High Flyers in Trouble

The world's stock markets run with due respect for the rules of irony.

Although they are the biggest casinos on earth, the bourses often deal harshly with men whose commercial success or personal fame has been, sudden, surprising or adventurous. The long bear market has proved especially distressing for dozens of onetime skyrocket securities, and the men who ignited them. Last week three more celebrated high flyers were in varying degrees of trouble:

Comedown for Cornfeld

Bernard Cornfeld, the Midas of mutual funds, recently jetted to Acapulco for a summit conference with Hugh Hefner. Naturally, both were accompanied by aides, mostly female. While Hefner's playmates competed with Bernie's bunnies for poolside attention, the two middle-aged millionaires discussed the possibility of combining on a business venture, perhaps to build a hotel in Acapulco. The trouble is that Cornfeld's fortunes have lately fallen into a spin.

On European securities markets, the publicly owned common stock in Corn feld's Geneva-based I.O.S., Ltd. has dropped as much as 50% in two weeks and shaken public confidence in Cornfeld's $2 billion mutual fund complex, whose shares are sold separately from those of I.O.S. itself. When I.O.S. shares were first offered to the public in Europe at $10 last fall, eager investors quickly bid the price to a peak of $19.

For months thereafter the stock fluctuated between $13 and $15. The plunge began early this month, after banks tried to unload large holdings. In three days, the price of I.O.S. stock fell from $12 to $8, and last week it sank to $5.25 before rallying to close at $5.75.

Profits v. Predictions. Some bankers, particularly in Germany, may have been happy to sell their I.O.S. shares and help the slide along. They were never particularly fond of the aggressive American whose salesmen persuaded so many people to take their money out of banks and buy mutual funds. The moment that I.O.S. shares began to fall, rumor mills splattered speculative theories all over Western Europe. The British press printed gossip that I.O.S., short of cash, was unloading large blocks of its securities portfolio. Mass-circulation German dailies aired tales (equally untrue) that I.O.S. President Edward Cowett and Sales Chief Allen Cantor were attempting to force out Chairman Cornfeld.

"They said that I had died in a plane crash and that Bernie is dying of cancer in a Geneva hospital," complained Cowett. "Then all sorts of pressure factors came in: short positions, professional selling, margin calls which forced some of our own associates to sell."

The underlying reasons for the market misfortunes seem somewhat simpler.

Profits have failed to match Cornfeld's predictions. I.O.S. had boasted that earnings would double in 1969 and again in 1970. In reality, Cowett said last week, 1969 profits rose 37% to just under $20 million. Despite a recent rise in redemptions, the 18 I.O.S.-managed mutual funds have taken in a net $115 million in cash so far this year, according to company figures. Even so, I.O.S. last week reshuffled its top management in an effort to reduce the company's legendary overhead and lift its profits. I.O.S. directors created an eight-man executive committee to examine thoroughly the company's operations and prospects. The committee is headed by a no-nonsense cost cutter, Rich ard M. Hammerman,. president of I.O.S.

Insurance Holding Ltd. Said one of Switzerland's biggest commercial bankers: "We hope that they can weather the storm because a blowup would harm the whole investment business."

The Perils of Perot

One day last week Dallas Computer Magnate H. Ross Perot became a multimillionaire. If this troubled him, it was because at the beginning of the week he had been a billionaire. Even in the easy come, easy go Texas atmosphere, a loss of $470 million--if only on paper--is no laughing matter.

Perot dropped that much in a few days as stock in his Electronic Data Systems Corp. melted from 150 to 100 on the frantic over-the-counter market. By week's end Perot had a net worth (in hard-to-sell stock) of roughly $940 million.

Perot's fast loss was only slightly more spectacular than his fast rise to great wealth. In less than eight years, he rose from a job as an obscure computer salesman to the presidency of Dallas-based Electronic Data, a company that sells, programs and operates computers. Perot, 39, the son of an East Texas horse trader, gained national recognition last December when he several times attempted unsuccessfully to make flights to Hanoi, then offered $100 million to ransom 1,500 U.S. prisoners of war from the North Vietnamese.

When told of E.D.S.'s decline while at a civic club luncheon honoring his sponsorship of United We Stand, an organization supporting the Administration's Viet Nam policy, Perot refused to speculate on reasons for the fall. Many investors were also baffled. Perot, a modest, semi-Spartan type of man, was not suffering from Wall Street's disenchantment with certain tall-talking Texas business leaders. Over the past nine months, E.D.S.'s earnings have increased 145%, to $4.9 million, on revenues of $31 million. On the other hand, the stock had been overpriced, sell ing at an extraordinary 215 times this year's expected earnings of 700 per share. E.D.S. may also have been touched by the disfavor that Wall Street has lately displayed toward computer and other glamour stocks affected by fed eral contract reductions, tight money and increasing competition.

