Fight in Fertilizer

The stockholders of Virginia-Carolina Chemical Corp., fourth largest producer of fertilizer in the U. S., started fighting in the summer of 1932, have been at it ever since. One rule of their game appears to be that the president of the company always loses. There have been three presidents in the last three years, and there will probably be a fourth next month. Another rule is that Director George S. Kemp always wins. In Richmond last week Virginia-Carolina stockholders elected a new directorate. One set of candidates was headed by Director Kemp; the other by President Alphonso Lynn Ivey. After a 14-hour session, which ended at 1 A. M., the Kemp slate was in, the Ivey slate out. And Richmond observers thought that Mr. Ivey would also be out as soon as the new directorate could pick his successor.

Basic cause of Virginia-Carolina dissension is the corporation's stock setup. There are three classes of stock--first, a Prior Preference stock, which pays a 7% cumulative dividend; then a Participating Preferred, which pays a 6% cumulative dividend; and finally a common stock, which has never paid any dividends since the present company was organized in 1926. The company is $16.50 per share in arrears on the Prior Preference, $43 per share behind on the Participating.

The articles of incorporation provide that holders of the Prior Preference have the right to name a majority of the directorate as long as there is $10,000,000 of Prior Preference stock outstanding. In other words, the Preference holders can run the company until the company buys them out. But ever since 1927 the com-pany has been buying in its Preference stock to such an extent that it now holds $9,000,000 of this issue in its treasury, with less than $5,500,000 in public hands. But the stock bought by the company has not been retired. It still exists, classed as an investment.

Problem: Can this treasury stock be considered outstanding? Certainly, say Prior Preference holders, because it has not been retired. Certainly not, say other stockholders, because it is not in the hands of the public.

Significance: By interpreting treasury stock as outstanding, the Prior Preference holders could sell all their stock to the company, at a good round price, and still run the show. Even as things stand, the company has bought in about two-thirds of the Preference issue, but the Preference holders still dominate the board.

Actual hostilities began in June 1932, when George Wilson, then Virginia-Carolina president, tried to arrange a merger with a fertilizing subsidiary of Armour & Co. Mr. Kemp was then not even a director, but as a stockholder and as a member of Bryan & Kemp, Richmond brokers, he took an interest in Virginia-Carolina's welfare. Objecting to the fact that the merger gave Armour a 61% interest in the new company, he rallied stock-holders against the consolidation, blocked it. Soon Mr. Wilson resigned, was succeeded by Vice President George Holderness. But the anti-Kemp, promerger faction remained unsatisfied.

In the autumn of 1933, Mr. Kemp and friends got control of the directorate. By this time the Preference stock in the hands of the public had dropped below $10,000,000, and the anti-Kemp party questioned the legality of the election, the issue turning upon the definition of outstanding stock. A lower court decided against Mr. Kemp. When a higher court decided for him, Mr. Kemp went in and soon Mr. Holderness went out.

In September 1934. there was an argument about paying back dividends on the Preference stock. Continued deficits had exhausted the company's surplus, left it with a profit & loss deficit. But as the company had bought up its Preference stock at prices ranging from $40 to $75, it had a capital surplus obtained by subtracting the price paid for the Preference stock from its par value of $100 a share. The Kemp faction thought a dividend could be declared on the strength of this surplus. Kemp opponents considered such payment illegal. Again the combatants took their case to the courts, where it still remains.

The latest battle turned only partly on the status of the Preference stock. True, Mr. Ivey wanted to buy 30% of the $5,500,000 remaining in the public's hands, and buy it not for investment but retire ment. Mr. Kemp objected to this pur chase, although more than $10,000,000 of the issue would still be outstanding after the deal had taken effect. But in addition to this difference of opinion, Mr. Ivey felt that Mr. Kemp was trying to run the company. "I had been in office only three days when Kemp urged me to throw out all the directors of an affiliated company and replace them with his own choice," said Mr. Ivey last week. "I am not easily bought." he added. "There are morals involved in this as well as law. I did not see eye-to-eye with Mr. Kemp on many matters."

But when last week's showdown came, Mr. Kemp, as usual, turned up with the most proxies. A native of Richmond, descended from canny Scottish forebears, he is now a square-faced, squarejawed, white-haired oldster. The Bryan & Kemp firm was dissolved after the death of Jonathan Bryan* but Mr. Kemp retains a membership on the New York Stock Exchange. After last week's Virginia-Carolina meeting, it seemed likely that Mr. Kemp might himself become the com pany's president. But he refused the honor. "I am not." said he, "a fertilizer man."

*Brother of the late Jonathan Bryan is John Stewart Bryan. 63, publisher of the Richmond News-Leader, president of the College of William & Mary. Richmond's "most useful citizen."

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