The Go-Go Years (35 page)

“I said I wasn't sure he appreciated what might happen to our business when someone with no banking experience moved in on a takeover basis. Directors and officers might leave. I made it clear that I didn't think
I'd
be around. In the trust area, for people to leave their estates with a bank you need confidence built up over many years. Will appointments would leave in droves, I said, not because of anything about him but because it was a takeover. Then there was the worry about somebody acquisition-minded having access to our stockholder lists. The confidential relationship of banker to client might be endangered.

“I think it impressed him a little bit. Steinberg said he had no intention of making an unfriendly takeover—that is, that he didn't want to, but might. There was the hint of a threat. I said, ‘If you want to get into a fight, I'm a pretty good gutter fighter.' He said, ‘I've already found that out.' He said he wanted to make a full presentation of Leasco's plans the next afternoon, after his company's annual meeting, in the hope that Chemical would change its mind and want to cooperate, after all. I enjoyed the luncheon. There was some kidding around, too.”

Steinberg:
“When I got to 20 Pine Street that morning, I got out of Renchard's car and walked into the bank. It was a day when not many people were there, because of the snowstorm. Renchard's secretary was very friendly—‘Oh, hello, Mr. Steinberg, I'm so glad to see you.' Renchard came out and shook my hand and said, ‘Hello, Saul. Call me Bill. Can I take you around and show you the place?' Well, I wasn't terribly interested in looking at the real estate right then. So we went and talked, first in his office and later in the bank's dining room.

“We did some kidding at first. He asked me why I wanted to become a banker and I said, ‘God looks after drunks and bankers, and I don't want to be a drunk.' Then I started in giving the facts. I told him how many Chemical shares Leasco had—more than three hundred thousand. I said we weren't going to accumulate much more because it was getting too expensive. I told him frankly that the
Times
piece had disrupted Leasco's plans; we had wanted to wait until the forthcoming new law regulating bank holding companies was passed, and that might be six months or a year. Now our hand was forced, and I volunteered that for us it was premature.

“I went into my philosophy of how Chemical's management, and all commercial-bank managements, should be more responsive to stockholders and customers, and how I thought we could make it that way. I said I thought that adding a broad range of services to a bank's regular functions would add to the intrinsic value of its money, and on that he expressed absolute agreement in principle. He began to talk about the possible detriments to the bank's business from a hostile takeover. He said top management would probably resign. He mentioned losing customers, and I said they would hardly leave in a hurry at a tight-money time like that. He talked about damage to the trust business. I asked, ‘Does it make money?' He laughed, and said he wasn't sure. He said if I wanted a fight he was a pretty good gutter fighter, and I said my record as a gutter fighter was considered to be pretty good, too, at least for my age. But then I said I wasn't planning a hostile takeover, although I wasn't ruling one out. I told him that in four days I was going to Puerto Rico on vacation with my wife and kids—it was the kids' winter
semester break—and that I was professional enough not to be planning such a thing as that if I were thinking of attempting a hostile takeover. He looked surprised and asked, ‘Are you really going to Puerto Rico?' I said yes. He was obviously relieved. Everything became very relaxed. I thought it was a rather constructive meeting. Everything was friendly and affable. The atmosphere was dampened at the end, though, when McCall and Aldrich came in—McCall for lunch with us, and Aldrich at the end of lunch. McCall just didn't seem to want to have anything to do with me one way or the other, and Aldrich seemed downright hostile. But Renchard interrupted them to say, ‘Look, Saul has stated that he has no intention of a hostile takeover.' McCall's face lit up, and he said, ‘Well, when can we meet again?' I suggested after my trip to Puerto Rico, and he and Renchard said, ‘Oh, let's do it before that,' and we arranged for the following afternoon, after our stockholders' meeting. I came out in a positive frame of mind. The only thing was that Aldrich was still cold. But wait—come to think of it, he wasn't any too cordial to Renchard, either.”

