In a classic proxy battle, raiders ousted Robert Morse I, 11 and III from their multi-million-dollar U. S. company three years ago. Here's how Robert 111 is hitting back from Canada

McKenzie Porter May 6 1961


In a classic proxy battle, raiders ousted Robert Morse I, 11 and III from their multi-million-dollar U. S. company three years ago. Here's how Robert 111 is hitting back from Canada

McKenzie Porter May 6 1961


In a classic proxy battle, raiders ousted Robert Morse I, 11 and III from their multi-million-dollar U. S. company three years ago. Here's how Robert 111 is hitting back from Canada

McKenzie Porter

ROBERT HOSMER MORSE in, scion of a long line of American millionaires, renounced his U. S. citizenship two years ago and settled in Montreal as a stateless person, Although he lives happily with his family and swimming pool high up the fashionable slopes of Westmount, Morse often suffers the irritations and humiliations of a poor political refugee. Each time he returns through the immigration wicket to his native land, Morse is delayed for questioning by suspicious officers. Before he travels overseas, the Montreal consul of every country he wishes to visit must stamp an entrance visa into his stateless person’s identity card.

The thirty-nine-year-old Morse does not enjoy the disadvantages of being a man without a passport. In fact he is now incurring heavy legal bills in an attempt to acquire Canadian citizenship by means of a rarely used shortcut. Lawyers are asking parliament to bestow immediate Canadian citizenship on Morse by special bill, instead of requiring him to serve, as other immigrants must serve, a qualifying period of five years’ residence in this country.

In seeking to reverse the action of Jack Kent Cooke, the Canadian millionaire who recently became a U. S. citizen by special act of congress, Robert Hosmer Morse III is not moved by sentiment. He does not necessarily prefer a monarchy to a republic, nor does he necessarily believe that the Canadian way of life is superior to the American. He is not even sure that economic opportunities are better in Canada than they are south of the border. He is simply using his Canadian pos-

sessions as a base from which to recover the industrial power and prestige his family lost in the United States, after a titanic struggle, in 1958.

Until 1955, Morse had no reason to doubt that one day he would follow his father, Robert Hosmer Morse II, and his grandfather, Robert Hosmer Morse I, as head of the hundred-million-dollar corporation his great-grandfather acquired during the American Civil War — Fairbanks, Morse & Company, manufacturers and distributors of scales, diesel engines, pumps, trucks and other heavy industrial equipment.

But Morse saw his prospects fade when the company was disrupted by a three-year proxy fight that resembled in some ways the election ot a U. S. president. The Morses — Robert I, II and III — were ousted from the control of F-M. Their places were taken by outsiders who had organized for themselves a majority of the shareholders’ proxy votes.


The Morse family calls the outsiders “stock raiders.” The outsiders prefer to term themselves “management specialists.” If the two descriptions are open to debate there can be no doubt that the outsiders forced Robert I into an embittered retirement, reduced Robert II to an impotent office, and stripped Robert III of his dynastic claims to the company’s presidency and chairmanship.

Young Bob Morse could have gone on working for the new masters of the company as a vice-president, and he could have gone on waiting for the ten million dollars he expects to inherit after the deaths of his father and grandfather. Compliance and patience are not, however, among his characteristics. Instead of accepting defeat he chose to fight back. And the manner in which he is staging his counter-attack has many dramatic elements.

After Robert T and II had been unseated from the chairmanship and presidency of Fairbanks, Morse, one segment of their old industrial complex remained inviolate. It was The Canadian Fairbanks-Morse Company Ltd., an old-fashioned Montreal firm whose twelve hundred employees sold the products of the U. S. company in this country. The Morse family held a strong controlling interest in the Canadian company, but there was no financial interlocking of the Canadian and American companies. Thus the Canadian company lay beyond the lasso of the men who had leapt into the saddle of the American company.

By borrowing two million dollars — twenty times his personal worth — Robert Morse III bought control of Canadian Fairbanks-Morse from his grandfather. The methods he has employed to reorganize it, to use it as a springboard for expansion back into the United States, and to pit it in fierce world-wide competition with his family’s old firm, have excited the admiration of industrialists throughout North America. In the financial columns of several newspapers Robert III has been described as “a corporate whirlwind.”

