Allied Chemical & Dye Corp. v. The Steel and Tube Co. of America
| Decision Date | 28 March 1923 |
| Parties | ALLIED CHEMICAL & DYE CORPORATION, a corporation of the State of New York, and BY-PRODUCTS COKE CORPORATION, a corporation of the State of New York (Intervenor), v. THE STEEL AND TUBE COMPANY OF AMERICA, a corporation created by and existing under the laws of the State of Delaware, CLAYTON MARK, HERBERT H. SPRINGFORD, ARMIN A. SCHLESINGER, HARRISON WILLIAMS, W. M. L. FISKE, EDWARD G. WILMER. LEONARD KENNEDY, ANSON MARK, CHARLES F. FAWSETT, GEORGE P. MILLER, FRANK F. CORBY, ADDISON H. BEALE, D. R. MCLENNAN, HARRY COULBY, CHARLES T. BOYNTON, CLINTON S. LUTKINS, E. D. WINKWORTH and C. D. CALDWELL, Directors of the said the Steel and Tube Company of America; CLARENCE DILLON, ROLAND L. TAYLOR, JOSEPH H. SEAMAN, JOHN W. HORNER, JR., JAMES DEAN, R. W. MARTIN, WILLIAM A. PHILLIPS, W. M. L. FISKE, WILLIAM A. READ, JR., E. J. BERMINGHAM and J. v. FORRESTAL, co-partners doing business under the firm name and style of Dillon, Read & Company; CLARENCE DILLON, ARMIN A. SCHLESINGER, HERBERT H. SPRINGFORD and EDWARD G. WILMER, as Trustees, and THE YOUNGSTOWN SHEET & TUBE COMPANY, a corporation created by and existing under the laws of the State of Ohio |
| Court | Court of Chancery of Delaware |
[Copyrighted Material Omitted]
INJUNCTION BILL. Rule to show cause why preliminary injunction should not issue. Allied Chemical & Dye Corporation, the original complainant, and By-Products Coke Corporation, intervening complainant, are stockholders of the defendant, The Steel and Tube Company of America, a corporation of this State. The defendants are The Steel and Tube Company of America, its officers and directors, certain individuals composing the firm of Dillon, Read & Co., certain other individuals who are described as trustees, and The Youngstown Sheet and Tube Company, a corporation of the state of Ohio.
The Steel and Tube Company of America is the only defendant upon whom service has been had. It has duly appeared in the cause. All the other defendants are nonresidents, and no appearance has been entered for any of them.
The bill seeks to enjoin the sale of all the assets of The Steel and Tube Company of America to The Youngstown Sheet and Tube Company, as is contemplated under the terms of a contract between the two corporations dated January 6, 1923; and the preliminary injunction now asked for is to the same effect.
The history of The Steel and Tube Company of America is recited at some length in the bill. For the present purpose the details of this history need not be set forth. Only so much thereof will be stated as is necessary at this time.
The Steel and Tube Company of America was organized in 1918. The purpose of its organization was the consolidation into one enterprise of the three separate interests of its organizers viz., of Semet-Solvay Company, of Ferdinand Schlesinger of Milwaukee, and his family, and of Clayton Mark of Chicago and certain members of his family. The properties of each of these three groups were put into the new corporation and stock issued to each upon the basis of agreed values for their respective properties. Upon completion of the organization, the capital stock of 250,000 shares (par $ 100 each) was issued to each group and the same was held in about the following proportions: Marks thirty-seven per cent Schlesingers twenty-nine per cent. and Semet-Solvay Company twenty-nine per cent.
In 1919 the company embarked upon a program of expansion and in pursuance thereof not only undertook additional construction on a large scale, but as well acquired certain additional existing properties in which the Schlesingers and the Semet-Solvay Company had separate interests. This required additional financing and the assistance of William A. Read & Co. (now Dillon, Read & Co.), a firm of investment brokers in New York, was secured in such financing. The defendant Clarence Dillon was a member of the firm, and is now the head of its successor, Dillon, Read & Co.
The new financing required a reshaping of the capital structure of The Steel and Tube Company of America. Accordingly its certificate of incorporation was amended whereby its capital stock was changed from a par of $ 100 a share to $ 2 a share, and an issue of 175,000 shares (par of $ 100 each) of seven per cent. cumulative preferred stock was authorized. The preferred stock is callable at one hundred and ten per cent. of par, and is entitled to a like premium in case of liquidation of the corporate assets. It was marketed to the public by William A. Read & Co. at $ 98 per share, the company paying the brokers a commission of ten per cent. of par as compensation for their services. At the same time a portion of a total authorized issue of mortgage bonds was sold through the same William A. Read & Co. (Later the balance $ 10,000,000 of this issue was marketed by Dillon, Read & Co. at a price to net the company eighty-five and one-half per cent. of par).
