They suggested rather brutally that the company needed to get rid of both Cornfeld and Cowett in order to save itself - but this suggestion was too much for the IOS men. John Templeton, one of the big shareholders invited to the meeting as an observer, declared that the company needed the creativity, the imagination that Bernie and Ed brought to its affairs.
But the alliance between the imaginative pair was beginning, after ten years, to crack up. Cornfeld was careful to point out to the underwriters that the tax deals had been set up by Ed Cowett, and that Cowett was the only man who knew that company money was used in them.
Although the IOS facade remained intact, there was now nothing behind it but a shifting pattern of factions, struggling with each other for control and secretly canvassing sources of outside help. The organizing principle of the company, Cornfeld's personal authority, had lost its true potency at the moment that the company ceased to be IOS Ltd (sa): in the new public company, he no longer controlled the price of the shares and he could no longer pretend to control the process of cashing-in. All his manipulative skills could not replace that blunt power: it was now only a matter of the time and the issue, before someone would face him down.
By hints, allusions, and discreet allegations, Cornfeld tried to divert the emotional weight of the crisis on to Cowett. He pretended ignorance of the immediate process that had brought IOS to the edge of ruin: although if anything in IOS escaped his knowledge, it did so only because he did not wish to know. Both in business convention, and in terms of his long complicity with Cowett, Cornfeld's responsibility was inseparable from Cowett's; but it is a measure of Cornfeld's emotional adroitness that he did succeed in shifting some measure of responsibility away from himself. That did not, however, rescue him from the new and uncomfortable status of being only one exceptionally powerful member of a gallery of rivals.
IOS was like many other empires, in that the arrival at the gate of the armies of disaster was the signal for a savage power struggle to begin among the courtiers. The determining consideration over all the rescue attempts which were mounted, or half-mounted, for IOS, was that the man, or alliance of men, who could bring rescuers in on acceptable terms could expect power and survival in return. There were, naturally, rival groups with different candidates for the role of rescuer, and with the hierarchy of the company shattered, it was not easy to be sure how acceptance was to be ratified.
The passions generated by the struggle came to their climax during an extraordinary meeting of the IOS Board, which began at 10 am on Sunday May 3 and did not break up until nearly pm on the following Saturday. The meeting and the sub-meetings, cabals and personal confrontations which accompanied it, were by turns bitter and furious, or inexplicably euphoric. During the week, emissaries and plenipotentiaries came and went incessantly, with offers of rescue or requests for information. Cornfeld, Cowett and John King all addressed the meeting with explanations and suggestions. In between times, long periods of sullen, ashen bickering supervened.
The Villa Bella Vista made a suitably theatrical setting. Long before IOS bought it, the villa was the Swiss home of the Colgate family. It is a building of great, rough hewn grey stones, with heavy roof beams of dark wood: sprawling beside the lake, it conveys at night a sense of Gothic melodrama. While the directors inside were lectured by members of their own company, or by visiting speakers as various as Mr Meshulam Riklis of the Rapid-American Corporation, and Mr George Ball, late of the State Department, now an international banker, IOS employees and newspaper reporters milled around outside.
The tang of panic was in the air. In New York, the Dow-Jones index was down to 700, and nobody dared to guess where it might stop. 'Years of speculation are coming home,' said Sidney Lurie of Josephthals, summing up the general Wall Street feeling that a jealous god was wreaking some overdue retribution. There was a very genuine fear that Investors Overseas Services might simply disintegrate, and dump some two billion dollars of holdings onto the American markets. Already, the firing of Alger and the hasty dumping of his account was being blamed as one of the triggers that set off the break in March. The effect of IOS and its funds upon the market was not so simple and direct as that. But this was one of those times when the precise facts matter much less than the sudden terrors of the market. The irony was that although IOS itself was going broke, the frightened men gathered by the lakeside still had enough investments under their hands to initiate a devastating chain reaction of selling, which could turn the market break into a genuine crash. And they were answerable to no one and to nothing, except their own collective fears, ambitions and desires.
Inside the meeting, the scenes were played by a distinguished cast. Together with special effects and noises off, there were contributions from nearly all the important protagonists in our saga, with styles and accents as varied as the history of the company itself. There was a group of sales bosses, sharing the sleekly youthful air which is apparently conferred by selling international mutual funds: Ira Weinstein of Canada, Malcolm Fox, the ex-Davis Cup player from Hong Kong, Roy Kirkdorffer from London, Ossie Nedoluha, and Robert Sutner. There was Allen Cantor himself, sucking his pipe. Two impressive presences were George Landau, rangy and elegant, like a Russian poet dressed by Brooks Brothers, and Eli Wallitt, with his long prophetic face and halo of white hair. There was Ambassador Roosevelt, towering and booming; Count Bernadotte; Martin Brooke, the English banker; Pasquale Chiomenti, the Italian lawyer; Wilson Wyatt, the Kentucky politician; and Professor von Peterffy, bulking even bigger, physically, than Roosevelt. Erich Mende, bouncy and red-faced, came in with a pr man to translate his German into English. Including Cornfeld and Cowett, 22 IOS directors were present when the meeting opened.