In appearance he no more resembles a whirlwind than he does the conventional image of a rich man’s son. He is short, slight, inexpensively dressed and self-effacing. His ruddy complexion, thinning sandy hair and bright hazel eyes sparkling behind dark-rimmed glasses suggest closer attachment to the engineering shop than the executive suite. Actually Morse is equally at home in either, having worked through every department of American F-M from the foundry to the vice-presidency in charge of budgets and planning. L. R. Gaiennie. a former vicepresident of the American F-M and today a vice-president and director of Canadian F-M, says: “Bob’s looks are deceptive. He is not the extroverted back-slapping type of Yankee. That’s why he fits in well in Canada. He is ambitious but quiet and shrewd. He is reaching out now. And if I am any judge he is going to get what he wants.”

“What I want,” says Morse, “is to see Canadian Fairbanks-Morse operating successfully not only in Canada but in the United States. In the United States I want to see jt operating at the same level as my old family corporation did before it was taken over by strangers.”

The takeover of American F-M followed a desperate, ironic, threeyear. three-way contest between the Morse family and outside careerists for the controlling votes of the shareholders. In the words of a financial writer of the New York Herald Tribune, the struggle was “the most blistering series of proxy battles of the postwar capitalist era.” Never in its hundred-and-twenty-five-year history had F-M been so riven by attack from without and despair from within.


F-M originated quietly in 1830 when Thaddeus Fairbanks of St. Johnsbury, Vermont, invented and marketed the platform scale for weighing loaded horse wagons. Fairbanks sold out during the American Civil War to Charles Hosmer Morse, a man the inventor had employed initially as an apprentice at fifty dollars a year , and board, and later promoted to manager.

Charles H. Morse built the company into a Chicago-based leviathan that eventually employed ten thousand workers. In addition to scales, pumps, diesel engines, cranes and trucks built in its own factories, F-M retailed from warehouses throughout the Union a magpie's-nest-full of other engineering items produced by scores of manufacturers. In advertisements the company proclaimed itself “The Department Store of Industry.”

In 1898 Charles H. Morse incorporated as a separate concern The Canadian Fairbanks-Morse Company Ltd., to distribute in this country the merchandise of the American company.

Charles H. Morse, a typical nineteenth-century industrial baron, built himself a mansion in the blue-chip Forest Lake district of Chicago. Yet he was a tightfisted old cuss who once rebuked a member of his family for using two matches to light the sitting-room fire.

When he died in 1921 his elder son Charles H. Morse II became president and chairman of F-M. Unlike his father. Charles H. Morse II lived sumptuously. Even during the critical years of the Depression he idled for months on end at his estates in Germany and Switzerland. At the instance of disappointed relatives and CONTINUED ON EAGE 41


The three who lost


The two who won

continued from page 25

How Robert SViorse III wages corporate war continued from page 25

ä‘We thought the public was showing an interest in our stock”

indignant stockholders Charles H. Morse II was replaced as chairman in 1931 by his younger brother Robert I.

Robert I. who is now eighty-two. hunted big game in Africa and Asia and operated two oceangoing yachts. But he rarely shirked his duties. Under his chairmanship F-M came through the Depression triumphantly. Three of his children lived gay, impetuous lives. A daughter married three times, her third husband being a New Jersey lifeguard who doubled occasionally in small-town pageants as a gilded strong man. Two sons were killed, one in a car accident in 1941 and another in an aircraft crash in 1949.

A third son. Robert II. now sixty-two. was more sober in his pursuits. After holding F-M branch managerships, he became president under his father’s chairmanship in 1950. While Robert II worked diligently, he was an indefatigable golfer, traveler and clubman during his years with F-M.

Speaking of Robert II. a former associate says: "I love him. but he was always a mediocre businessman. He wasn’t smart enough for the president’s job. During his presidency F-M was never well run. He was far too conservative. The company was a natural prey for stock raiders.”

