Three for a Pyramid

HIGH FINANCE One is a former junkman who began entrepreneuring at 16 by buying a deserted jail and selling its steel bars at a profit. Another is a courtly Southern tycoon who lives in a mansion in Yemassee, S.C. The third man once conducted his family business, the nation's biggest maker of toothpaste tubes, from a floating desk in the pool of his Greenwich, Conn., home until the pool became too small to contain his world. They make an unlikely trio, but together they have set out to be corporate conquerors in the style of Louis Wolfson and the late Robert Young. Last week the trio completed a major coup by taking control of ailing Lionel Corp. from Attorney Roy Cohn, bumping him down to chairman of the executive committee. That coup expands the assets of their growing empire to $140 million.

The former junkman is Massachusetts Moneyman Edward Krock, 51; the Southerner is Robert Huffines, 58, former president of Burlington Mills and Textron; and the toothpaste tube heir is Victor Muscat, 44, who now swims in Manhattan's bigger pool. Since 1960 the three have combined forces to gain control of two large holding companies listed on the American Stock Exchange, Defiance Industries and B.S.F. Co., and through them picked up almost a score of satellite companies that spin into insurance, electronics and the manufacture of everything from church pews to screw machinery. Huffines defines the trio's philosophy: "We have gone into troubled situations, undervalued situations, and tried to rehabilitate them." It was Roy Cohn himself who proposed that they take on Lionel, which has lost money for the past two years. In a typically complex deal, the trio used an incredibly low-priced ticket to ride far on Lionel's tracks. They got the voting rights to Cohn's 55,000 Lionel shares in return for an interest-free loan to him of $281,275; Cohn is pledged to sell them the shares in 1964 and 1965, by which time he hopes that the stock -- which sank from 14 1/8to 5 1/8 in four years under his management -- will be selling at a higher price. To top all this, the restless three last week were negotiating with Promoter Meshulam Riklis to take over his sprawling (assets: $66 million) but sorely troubled Rapid-American empire, which controls 1,500 Lerner, H. L. Green, National Shirt, McLellan and other stores; it also makes printing plates and plastic signs and sells citrus fruits. Chucking & Muscling. Muscat, Krock and Huffines got together in 1957 through a mutual interest in rehabilitating a sick New Jersey company called Reinsurance Investment Corp. With the help of their own private fortunes, they then began to build their industrial pyramid, swapping the cash or shares of one company to win control over others or using shares as collateral for loans to buy other companies. As they got control of each company, they quickly closed down or sold off profitless operations, expanded the moneymaking ones, chucked out many incumbent executives and consolidated management at the top of the pyramid. Though the three work as a team, they have no central office, seldom meet to gether, and plot their strategy mostly over the telephone. Muscat is the leader and operating chief who muscles onto reluctant boards and does the firing. Krock, who works out of his Worcester, Mass. office, is the chief strategist and financial planner. Huffines handles the lawyers, soothes the stockholders and sews up the corporate details that the more flamboyant Muscat and Krock would rather not bother with. Suits & Skeptics. The three Muscateers boast that they have turned Defiance Industries' 1961 loss of $384,500 into a 1962 profit of $497,000. But critics say that much of the gain was due to changes in bookkeeping, plus the surprising inclusion of profits from one subsidiary that Defiance had not even taken over until two weeks after Defiance's fiscal year had ended. A pair of Defiance stockholders is suing the management because they object to a deal in which the trio last year paid almost three times its book value to get control of one company. Wall Street is also skeptical of such tactics, and the stock of Defiance has dropped from a 1962 high of 13 7/8 to 6 5/8 last week; B.S.F. is down to 6 3/4 from last year's peak of 15 1/4. But the trio care fully maintains a collectively optimistic face and predicts a profit for Lionel this year. Muscat, who also is the one empowered to do the boasting among the partners, says: "Between the three of us, we have enough experience, money and follow-through to run any company in the country."

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