The decline probably resulted from the inability of a depressed market to ab sorb a sizable block of the stock. Since Perot owns about 9,400,000 of the 11,600,000 outstanding shares, only a small proportion of the stock is traded, and a sale of 10,000 or 20,000 shares has exaggerated effects. As Perot knows, being a paper billionaire is a lot different from having the money safely in the bank.

The Luck of Jim Ling

Men who are used to shaping events often forget that events are fundamentally fickle. When their good fortune turns around, they cry foul. Few have cried louder than James J. Ling, the millionaire chief of what was once the nation's fastest-growing conglomerate, Ling-Temco-Vought Inc. In LTV's recently issued report for 1969, Ling declared: "Major negative perturbations in the overall economy have their in escapable effect on operational results of certain companies engaged in busi nesses which are directly affected."

Translation: Jim Ling was not at fault for LTV's net loss of $38 million. This week Ling will be saying much the same at the company's annual meeting in Dallas. Considering that LTV stock has plunged from $135 to $161 in the past 18 months and that dividends have been indefinitely suspended, the share holders may be hard to persuade.

Joining the Club. Bedeviled by interest charges that amount to more than $1,000,000 a week and by losses in major subsidiaries that continued through the first quarter, Ling now finds himself trying to explain a company that is so complicated that some of his own bankers admit they do not grasp it. For several weeks, Ling has also been trying to tell his story to a congressional committee that is investigating conglomerate mergers. When Representative Emanuel Celler charged that LTV's debts exceed its salable assets by $171 million, Ling replied that the consolidated balance sheet was "not really meaningful." He reasoned that LTV's interests in some subsidiaries, including Braniff International Airlines and Okonite, a wire and cable maker, were undervalued because control of a company normally commands a premium over the market price of its stock. He also claimed that LTV's debts were over stated because the company does not guarantee most of the debts of its part ly owned subsidiaries. For example, though LTV controls LTV Electrosystems, Inc. through ownership of 69% of its stock, and carries this investment as an asset, it guarantees only $5,000,000 of the subsidiary's $52.5 million of debt.

In 1969, Ling says, many of his company's nine subsidiaries were hurt by un foreseen events. The economic slow down cut Braniff's passenger traffic, a rise in copper prices hurt Okonite's prof its and the pullback in defense contracts reduced the earnings of both LTV Electrosystems and LTV Ling Altec.

Yet Ling's largest problem was his pur chase of Jones & Laughlin Steel Corp.

LTV took over J. & L. in 1 968 by paying a fat $85 per share, or a total of $425 million, for control of the nation's sixth largest steelmaker. Industry experts thought that the price was at least $20 a share too high. But Ling, sounding like an outsider who wanted to join an exclusive club at almost any price, now says that "we wanted to show them it wasn't a raid or anything like that." The takeover financially extended LTV; then the company was hit with a federal antitrust suit, which locked Ling out of Jones & Laughlin's management. So far, LTV shows a paper loss of $125 million on its holdings in J. & L.

Premium Rate. Ling has been liquidating other LTV holdings in order to meet his interest charges and bank loans. As he explains it, LTV will retire $112 million in loans due next year by selling either Braniff or Okonite, both of which Ling agreed to dispose of within three years in return for Justice Department withdrawal of the J. & L. antitrust suit. In February, LTV got $63 million by selling its holdings in Wilson Sporting Goods, and this too can be applied to the debt. Earlier this month, LTV Altec sold Allied Radio Corp. for $30 million. Meanwhile, Ling has had to expand some loans. Last week LTV Aerospace borrowed $32.5 million on the Eurodollar market and agreed to pay a fluctuating rate of interest, which will be 1% above prevailing rates. The initial LTV Aerospace payment: Ill.

Though 1969 was a disaster, Ling does not seem to have lost any verve or confidence. He is determined to achieve a positive cash flow by the second quarter of 1971, and Wall Street expects him back on the acquisition trail before long.

Some analysts, however, think that Ling's propensity for ornate financial structures has soured the market for LTV stock. Jim Ling reacts angrily to suggestions that his earnings picture is portrayed more favorably than accurately in LTV's financial statements. "We don't depend on accounting techniques to show earnings," he says. In today's nervous markets, an increasing number of investors might wish to doubt that.

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