Corporations: Caught in the Rapids

The only thing that excites Wall Street more than a big winner is a mystery man. On both counts, suave Meshulam Riklis, 39, has held the Street’s fascinated gaze in recent years. An Israeli immigrant who as recently as 1951 was a teacher of Hebrew in a Minneapolis boys’ school, Riklis has used his rare skill for plotting complex take-over deals to put together a new retailing empire. Through his aptly named base company, Rapid-American, Riklis controls McCrory Corp., whose 1,300 stores (McCrory, H. L. Green, National Shirt, Lerner) and 1962 sales of $554 million rank it fourth among the nation’s variety chains. But Riklis has found running an empire harder than building one, and has had so many troubles recently that he greeted one setback with a heartfelt “God has added to our agonies.”

Last week Riklis suffered his most agonizing setback to date. In search of quick cash, he had hit on the idea of selling McCrory’s 326-branch Lerner Stores to Glen Alden Corp. for $56 million—even though Lerner is McCrory’s chief moneymaker. In order to forestall later suits and recriminations, Riklis confidently decided to let McCrory’s minority stockholders (he controls 51% of the stock) determine the issue. That was his undoing. Led by Manhattan Realtor Leonard Marx, 59, the stockholders slapped Riklis by turning down the Lerner sale 3 to 1.

Too Much Reliance. A first-class mathematician who studied at Ohio State before he began teaching, Riklis became fascinated by high finance while working part time as a customers’ man in Minneapolis. He grabbed at the idea of buying undervalued companies with ready cash and using the cash to buy into other companies. Backed by a small group of Minneapolis investors, he began with a few minor successes and setbacks, but in 1954 started swiftly pyramiding companies into what became Rapid-American, which then sold off some of the companies to get the cash to buy McCrory in 1960.

Inexperienced in retailing, Riklis relied too much on managers, who often did not report danger spots until the situations had already deteriorated. In his rush to expand, he failed to consolidate his acquisitions into integrated operations. He based his business plans on overly optimistic sales and profits projections; when they failed to come true, his whole empire was left precariously overextended. McCrory last year earned a bare $3,800,000; Rapid-American lost $7,000,000 for the year ended in January, another $3,011,511 for the six months ended in July.

Homey Parables. Riklis is the target of more than a dozen suits by shareholders, who charge that McCrory funds were misused when the firm bought its own stock and retired it to make it easier for Rapid-American to gain 51% control. A former trustee of the McCrory employees’ pension fund has sworn in court that Riklis used pension funds to support the price of Rapid-American stock. Riklis’ setback on the Lerner deal also makes him vulnerable to further demands by Marx, who insists that Riklis put minority shareholders on the McCrory board and “stop treating McCrory like his private hunting ground.”

Rapid-American’s boss is still a crafty operator who dazzles potential investors with complicated “chalk talks” in which he sketches his financial plans on a blackboard. He often puts off opponents during negotiations by conferring with his associates in Hebrew, likes to voice homey parables. He lives with his wife and three children in a lavish home on Long Island, where his special joys are a pump-powered waterfall and a library that contains more electronic gear than books. Despite the Lerner setback, Riklis last week hoped to raise some money by contracting to sell off one of Rapid-American’s divisions for $4,300,000. But Meshulam Riklis is painfully learning that what comes rapidly can also rapidly go.