Big Stick

North American Rayon Corp., seventh largest U.S. rayon yarn maker, and its sister company American Bemberg Corp., have had a troubled history. In 1940 the U.S. Government, suspecting that their parent company, the Dutch Algemeene Kunstzijde Unie, N.V. ("AKU"), was partly German-controlled, froze the properties, but allowed the U.S. directors to run the companies.

Last August the Department of Justice's Office of Alien Property seized the two AKU subsidiaries. The Dutch protested, but when OAP proved that one-third of AKU's stock had been German-owned, the Dutch waived rights to one-third of AKU's holdings. This gave the Office of Alien Property controlling interest in North American and Bemberg, which are jointly managed. (The Dutch got AKU's other U.S. subsidiary, American Enka Corp.) No sooner had the Government taken over when a squabble broke out between the board of directors and OAP Boss David L. Bazelon, a New Dealing lawyer who had given up a $50,000-a-year law practice to work for the Government.

Secret Process. Dave Bazelon held some strong notions about how to run the companies. He thought the two rayon firms were making too much money (last year they had netted $5,700,000 on $37 million in sales). He also suspected that some of their customers were reselling their rayon in the grey market.

Bazelon got the FBI to investigate. Its agents marked outgoing rayon by a secret process, and traced it through the grey market. The FBI estimated that 10-15% of North American and Bemberg's output was being resold at prices up to $4 a pound, four times the factory price.

Public Exit. That was proof enough for Bazelon. At a directors' meeting he insisted that the companies sell their rayon to more buyers, police each one to see that no rayon got into the grey market. The company said that was impossible.

There was more trouble when Du Pont and other competitors raised their rayon prices in December. Bazelon vetoed any price hike for North American and American Bemberg. He ordered them to continue selling at 10% below the general market price. The irate directors resigned in a body.

Snapped Director Boylston A. Tompkins, vice president of Manhattan's Bankers Trust: "Our responsibility is to the stockholders. No board can function under these circumstances."

The stockholders felt the same way. Moreover, they wanted to know why OAP had not yet kept its word to sell its share of the company and return control to private hands. This week Dave Bazelon got ready for a stockholders' suit challenging his authority to run the companies.

This file is automatically generated by a robot program, so reader's discretion is required.