Business: Fight in Fertilizer

The stockholders of Virginia-Carolina Chemical Corp., fourth largest producer of fertilizer in the U. S., started fighting in the summer of 1932, have been at it ever since. One rule of their game appears to be that the president of the company always loses. There have been three presidents in the last three years, and there will probably be a fourth next month. Another rule is that Director George S. Kemp always wins. In Richmond last week Virginia-Carolina stockholders elected a new directorate. One set of candidates was headed by Director Kemp; the other by President Alphonso Lynn Ivey. After a 14-hour session, which ended at 1 A. M., the Kemp slate was in, the Ivey slate out. And Richmond observers thought that Mr. Ivey would also be out as soon as the new directorate could pick his successor.

Basic cause of Virginia-Carolina dissension is the corporation's stock setup. There are three classes of stock—first, a Prior Preference stock, which pays a 7% cumulative dividend; then a Participating Preferred, which pays a 6% cumulative dividend; and finally a common stock, which has never paid any dividends since the present company was organized in 1926. The company is $16.50 per share in arrears on the Prior Preference, $43 per share behind on the Participating.

The articles of incorporation provide that holders of the Prior Preference have the right to name a majority of the directorate as long as there is $10,000,000 of Prior Preference stock outstanding. In other words, the Preference holders can run the company until the company buys them out. But ever since 1927 the com-pany has been buying in its Preference stock to such an extent that it now holds $9,000,000 of this issue in its treasury, with less than $5,500,000 in public hands. But the stock bought by the company has not been retired. It still exists, classed as an investment.

Problem: Can this treasury stock be considered outstanding? Certainly, say Prior Preference holders, because it has not been retired. Certainly not, say other stockholders, because it is not in the hands of the public.

Significance: By interpreting treasury stock as outstanding, the Prior Preference holders could sell all their stock to the company, at a good round price, and still run the show. Even as things stand, the company has bought in about two-thirds of the Preference issue, but the Preference holders still dominate the board.

Actual hostilities began in June 1932, when George Wilson, then Virginia-Carolina president, tried to arrange a merger with a fertilizing subsidiary of Armour & Co. Mr. Kemp was then not even a director, but as a stockholder and as a member of Bryan & Kemp, Richmond brokers, he took an interest in Virginia-Carolina's welfare. Objecting to the fact that the merger gave Armour a 61% interest in the new company, he rallied stock-holders against the consolidation, blocked it. Soon Mr. Wilson resigned, was succeeded by Vice President George Holderness. But the anti-Kemp, promerger faction remained unsatisfied.