In payment for the additional properties taken into The Steel and tube Company of America, the company issued its new common stock (par $ 2) to the persons entitled thereto and also issued in exchange for the old $ 100 par value stock its new stock on a basis of 2.266 shares for one. This arrangement was an exchange of new stock of a capital book value of $ 44 per share for the old stock, whose par was $ 100.
At the end of this financing the outstanding common stock was held as between the original interests about as follows: Schlesinger, fifty-seven per cent.; Marks, sixteen per cent.; and Semet-Solvay Company, sixteen per cent.; a total of eighty-nine per cent.
The Semet-Solvay Company's stock is now owned by the complainant Allied Chemical & Dye Corporation. It numbers 161,354 1/4 shares and cost an actual cash outlay of $ 6,577,742.20, or $ 41 per share. The total amount of common stock now outstanding is 967,330 1/4 shares. The intervening complainant owns 47,681 shares, or four per cent. of the common stock outstanding, making a total ownership by the complainants of about twenty per cent. of the entire common stock issued.
Ferdinand Schlesinger, who as appears from the above, owned the voting control of the common stock, died January 3, 1921. Before his death he had given portions of his common stock to members of his family. Upon his death, however, all of it was still in the hands of either his family or his estate. A block of it (136,771 shares) was transferred by his son, H. J. Schlesinger, to trustees, said trustees now being himself and the defendant Armin A. Schlesinger.
About April, 1922, negotiations were opened by the defendant Armin A. Schlesinger with the defendant Clarence Dillon for the sale of all of the so-called Schlesinger stock. Dillon referred Schlesinger to the defendant Harrison Williams. After making some investigation, Williams advised Dillon that, if he (Dillon) would form a syndicate for the purchase of the Schlesinger stock, he (Williams) and the companies in which he was interested would take a substantial participation therein. Accordingly Dillon formed such syndicate, his firm, together with Williams and Schlesinger, becoming its managers.
The syndicate purchased 406,590 1/3 shares of the Schlesinger stock, the total thereof being 547,198 shares. The price paid was $ 10 per share. Of the total Schlesinger stock not sold to the syndicate, to-wit, 140,607 2/3 shares, all was held by Armin A. Schlesinger either in his own name or under a trust. He, however, obligated himself to place this stock in the hands of such voting trustees as the syndicate managers might name, and to permit the syndicate to dispose of it on like terms as the syndicate might dispose of its own stock, Schlesinger to receive from the proceeds, however, not less than $ 10 per share and his pro rata portion of any excess above that sum per share which the entire block might bring. The syndicate agreement provides that it shall terminate in two years, to-wit, on May 1, 1924, but may be extended at the option of the managers with the written consent of all participants. The managers are to receive for their compensation a sum equivalent to ten per cent. of the total net profits of the operations of the syndicate.
After the syndicate thus secured a voting control of the majority of the common stock, a board of directors of the corporation, consisting of nineteen persons, was elected and the bill charges that eleven of these, by reason of their interest in the syndicate, or by reason of their close business, financial or personal, affiliations are controlled by Clarence Dillon, the organizer of the syndicate. That they are so controlled is, however, denied by the appearing defendant.
After the syndicate was formed steps were taken to carry on certain negotiations for a merger of The Steel and Tube Company of America with certain other companies engaged in like or related businesses with it. Three such attempted mergers having fallen through, negotiations were then entered into with the defendant The Youngstown Sheet & Tube Company to sell to it all the "property and assets, franchises and business of the Steel and Tube Company including its good will." Such negotiations culminated in a formal agreement embodying the terms of sale, dated January 6, 1923. The consideration to be paid is an amount in cash equivalent to (a) $ 14,509,953.75 in cash; (b) $ 110 per share for each share of preferred stock outstanding in the hands of the public at the time of closing the transaction; and (c) an amount equal to dividends on preferred stock in the hands of the public down to the date of a distribution to preferred stockholders of what would be due them on their stock. The purchaser is to assume all indebtedness of The Steel and Tube Company of America.
The directors of The Steel and...
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