Odlum Makes a Deal

Luther Burbank himself never tried to cross an aircraft manufacturer with an investment trust. There have been bigger deals in other years than that which last week caught Wall Street by surprise, but few which showed greater imagination. It was the work of Wall Street's most successful high financier, a slim, shy, soft-shirted man in his forties who wears a belt which his vest doesn't quite reach and sits around in the kitchen after midnight snacking on a slice of sugared bread dampened with milk. He came as close as anyone has to beating Wall Street's gag about merging Worthington Pump and International Nickel, to get Pumper Nickel.

Floyd Bostwick Odlum with his puckish grin came out of the Rockies in 1916, at 23, an idea man for "Old Profanity"--the late Utilitarian Sidney Zollicoffer Mitchell --who was then expanding the already huge, sprawling Electric Bond & Share empire. In 1923, young Odlum got to work for himself in a small way. He started Atlas Corp. as a $40,000 investment pool. His associates were his friend George Howard (since 1929 president of United Corp. and still one of Atlas' largest stockholders) and his wife (No.1), able Hortense Odlum (now president of Manhattan's thriving Bonwit Teller, specialty store, still Odlum's business associate and a big Atlas stockholder).

By 1929 Atlas was a $12,000,000 investment trust, big alongside its beginnings, small for the big time. But Odlum scented the end of the boom, sniffed opportunities ahead for anyone able to lay cash on the line for 1929's overvalued securities when the coming depression had undervalued them. In 1930-33, Odlum, with cash in hand, picked up control of enormous pools of capital by paying their hard-hit sponsors a few cents on their lately pyramided dollars. Out of Depression Atlas emerged as No. 1 U. S. investment trust (peak assets: $121,336,779 in 1933) and Odlum emerged as the U. S.'s newest tycoon, the only one extant who had done his pyramiding when other pyramids were crumbling.

Odlum's Meditation: Two months ago Tycoon Odlum went out to the desert ranch which his wife (No. 2), Aviatrix Jacqueline ("Jackie") Cochran, owns at Indio, Calif., 130 miles east of Los Angeles. He had thinking to do. Since end of 1929 U.S. investment trusts have suffered dollar & prestigewise (TIME, March 25). Atlas alone had conspicuously beaten the game. Its asset value per common share had risen from $5.06 to $12.80--153%. It had distributed nearly $60,000,000 of its peak assets, plus around $20,000,000 in dividends. What was left in the kitty was largely profit to Atlas' original security holders.

Brooding in California on this rosy picture, Odlum saw a flaw in it. Practically all Atlas' profits had been made on a maximum of $25,000,000 of its capital invested in "special situations" such as the ill-starred Utilities Power & Light system which Bondholder Odlum is now liquidating into its component operating companies. The balance of Atlas' capital has always been "invested" in the market as a whole, has done no better than any other "general portfolio" investment trust.

Said Odlum to himself: Since I cannot beat the ticker tape with the $37,000,000 I have in the market, why shouldn't I let it go to somebody who has a use for it? Why shouldn't I stick to the $25,000,000 of "special situation" money that I can handle profitably?

On Feb. 5, he returned to Manhattan. Last week he announced that Atlas would split, like a cell, into two parts--one to stay with him in the money business, the other to be grafted to the lusty body of U. S. aircraft's Curtiss-Wright Corp.

Wall Street's first reaction was: Odlum has moved again! Its second: Has he turned away from his old hunting grounds (bankrupt utilities, movie companies, stores), moved into the aircraft business --the field in which Wife No. 2 is interested. Friends of the Curtiss-Wright management offered to raise a pool to defend the company against Odlum's raid. Guy Vaughan, president of Curtiss, cooled them off. He told them the smartest thing he had ever done was to get his friend Floyd Odlum on the Curtiss-Wright board.