So the first meeting of the rival chieftains was a standoff. That afternoon, Renchard heard from Roberts of Reliance Insurance. The apparently satisfied subject of Leasco's previous conquest said he thought a merger of Leasco and Chemical would be a fine thing for the bank. “I told him he was off his rocker,” Renchard said later. “I said computer leasing has nothing to do with banking. He said the Leasco-Reliance merger hadn't hurt Reliance. I was disappointed in him.” Also that afternoon, McCall had someone at Chemical prepare for him a list of Leasco's creditor banks, and when the list later came to the attention of a Congressional committee, it was found that checkmarks had been made beside the names of certain of the banks; the purpose of the list, and the meaning of the checkmarks, is not known, but the fact is that on that very afternoon Steinberg began to feel “pressure” from the banking business in the form of calls from Leasco's two investment bankers, White, Weld and Lehman Brothers, informing him that they would refuse to participate in any Leasco tender offer for Chemical.

That evening, there was more socializing among the bankers. Renchard went to a dinner of the Reserve City Bankers Association at which, he said later, he may have spoken to three hundred bankers. “I have no recollection of anything except general conversation about this development,” he recounts, denying that he used the event as an opportunity to spread anti-Leasco propaganda or solicit support for Chemical. (He had not, however, shown such restraint during working hours; the anti-Leasco announcements of White, Weld and Lehman had followed urgent appeals from Chemical.)

At Leasco's annual stockholders' meeting, held the following afternoon in the auditorium of the Chase Manhattan Bank Building, matters proceeded smoothly enough, with no mention of the subject that was in everyone's mind, until Steinberg observed that Leasco's commitment to becoming a comprehensive financial-services organization included the objective of entering the field of banking. “The realization of so large a plan,” he went on, “requires the exercise of careful and deliberate judgment. At the present time, we have not made a decision as to a particular bank.”

A hush filled the room; Steinberg broke it by asking for questions. A stockholder asked flatly whether Leasco was planning to acquire the Chemical Bank. Steinberg replied that Leasco had made no statement regarding that bank or any other. Then, a bit later, another stockholder asked whether Leasco had already had merger discussions with Chemical.

Steinberg was on the spot; over the weekend he had planned to announce his tender offer on this occasion, but now, with the door still open to possible agreement with Chemical officers at the meeting to be held in only a couple of hours, he had decided to hold off. For diplomatic reasons, it would be best to evade the question, but he rejected that course. “I said to myself, ‘Heck, I'm not going to lie,'” he recounted later. He answered, “Yes, we have met with the Chemical”—thereby publicly confirming for the first time what up to then had been in the realm of rumor and conjecture.

5

But later that afternoon, at the private meeting between Leasco and Chemical officers, the crack in the door that Steinberg had discerned at the previous day's luncheon seems to have narrowed perceptibly. The defense was gaining confidence. This time, the rival generals were accompanied by their chief aides; Steinberg came with three, including Roberts and Counsel Robert Hodes, and Renchard with four, including McCall, Aldrich, and Task Force Generalissimo McFadden. Steinberg went over much of the ground he had covered in the previous day's luncheon with Renchard, this time putting more emphasis on his friendly intentions and his disinclination to threaten. (Aldrich's personal notes on the meeting say: “Tender route loathesome to Leasco—but might have to go it to accomplish ends.”) Steinberg also made a further concession. He said he was prepared not to be chief executive officer of the merged company, and that all of his Leasco colleagues would be willing to put their jobs at risk on the basis of the merged company's profit record. When Renchard said that he was unwilling to negotiate with “a gun at my head,” Steinberg insisted that no gun was intended, that this “wasn't war.” Both sides later characterized the meeting as cordial, although Steinberg felt that it had been “not overly friendly.” According to Aldrich's notes, it concluded with Renchard saying, in effect, “We have lots to consider. Will do so. They will hear from us—maybe end of week, maybe middle of next week.”

In fact, Steinberg would hear from Renchard again that Friday, February 14, but in the meantime the Chemical defense battalion was far from idle; on the contrary, it was now trundling up its big guns, those “resources” that Renchard had described at the outset as “considerable.” Chemical held another full-scale battle meeting at which the discussion centered on the
possibility of changing Chemical's charter in such a way as to make a Leasco takeover legally difficult if not impossible. There was also talk about perhaps buying a fire-and-casualty company to create an antitrust conflict with Leasco's ownership of Reliance, or even, as a last resort, of arranging to have some giant insurance company take over
Chemical
—suggesting a positively Oriental preference for suicide rather than surrender.

