HIGH FINANCE: Trouble in the Hive

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Ever since ex-Navyman Frederick W. Richmond, tycoon (j.g.), got mixed up with Pittsburgh's Follansbee Steel Corp., he has had more trouble than a bear in a beehive. Richmond offered about $9,300,000 for the company, and planned to sell its equipment to Republic Steel. But when it turned out that Republic would move the mill down South, and thus take the No. 1 employer from the town of Follansbee, W. Va., the entire community swarmed down on Richmond's neck (TIME, Sept. 27). Then a group of stockholders got an injunction postponing the vote on the deal. Last week, while the stockholders' meeting was recessed, another bee, of bumble proportions, buzzed in. The new arrival: Cleveland Financier Cyrus Eaton, whose interests include the Portsmouth Steel Corp.

"Democratic Choice." Wily Cy Eaton and Louis Berkman, a onetime scrap dealer who is now a small Ohio steel producer, told the SEC that they were willing to pay $21 a share for Follansbee, topping Richmond's offer by $1 a share. They would buy 51% of the stock immediately, and the rest within a year. Furthermore, Eaton and Berkman would keep Follansbee's mill operating right where it is. Would SEC kindly order a re-solicitation of stockholders so that they might make a "democratic choice"?

Eaton insisted that his interest was purely philanthropic. Said he grandly: "My main purpose is to act as peacemaker between the Richmond group and the others . . . to work out some deal that will keep Follansbee operating where it is."

But Peacemaker Eaton also knew that anyone who got Follansbee at $20 or $21 a share could make millions—as Richmond hoped to do. Richmond had offered Follansbee a gross price of $9,286,620. But since the company had $4,030,405 in cash and bills receivable in the till, the actual out-of-pocket cost to Richmond would be only $5,256,215. By selling the mill for $1,500,000 to Republic, and selling Follansbee's inventories for another $3,090,000, Richmond would reduce his net outlay to a mere $666,215. Richmond would also receive a tax refund of $970,000 due to Follansbee for 1952-53 losses, giving him a cash profit of $303,785 on the series of transactions. And he would still own the balance of Follansbee's properties, including the Federal Stamping & Enameling Division, which has a book value of $6,574,249.

Thinking It Over. At week's end Fred Richmond was desperately trying to save his deal. While SEC was thinking over Eaton's offer, Richmond offered to keep part of the plant operating, and Republic offered to continue some other departments to see if they could profitably operate in Follansbee, W.Va. permanently.