Arthur Lipper III, the IOS broker, was there by invitation, and so were Allan Conwill, and Mel Lechner, the treasurer. Harold Kaplan, the new head of public relations, attended: no doubt finding it quite a change from his previous assignment, which was handling the Vietnam peace talks for the State Department.
Proceedings opened with Cornfeld in the chair, executing some delicate manoeuvres. He was aware that Cowett was trying to promote a takeover of IOS by John King: this he was determined to resist, to the point of a personal break with Cowett. He reasoned, correctly, that the arrival of King would be the end of his own power. Cornfeld gave the meeting a resume of the condition of the IOS shares, whose price was then wavering around $4 and said redemptions were up sharply. He acknowledged that IOS was suffering from a liquidity problem, and then went on to discuss in some detail the loans which had been made to the King and Cowett family trusts. What Cornfeld did not acknowledge was the idea that IOS needed rescuing or taking over. In his opinion all the company needed was some interim finance.
Was it possible that the six banks who had underwritten the offer might be a source of help? Ed Cowett reported on the abortive, and acrimonious meeting with them: little was to be expected from that direction.
It was then Allen Cantor's turn. While Cowett had been talking to his friend John King, Cantor had been to Paris and talked to Paul Vincent at the Banque Rothschild. Cantor had discovered that if they could team up with the London Rothschilds,
Banque Rothschild might be interested in a rescue bid. He was now able to report that Rothschild's were prepared to meet a deputation in Paris next day. However, he said, they would require the resignations of Bernie and Ed. Neither were they prepared to cooperate with John King.
C. Henry Buhl weighed in with 'expressions of interest' from the Banca Commerciale Italiana, Lehman Brothers, and Warburgs. Mention of so many important banks excited Cornfeld's incontinent optimism. Perhaps he said, this was IOS's chance, at last, to join the Establishment?
Mel Lechner then reported that IOS would probably lose $7-13 million in the first half of 1970.
There was an unhappy speech by Dr Mende, about unrest among salesmen and investors in Germany. It was decided that Mende and Roosevelt should go to Germany, and the meeting got down to discussing John King and his plans in some detail.
Cowett had flown on a secret mission on April 20. He was looking for help: in New York he saw Charlie Bluhdorn of Gulf and Western Industries and canvassed the possibilities of Bluhdorn's taking up some of the Commonwealth United strain. Ultimately that
initiative came to nothing. He went straight on to Denver, where he had found John King willing, even eager, to come to the rescue. This was less than amazing, since it would by now have been difficult for the King companies to survive the death of IOS. A possible deal had been lashed together, under which King would produce two sums of $20 million to get IOS out of its cash problems. Harding Lawrence of Braniff Airways, who was on the King Resources board, would become President of IOS, and King believed that he could get Gus Levy, formerly chairman of the governors of the New York Stock Exchange, to become Chief Executive. It was certainly hard to see where Cornfeld might fit into the new system. But Cowett argued at Bella Vista that the deal would solve certain urgent problems, such as the fact that IOS was losing money, and that many of its salesmen and executives were insolvent because of the collapse of shares bought with borrowed money.
Arthur Lipper said that he doubted that a total of $40 million would be enough to bail IOS out. Richard Hammerman made the cogent point that King seemed to have been rather closely involved in most of the problems that were afflicting IOS. Was it therefore wise to rush into a deal with him? Cornfeld also thought that the whole thing was being done in rather a rush, and that it would not be easy to negotiate with anyone else once King had announced that Harding Lawrence was going to take over as President.
Henry Buhl then suggested that John King should be asked to come over to Geneva, and the meeting fell to discussing an embassy to meet the Rothschilds in Paris next day. Hammerman, Buhl, Barry Sterling and George von Peterffy were selected to accompany Allen Cantor. Roy Kirkdorffer suggested (feeling perhaps that the group would need a native guide) that Sir Eric Wyndham White, as 'a European', should join them.
The day's session closed with some sharp questions from Pascquale Chiomenti. What, he wanted to know, had happened to the cash from the public offering? Cowett, in reply, did not make himself quite clear. Dr Chiomenti for his part, made it very clear that he would like to resign from the board as soon as decently possible. In the evening, the meeting closed, and the envoys departed for Paris.
