cost of $22,000,000 all of Goodrich's 67-c- bonds and all of the 5 1/2% and 7% notes of Hood Rubber Co., a Watertown, Mass, subsidiary which manufactures Goodrich footwear as well as products under its own name. All this seemed commonplace enough to Goodrich shareholders. But to Cyrus Stephen Eaton, once-famed Cleveland banker and power tycoon, it became high treason the moment President Tew, in selecting the list of underwriters for the proposed issue, passed over the Cleveland investment house of Otis & Co. Cyrus Eaton used to be the principal partner in Otis & Co., which five years ago helped underwrite another Goodrich bond issue. Though Otis was reorganized and considerably deflated after the collapse of the Cleveland banker's fortunes in 1931, Eaton still maintains an office at the firm's Cleveland headquarters and takes a hand in its management. Last May he called on President Tew. Was Otis & Co. going to get a slice of the new financing? No, replied Mr. Tew, it was not. Then, said Eaton, he would move heaven & earth to prevent the plan from going through.

Accordingly, last fortnight, Otis & Co. dispatched a tart letter to most of Goodrich's 24,000 stockholders. Excerpts:

"The management of your company has asked you to authorize a $45,000,000 first mortgage and to increase immediately the company's outstanding first mortgage indebtedness. ... In the last five years following borrowings of $30,000,000 through issuance of long-term debentures Goodrich stockholders have seen losses from the company's operations mount to a total of $24,832,000 and have stood by without dividends and with the market value of their holdings gradually diminishing. In the same five years Goodyear has shown profits of $20,965,000 and Firestone $17,463,000. The company now proposes, without giving adequate reasons for doing so, to put $10,000,000 of additional first mortgage money ahead of your holdings, thus making your position even more unfavorable."

Otis & Co. marched into an Akron court and, by virtue of owning ten shares of Goodrich stock, got permission to inspect the books of Mr. Tew's company. Then it began rounding up proxies to try to prevent approval of the new first mortgage at a special stockholders' meeting.

For several days President Tew kept silent. Then he gave stockholders an explanatory statement which cut considerable ground from under the Otis complaints. Reiterating that "it was in the best interest of the company not to deal with Otis & Co. as an underwriter," he outlined the benefits of the new first mortgage as follows: 1) Its interest rate is lower than the coupons of any of the bonds and notes it replaces; therefore a considerable interest saving would be effected. 2) Goodrich's reason for refunding the Hood Rubber notes, due in 1936 anyway, is to protect its investment in that company, which last March stood at $13,440,000. 3) Since only $22,000,000 of the $28,000,000 to be raised by the new mortgage will be used in the refunding operations. Goodrich will have $6,000,000 left to add to working capital and for other purposes. An increase in working capital is highly desirable, said President Tew, to take care of Goodrich's expanding sales, which jumped from $74,000,000 in 1932 to $103,000,000 last year. "The management," he concluded, ''feels that this proposed financing is so obviously in the interest of the stockholders, that it is difficult to believe that any stockholder, acting solely in his interest as such, would object. . . ."

When the special stockholders' meeting was convened last week, Otis & Co. counted in its favor the fact that under Goodrich by-laws at least 75% of the stockholders must approve all first mortgage financing. Since Goodrich has paid no dividends for a number of years, although it is currently operating in the black, Otis & Co. was confident of securing the proxies of enough disgruntled shareholders to block the plan. After two recesses had been called, the results of the vote were announced by President Tew: Goodrich had received 74% of the proxies-- 1% short of the necessary number. President Tew was not the least disheartened. Repeating that the "Otis opposition arose only after the Otis corporation had first sought and been denied a position as underwriter," he urged stockholders who had not voted to send in their proxies when the meeting is reconvened this week. Meanwhile opposition to Mr. Tew developed in another quarter when one John Weed of Beverly Hills, Calif., who claims to be one of Goodrich's six biggest preferred stockholders, announced that he would campaign for the election of directors to represent the preferred interests. Unable to find Mr. Weed's name on its list of shareholders, Goodrich declared that the preferred stockholders had already elected one-half of the directors last May.

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