Parceled Postal

Out of a four-and-a-half-year reorganization last week came what was left of the late Clarence Mackay's Postal Telegraph communications system.

The old Postal system had two main units: the "Land Line System," with a domestic telegraph business, and a cable and radio system to Europe and Latin America. In 1928, Clarence Mackay decided that music was a more interesting medium of communication, sold the system to International Telephone & Telegraph. By June 1935, I. T. & T. was fed up with advancing Postal cash to pay the $2,500,000-a-year interest on its bonds, let it slip into 77-B. Largest independent bondholder: Lehman Bros, (and clients), whose Bondholders Committee finally represented some $30,000,000 (about 60%) of the bonds.

Upshot of the reorganization is two new companies: Postal Telegraph, Inc., which gets the land lines, and American Cable & Radio Corp., a holding company, which gets the old radio and cable lines (induding I. T. & T.'s South American radio properties). Two-thirds of A. C. & R. is to be owned by I. T. & T., one-third by bondholders in the old Postal. Traffic contracts will link Postal's land lines to the international network.

As for the new Postal, it is now free of I. T. & T. control, owned by its former bondholders. In exchange for ceding its cable and radio properties to A. C. & R. these former bondholders also acquired first call on A. C. & R.'s earnings in the form of $9,210,632 of its subsidiaries' debentures. Another $3,293,562 of debentures went to I. T. & T.

What old Postal bondholders (or I. T. & T.) will get out of the deal depends on A. C. & R.'s subsidiaries. At an earnings level before interest and taxes of around $1,500,000 (about 30% above their combined earnings for 1939) I. T. & T.'s two-thirds stock interest in A. C. & R. gives it a better return than Postal bondholders, who have the larger bond interest. As for the Postal bondholders' interest in the new Postal, what they get will depend on whether the land lines can work a miracle, stay out of the red. Main obstacle: a big competitor, Western Union, has had lean years too, the amount of business (badly nicked by telephone and airmail competition) probably cannot support two profitable systems.

President of the new Postal is a tall, smooth ex-accountant named Edwin F. Chinlund, who twice in his career has been a partner in Arthur Andersen & Co. (auditors), in between was vice president and comptroller of I. T. & T. Chinlund's immediate job will be to compete more aggressively with big, hungry Western Union. But the long and more complicated end of his assignment is negotiating with Western Union, investors, labor and Washington for a merger of the two sickish systems into one with a better chance of making money.

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