Business: Rescue Accomplished

After six months of negotiations, Curtiss-Wright and Studebaker-Packard finally came to terms last week on “Operation Rescue.” The two companies will not merge—at least not right away. But they will tie themselves together under a “joint program” agreement, with Curtiss-Wright running Studebaker-Packard and taking an option on enough Studebaker stock for a formal merger later on.

For Enginemaker Curtiss the big bait was the promise of some $500 million in new defense contracts from the Pentagon. Up to now, failure of such contracts to come through had been the major stumbling block. Though the Administration was anxious to save Studebaker, it was worried about the political effects of such a rescue operation. But now both companies have solid promises of contracts, spread over several years.

$50 Million for Now. For Studebaker the bait was equally tempting: $35 million in cash from Curtiss, enough to keep the company in business. Curtiss will buy all Studebaker’s defense inventories (mostly jet engine parts), take a twelve-year lease on two plants at Utica, Mich, and South Bend, Ind. In addition, Studebaker’s bank credit (it has already borrowed $29.8 million) will be raised to $45 million, thus giving it a total of $50 million for immediate needs.

There is a chance for more. If Curtiss decides to merge and exercises its stock option within the next two years, it will pay $25 million for 5,000,000 shares of Studebaker stock. The merged company will also be able to apply Studebaker’s big $70 million tax loss against overall profits.

Predictors & Mercedes. Under the present deal, Studebaker will consolidate all automaking at South Bend, leaving the defense business to Curtiss. With its new funds, it will be able to bring out a 1957 Studebaker line on schedule. However it will probably stop making Packards for a year, wait until 1958, when it can develop an interchangeable body shell with Studebaker along the lines of its Packard Predictor dream car. Another possibility: that West Germany’s Daimler-Benz will come in on the agreement, use Studebaker’s dealer setup to distribute Mercedes cars and trucks in the U.S. Eventually, Studebaker might also build Mercedes products in the U.S.

President James Nance will step down as Studebaker’s chief executive, remain only as a consultant to the board of directors. Into his place will go Harold E. Churchill, 53, Studebaker’s general manager, who has been with the company since 1926. But the real boss will be Curtiss-Wright President Roy T. Hurley, himself a veteran automan, who learned the fine points of the industry as Ford’s director of manufacturing. Taking over Curtiss in 1949 when it was doing poorly, he cut costs and boosted production so effectively that the company turned a profit of $35 million in 1955. Now, with the Studebaker-Packard deal, he is going back to a business he knows even better.