Business & Finance: Babes & Wolves

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Franklin Roosevelt and Senator Burton K. Wheeler are on record as believing that most intermediate holding companies should be eliminated; Governor George Earle of Pennsylvania likes to assert that the long fingers of J. P. Morgan reach into too many crannies for the public good; SEC Chairman William Orville Douglas argues that major financing programs should always be subject to competitive bidding. Last week all three of these themes ran through the complicated story of a battle for control of rich Chesapeake & Ohio Railway.

C. & O., which made $34,500,000 in 1937, is not only one of the few U. S. railroads in the black but is the only profitable woof left in the $3,000,000,000 Van Sweringen railroad and real-estate empire's tangled warp. C. & O. is controlled by Chesapeake Corp., a holding company which owns 35% of its common stock. Chesapeake Corp. in turn is controlled by Alleghany Corp., another holding company which owns 71% of its stock. Last year, after the Vans had died, the chief backer of their declining years, Glass Tycoon George A. Ball, sold 46% of Alleghany Corp.'s common stock along with some real estate to a trio of virtual unknowns for $6,375,000 ($4,000,000 in cash, rest in notes). This trio consisted of two Wall Streeters. Robert Ralph Young and Frank Frederick Kolbe, and Allan Price Kirby, son of one of the F. W. Woolworth Co. founders. Admitting that they were "babes in the woods," the new bosses of the Van Sweringen empire set put to simplify Allegheny's elaborate holding company substructure, have been lost in the woods ever since. Last fall's market crash forced Mr. Kolbe to liquidate his Alleghany holdings; the other two survived only to face a bitter attack by Wall Street wolves.

First skirmish occurred even before the "babes" bought control of Alleghany. In planning this purchase, there was originally a syndicate including General Motors Executives Donaldson Brown and John Thomas Smith, the former having large holdings of Alleghany preferred stock.

But Burton Wheeler, the Senate's railroad finance policeman, advised them not to participate in the proposed deal and they have since, according to Mr. Young, steadfastly opposed his policies. Another pair who presently lined up against Mr. Young were two oldtime Van Sweringen officers, Charles L. Bradley and John P. Murphy, president and secretary respectively of both Alleghany and Chesapeake Corp. Last summer, when Robert Young proposed to eliminate Chesapeake Corp. entirely as an unnecessary corporate entity, these four opposed him. In December, when C. & O. President William Johnson Harahan died, they also opposed Robert Young's decision to elevate longtime General Manager George Doswell Brooke to the presidency. Instead they proposed that President Charles Eugene Denney of Erie R. R. be given the job.

Last January Robert Young forced Messrs. Bradley and Murphy out of their Alleghany jobs. But he failed to get them out of Chesapeake. When he tried, Messrs. Bradley and Murphy simply refused to attend the directors meeting, thus preventing a quorum and any action. Then, in his capacity as president, Mr. Bradley called a special meeting of Chesapeake Corp. stockholders with the avowed purpose of shuffling the directorate contrary to Owner Young's wishes, who feared losing his control thereby.