Airlines: Blocking an Air Raid

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As Charles Bluhdorn tells the story, the deal was the most natural thing in the world. While vacationing in the Bahamas last December, the chairman of Gulf & Western Industries mentioned to James Crosby, chairman of Resorts International, that he had acquired 1.8 million shares of Pan American World Airways, or 5% of the total. Crosby then made Bluhdorn an "irresistible" offer to buy 900,000 shares and got an option on the balance.

Next, Crosby learned that the Chase Manhattan Bank controlled 1,500,000 more shares of Pan Am. He invited a number of Chase officers down to the Bahamas to inspect his Paradise Island complex of hotels and a gambling ca sino. The bankers thereupon agreed to sell their Pan Am stock, then worth about $39 million, for a complex pack age of Resorts' notes and warrants.

Multimillion Call. At Pan Am, Chair man Harold Gray and President Najeeb Halaby were rather chagrined to discover that Resorts had a call on al most 10% of the airline's common stock and could fairly easily become the largest shareholder. Looking into Resorts, they found that it was largely a family affair run by Crosby, 41, and some of his relatives. Crosby in 1958 had taken over the Mary Carter Paint Co. ("Buy One—Get One Free"); he later bought most of Huntington Hartford's interests on Paradise Island and sold the paint-making part of the business. Resorts International appeared to be well managed, but more than half of its profits depended on roulette and craps tables. It had a call on about $93 million worth of Pan Am stock, while its own net worth was only $6,000,000. Pan Am's Gray could find "nothing of benefit" in an affiliation with Crosby.

Crosby may well have underestimated Pan Am's muscle in Washington and on Wall Street. After some phone calls from the White House, the Commerce committees of both the House and the Senate began looking into the sources of Resorts' financing and whether the company might be fronting for some bigger organization in an attempt to take over Pan Am. Legislation has been introduced in Congress to prevent any outside company from acquiring more than 5% of any airline's stock without approval from the Civil Aeronautics Board.

The American Stock Exchange barred trading in Resorts' shares until the company satisfactorily explained its intentions regarding Pan Am. Though Resorts disclaimed any interest in taking over Pan Am, the ban continued through week's end. Jim Crosby was rapidly learning that, as Gray put it, "the airline business is unique. It involves something more than just business with a dollar sign. It should not become a pawn on a chessboard in a financial game for profits. Pan Am is a king."