As it happened, none of these schemes was carried out; certainly, though, the last one reflects the bankers' mood of grim intransigence. As planned, the bank retained the two leading proxy-soliciting firms, Dudley King and Georgeson, to deny their services to Leasco. Renchard called Chairman Martin of the Federal Reserve Board to apprise him of the situation and, hardly incidentally, to try to persuade him that a Leasco takeover would be bad for banking as a whole. (Martin took no action.) And also meanwhile, from whatever cause, Leasco's stock kept dropping; by Friday it was down to 123 and in full retreat. Probably the most effective of Chemical's various salvos was on the legislative front. Beginning on February 14, Richard Simmons of the Cravath law firm, on retainer from Chemical, began devoting full time to the Leasco affair, concentrating his attention on the drafting of laws specifically designed to prevent or make difficult the takeover of banks similar to Chemical by companies that resembled Leasco, and to getting these drafts introduced as bills in the State Legislature in Albany and the Congress in Washington. Does it seem odd that a proposed new law, hand-tailored by a chief party at interest, should be accepted without question by tribunes of the people in a state or federal legislative body? Whatever the answer, Governor Rockefeller chose that very week to urge the New York Legislature to enact a law enabling the state to stop any takeover of a bank by a non-bank, within its boundaries, in a case where “the exercise of control might impair the safe and sound conduct of the bank.” By Friday, precisely such a proposed law, straight from Simmons' desk, had been dispatched to Albany, and a national one of similar intent to Senator John J. Sparkman, chairman of the Senate Banking and Currency Committee in Washington.
Apparently Chemical had reason to believe that in both cases the drafts would be introduced without significant alteration.

Thus it was with a sense of a turning tide of battle that Renchard telephoned Steinberg again on Friday the fourteenth, to make a new appointment. This time there was no further talk of gutter fighters and the like. Doubtless Renchard no longer felt the need for such talk. Was Steinberg still going on that vacation? Steinberg said he was—leaving the next day, and remaining in Puerto Rico until the following Wednesday, the nineteenth, when he had appointments in Washington. Renchard said amiably, “What's the use of busting up your trip?” and invited Steinberg to come in and see him again on Thursday the twentieth. And so it was agreed.

By the following Monday and Tuesday, the would-be attackers were plainly on the defensive. A
Wall Street Journal
article published on Monday raised questions as to the future earnings prospects for Leasco. Leasco stock dropped eight points that day, to 115, and two and a half points more the following day. Simmons' anti-bank-takeover bill was duly introduced in Albany on Tuesday. (It was subsequently passed, and became law in mid-May.) Leasco suffered a further setback when the company got a letter from the Department of Justice saying it had heard of Leasco's plans to merge with Chemical and commenting, “Although we do not suggest that such a transaction would violate the antitrust laws, questions under these laws are raised thereby, particularly under Section 7 of the Clayton Act.” (Section 7 prohibits combinations that may restrain trade by reducing competition; its applicability to a Leasco-Chemical merger, as it was generally interpreted at that time, would appear to be highly questionable. Just how the Justice Department came to send such a letter at that particular moment has never been explained.) While these things were happening, Steinberg was with his family at the Dorado Beach in Puerto Rico, playing tennis, swimming, and, he insisted later, talking on the phone to his office in Great Neck only twice. It is hard, though, to imagine that he did not learn one way or another about the
Journal
article, the continuing Leasco stock drop, the bill introduced
in Albany, and the ominous letter from Justice. For all of his impulsiveness, Steinberg is a reflective man, and it seems not impossible that, relaxing by the pool at the Dorado Beach, he reflected with irony that, having conducted his company's annual meeting the previous week at a (David) Rockefeller bank, he was now paying top rates to another (Laurance) Rockefeller hotel for a quick vacation from the battle lines while a third (Nelson) Rockefeller was urging on the State Legislature a law intended specifically to thwart him in what he considered to be a legitimate and even socially beneficial enterprise.