Cornfeld opened up on Monday with a long exhortation to the board not to be stampeded into the King deal, or any other. The thing to do was to get back to running the company, while looking for 'partners'. He thought there might be several possible sources of short-term money. He mentioned Mr Meshulam Riklis, of that splendidly named conglomerate, the Rapid-American Corporation.
At this stage, the Paris delegation telephoned an extremely bleak situation report. The London Rothschilds, it emerged, were behaving in a lamentably unsympathetic way. They had kicked off by demanding that IOS be handed over to them as if in receivership. After discussion, they had broken this down to say that they would accept 51% control, and would offer a dollar a share. They wished to have nothing to do with King, and both Cowett and Cornfeld must go at once. They would bring six or eight of their own people in to run IOS and the funds. Besides the immediate resignations of Cornfeld and Cowett, they wanted everyone else's resignations 'in the desk drawer'. Furthermore, neither Rothschild house would move without the other.
From the viewpoint of the battered individual, the 'small investor' - and he did exist, especially in Germany - this would have been an excellent solution. The Rothschild name, of course, would have restored at once the confidence that IOS required. And that in itself would have gone a long way to lessen the depletion of the customers' money. But the Rothschilds were not about to have their name used to rescue a parcel of adventurers from the consequences of their own greed. Much offence was taken among the IOS directors at the Rothschild attitude, which was resented as insulting.
What really made it impossible for such an offer to be accepted was that the offer was only worth $1 per share.
1
To the directors - and big shareholders - gathered around the table at Bella Vista, the attraction of John King, however much they might fear him, was that he was offering, in effect, $4 per share. There was a large blackboard in the conference room, on which the vital figures for the two deals were being chalked up at opposite sides. At some point in the debate, one of the directors took up the chalk, and added a comment at the foot of each column. Under the King figures, he wrote 'Rape', and under the Rothschild figures he wrote 'Murder'.
The meeting chose to accept a fate worse than death.
Martin Seligson, the IOS real estate expert, moved, with Ed Cowett as second, that the negotiating team be withdrawn, and that a message be sent to John King, accepting his offer. The motion was passed: of the men in Bella Vista, only Cornfeld voted against, and in view of the personal animosity he later expressed towards Jacob Rothschild, he did not vote out of any desire to accept the other offer. Rather, he doubted that any organization would have room for two such conceptual salesmen as himself and John King. Voting by telephone from Paris, Richard Hammerman and Eric Wyndham White opposed the motion to deal with King. The meeting adjourned for the evening.
Tuesday was largely Cowett's day. King had replied with
1
Less than a year later, Cornfeld was to sell out for 80 cents a share.
enthusiasm saying that he was on his way to Geneva to consummate the deal in person. The Board fell to discussing details of the King offer, such as escrow arrangements, and the timing of the second slice of $20 million, exactly as though John King was a serious financier. Cowett was active in drafting texts and suggesting legal safeguards, discussing the possibility that the Bank of New York might be brought in along with King.
It seemed possible that Cowett might pull it off. The only serious diversion was when Cornfeld's friend, Mr Riklis, of the Rapid-American Corporation, addressed the board. There seems to have been some thought that Rapid-American, which controls Shenley Distilleries, might consider a rescue bid. But although Riklis made an inspiring speech, it was mainly concerned with exhorting those present to rescue themselves. He recommended to them a cunning stroke of leverage. The problem was that the earnings per share were not high enough, right? Well, why not convert the majority of the shareholding into debt securities at 4%, thus leaving the earnings to be distributed over a smaller number of shares? As IOS just then had no earnings whatever, the suggestion was of uncertain value. Having made it, Mr Riklis uttered words of cheer, and left.
On the record of the Dover Plan, Richard Hammerman is not the idealistic type of businessman. But he now brought to bear one personal quality not often found in the upper echelons of IOS: realism. He continued to object passionately to the idea that IOS could be rescued by the natural gas wizard from Denver. On Tuesday, the best he could do was get himself appointed to the sub-committee to negotiate with King. But on Wednesday morning, with King in the air and nearing Geneva, he mounted a cogent attack. He managed to get it across to the board that King was proposing to rescue from illiquidity a company to which King personally owed the best part of $10 milli
on. If King just gave that back, Hammerman pointed out, IOS's immediate problems would be solved, and it would no longer be necessary to rush into King's arms. Malcolm Fox and C. Henry Buhl now came out against the King deal. Hammerman continued with some details of the Colorado nopi deal, which moved Wilson Wyatt to suggest that in future any deals between IOS directors and IOS companies should be discussed by the board. This was presented as a new thought.