SECURITIES: Eaton Meddles

Cleveland’s maverick financier Cyrus (formerly “the Great”) Eaton has friends and enemies on both sides of many a street, including Wall. A power there until the early ’30s, he has won most of his subsequent newspaper clippings by front-running for the U. S.’s No. 1 anti-Wall Street financier, Chicago’s pro-competitive-bidding Halsey, Stuart & Co. More recently, via the mails and letters-to-the-editor, he has offered intellectual aid to both Presidential candidates. As a Willkie-man he suggested that the New Deal is vulnerable for having made Big Business bigger, at the expense of Small. As a Rooseveltman he called Willkie the Wall Street candidate, dug up historical precedents for a Third Term.

Last week Operator Eaton took time out from politics to try to turn a dollar or two. Object of his attention was the San Antonio subsidiary of the ill-fated United Light & Power system, which Eaton once controlled. Biggest single interest in United now is the Mellon family’s Koppers Co., which owns 28.4% of the Class B voting stock (which would be practically wiped out in United’s proposed recapitalization).

In August the San Antonio subsidiary decided to refund a $16,500,000 bond issue at a lower (3½%) rate. To merchandise the issue, it contacted another Mellon family unit—Mellon Securities Corp.

Without much ado, Mellon Securities got up a syndicate, planned to price the issue at 105 or 105½ to the company, proposed to sell it to the public at 107 or 107½ Spread would be $330,000, of which Mellon Securities’ cut would have been $48,000 (based on their original plan to take $2,400,000 of the issue). Since SEC has not yet decided what to do about the underwriting fees of banking houses found to be “affiliates” of utility holding companies, Mellon Securities proposed to impound its money.

Among those invited into the syndicate were Halsey, Stuart (for a participation of $1,200,000) and Eaton’s Otis & Co. (which was finally offered a participation of $825,000). This set off the fireworks. Eaton, nostalgically recalling the days when Otis headed San Antonio deals, threw the offer back at Mellon Securities. When Mellon Securities paid no attention to his kick, Eaton violated bankers’ unwritten rules by going directly to the San Antonio management, asking whether he could submit a competitive bid. The San Antonio management, fearful of SEC repercussions if it refused, agreed to listen.

In came Eaton’s bid. He offered to pay San Antonio 107—about as much as the Mellon syndicate had proposed to charge the public after pocketing its two-point spread—and to price the bonds to the public at 107½, taking only a half-point cut for himself. There was one catch to the offer: did Otis & Co. have what it takes to swing a $16,500,000 deal? While Eaton argued that Otis did, Mellon Securities counterattacked. It offered to meet Eaton’s offer of 107 to the company, 107½ to the public.

But several Mellon Securities syndicate partners were not willing to work for the cost of their telephone bills. First Boston Corp., W. C. Langley, five others dropped out. Nineteen underwriters remained, including Halsey, Stuart, usually Otis’ big brother. Last week they placed the issue privately with a few institutional investors. Cyrus Eaton had the satisfaction of knowing that if his meddling had not profited him, neither had it profited the “big bankers.” Only gainer was San Antonio Public Service, which got two points more for its issue, pocketed an extra $330,000. That, thought Cyrus Eaton, was just another argument in favor of competitive bidding.