MANAGEMENT: The Battle for Ward’s

In his 23 years as the highhanded boss of Montgomery Ward & Co., tough old Sewell Lee Avery has been in plenty of fights for control of the company, and has never lost a battle. In the process out have gone five presidents, 32 vice presidents and countless other top employees. But last week the toughest opponent of all stepped into the ring against Avery. The new challenger: Louis Elwood Wolfson, 42, one of the fastest-moving corporation jugglers of the postwar decade.

In a Manhattan hotel suite Wolfson called a press conference to issue his challenge. He, his brothers and associates, said Wolfson. had bought more than 105,000 of Montgomery Ward’s 6,502,378 shares, making theirs the biggest single holding. They planned a proxy fight to unseat Avery and reverse his present tight fisted, cash-hoarding, nonexpansionist policies. Said Wolfson: “Montgomery Ward, as it stands today, is a glaring and notorious example of private enterprise in reverse gear.”

Taking aim on Ward’s $700 million store chain and mail-order business, second biggest merchandising enterprise in the country, was a big job for any man . But Wolfson is used to big jobs. In 22 years he has parlayed a $5,000 investment into a $200 million industrial empire. Since 1949, he has bought control of the big Merritt-Chapman & Scott construction company, the Washington, D.C. street-transportation system, the New York Shipbuilding Corp., the 200-year-old paintmaking Devoe & Raynolds Co.. and a hatful of smaller concerns.

Virtually every one has turned into a pot of gold for Wolfson. He and a group of friends bought control of Washington’s Capital Transit for $20 a share, have since paid themselves about $30 a share in dividends, much of it from an accumulated surplus. By going after contracts aggressively, Wolfson boosted Merritt-Chapman’s gross from $33 million in 1948 to $70 million in 1953. Dividends have gone up even faster, from an average of 51¢ a share in the four years before Wolfson took over to an average of $1.73 in the four years since. Two stock dividends of 40% and 25% were declared.

In New York Shipbuilding, a 1952 deficit of 26¢ a share was turned into a profit of $4.29 in 1953, but $2.40 of it came from nonrecurring income, i.e., an arbitration award on an old contract and for work completed before Wolfson came in. With these profits he declared a 50% stock dividend last January, has since paid $2 a share, first since 1950 and highest since 1945.

Potent Arguments. In his $600,000 home on Miami Beach’s Biscayne Bay, Wolfson likes to pore over financial statements, find a company that is worth a lot more than the price of its stock. When he does, he goes after it. Montgomery Ward is just that kind of a company. It has a wad of $293 million in cash and Government securities, hoarded up for the depression that Avery is sure will come. This cash reserve is worth $45 a share, while net current assets are worth about $88 a share. The stock this year has sold as low as $56. Since it usually rises on any rumors that Avery is leaving, the stock climbed from $67.87 to 74.75 after reports leaked out that Wolfson was buying into Montgomery Ward. Last week it jumped to $80.37.

Although Wolfson has never before pitched into a full-blown proxy fight, he has some potent arguments to use in this one. Since 1950, Ward’s sales have dropped steadily, dipped below the $1 billion mark last year for the first time in seven years. In the same period sales of Ward’s chief competitor, Sears, Tvoebuck & Co., have gone up from $2.5 billion to almost $3 billion. Sears’s net income increased about 7% last year, while Ward’s dropped 17%.

Tough Fight Ahead. Nevertheless, many of the 68,000 Montgomery Ward stockholders seem content to take their $3 to $3.50 in dividends each year, might be unwilling to turn over their business to a new hand. Some of the big shareholders, despairing that Avery would ever get out, have already sold their stock. J. P. Morgan & Co., which first put Avery in charge at Montgomery Ward in 1931, gave up in disgust in 1948 and its two directors resigned from the board. Massachusetts Investors Trust, which once owned 100,000 shares, is down to 25,000. Wolfson expects to line up most of the trust-held stock, which he estimates at 250,000 shares. On the other side are the 64,336 shares owned by Avery, additional stock held in family trust for his children, and at least one large block controlled by a member of Avery’s board.

Avery has made it legally hard for any proxy fighter to move in on him. His nine board members serve three-year terms, and only three will be elected at the next meeting in April 1955. But Wolfson is after control “no matter how long it takes,” and he may win out merely by waiting for time and nature to eliminate Avery, now 80. Last week Avery appeared unworried. Said he: “Wolfson? I know nothing about the man. Never heard of him till the other day.”