Curtiss Quandary. As Odlum's problem was to get rid of capital he couldn't use, the main Curtiss-Wright problem has been to get new capital. Like other U. S. aircraft companies, it has grown from small beginnings by ploughing earnings back into new plant capacity. Now its biggest problem is to fill $140,000,000 of new orders quickly and profitably, to find means of taking a great many more new orders which could be bagged by any company with the right product and idle capacity. For three reasons Curtiss-Wright has been unable to raise capital in the usual ways: 1) its common stockholders have had no dividends on Curtiss' recent sales boom; 2) ahead of the common's claim to future dividends is Curtiss-Wright "A" stock, which is entitled to $2 a share (no more) before any dividends are declared on the common; 3) bond financing would be dangerous for a company like Curtiss-Wright, whose earnings to meet fixed charges might be suddenly cut by such unpredictables as sudden peace or losses on new models.

For six months Guy Vaughan and Curtiss' 14 other directors tried to solve the problem by finding a way to get rid of the "A" stock. This has been selling around $30 but, since it is redeemable at $40, the company could not afford to retire it. First sub-committees of the board were formed to work on the problem. Then, in despair, each director was told to tackle it as a committee of one.

Last February the committee named Odlum returned from the desert with its mind made up. At a Curtiss-Wright meeting one day, Odlum asked whether the other 14 committees had a solution. They hadn't. He asked for a day, returned with a description of a hypothetical "X Corporation," told how a marriage with hail of "X Corporation" would solve Curtiss' problem. The directors agreed, but they did not tumble until Odlum spelled out the name of "X Corporation": ATLAS.

The Deal. As intricate as Floyd Odlum's shrewd mind was the deal that he worked out. It offered an inducement for each company and for every class of stockholder of each. To Curtiss-Wright it meant getting rid of its troublesome "A" stock--by exchanging each share of "A" for 1/4 share of a new 5% $50 cumulative preferred plus 1.8 shares of common, or (if "A" stockholders prefer) for 1/2 share of new preferred and 1/5 of a share of common. To "A" stockholders it meant an assured dividend and preferred position in liquidation (neither of which they had before), plus a higher conversion price, greater voting power. To holders of Atlas 6% preferred it meant a share for share exchange for Curtiss-Wright's new 5% preferred with a bonus of 1/4 share of Curtiss-Wright common (which at the market --around $10.50 a share--takes care in advance of over five years' cut in dividend) plus a 60-day option to turn in each share of their preferred for four shares of common.

To Curtiss, which will have 700,000 to 1.000,000 shares of preferred, and a new load of $1,850,000-$2, 500,000 a year in preferred dividends, the deal will bring enough new cash and marketable securities from Atlas to give it about $1 in current assets (depending on the number of preferred shares) for each $1 of preferred.

If Curtiss has 1940 earnings of $15,000,000 they will protect the dividend six to eight times whereas Atlas' usual earnings barely covered it.

To Curtiss-Wright common stockholders the main advantages are the $37,000,000 of new capital from Atlas, the hope that this can be put to work to earn a return handsome enough for expansion plus dividends, and a straightened-out capital structure. To holders of Atlas' 3,000,000-odd shares of common (year-end net asset value: $12.80), it means trading $5 per share of their asset value for 65/100 share of Curtiss-Wright Common having a market value of over $6.75 ($10.50 a full share), and the remaining $7.80 per share of their asset value for one share of Odlum's special situations company. To Atlas' 1,951,073 perpetual option warrants (good to buy Atlas common if it ever rises from its present $9.50 to $25 a share), it offers a five-year warrant to buy a share of Curtiss-Wright common on a rising scale from $12.50 in the first year, to $14.50 in the fifth--a speculation on the aircraft industry.

To Odlum, Atlas' largest holder (roughly 200,000 shares of common, 200,000 warrants), a boom in Curtiss-Wright stock to these levels would be bonanza. To him also it means that his new $25,000,000 investment company will have only common stock, no preferred dividends to worry about in his speculative business. And it means that his clean capital structure may attract new speculative money, if he ever wants it. Even with its reduced capital Odlum's new Atlas, no longer an investment trust, now a new-fangled investment finance company, will tower over Wall Street's biggest investment banks, which are essentially distributors of, not investors in securities. From that pinnacle he can look for new worlds to conquer.

Next step will be to put Odlum's blueprint to a vote. On his part Odlum intends to let Atlas preferred stockholders vote on the deal in a separate election instead of with the common as the Delaware law allows, so that they .will have an opportunity to reject it without having their votes outnumbered by those of the common.

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