In 1955. when young Robert III was gaining experience in the company’s various divisions, F-M was surfing along complacently on the crest of the postwar boom. For several years the company’s

stock, which rarely changed hands, remained steady at about twenty dollars a share.

"Suddenly.” Robert III recalls, "it began to trade briskly and to edge up in price. At first my family was pleased. We thought the general public was getting enthusiastic about the company’s potential. But when the stock climbed to twenty-five we began to get anxious. We heard rumors that stock raiders were planning to take away our control.”

At that time the Morse family held twenty-nine percent of the company's stock. The remainder was in the hands of the public. Since the family chieftains and their fellow directors had always received ninety-nine percent of the independent shareholders' votes at general meetings, the Morses were not unduly worried. "We estimated,” says Robert 111, “that it would cost around fifty million dollars to buy fifty-one percent of the stock, and we didn’t believe that there were enough interested people around with that kind of money.”

But the Morses had overlooked Leopold Dias Silberstein, a German-born naturalized American who is believed to have entered the United States from Hong Kong in 1947. Silberstein, a plump, dark, fastidiously dressed tycoon of fifty-one. married to a woman whose maiden name was Tilly Tiger, had parlayed a nest-egg of a few thousand dollars into a multimillion-dollar fortune in less than ten years.

In 1951 Silberstein gained control of the Pennsylvania Coal and Coke Corporation. By 1955 he had added a dozen other enterprises and begun to manage them through a holding company named the Penn-Texas Corporation. Among his biggest subsidiaries were Pratt & Whitney Company Inc. (machine tools). Colt’s Patent Fire Arms Manufacturing Company Inc. (pistols and revolvers), and Hallicrafters Company of Chicago (electronics).

According to evidence produced in a New York Supreme Court civil action. Silberstein relied on European banks for much of his financing. How he began to acquire stock in F-M has never been divulged officially, but the Morse family believes he bought bis first block of ten thousand shares in 1955 at the market price of twenty dollars a share. Then, in a complicated process of selling the stock to friends at bargain prices and getting a guarantee of their proxies, he bought block after block. He made all his deals in the name of the Penn-Texas Corporation. Because brisk trading forced up the price, he had to pay more for each block. At one time F-M stock topped sixty dollars. Later, one of Silberstein’s associates revealed that the average price paid was fifty-three dollars a share.

Eventually Silberstein’s hunger for F-M stock drove him to a most unlikely source — members of the Morse family. In 1956 he persuaded Charles H. Morse II, the former F-M chairman who no

longer participated in management, to sell his ten percent slice of the total F-M stock at forty-two dollars a share. Robert III says: "You can’t blame my greatuncle for selling at such a profitable price. But my grandfather never forgave him.”

Following this deal Silberstein was able to present at the 1956 F-M annual meeting proxies for forty-nine percent of the votes. He won four of the eleven seats on the board, leaving the Morses a narrow margin of control.

In its alarm, the Morse family made a resolute counter-move, a move known as raiding the raider. This consisted of an attempt to wrest control of Penn-Texas from Silberstein. The move was based on the theory that if Silberstein did succeed in getting control of F-M his success would be negated by the Morse family’s control of Penn-Texas.

Robert Hosmer Morse II, then president of F-M. hired for this ticklish job a man named Alfons (Art) Landa, a tough, suave, dapper Washington lawyer of fifty-eight who had made such a reputation for himself in the proxy-fight cockpit that some newspapers were dubbing him “the corporate Wyatt Farp."

Landa had saved the Fruehauf Trailer Company in 1953 from a proxy raid by the Detroit & Cleveland Navigation Company. While Detroit & Cleveland was openly buying up stock in Fruehauf, Landa, on behalf of Fruehauf, was stealthily buying up stock in Detroit & Cleveland. When the smoke cleared from the struggle Detroit & Cleveland directors found they were captives of Fruehauf.

Landa went to operate inside PennTexas. He employed as his assistant David Karr, a New York public relations man. But this time he chose different tactics.

In twelve months Robert II paid Landa

and Karr about three hundred thousand dollars to undermine the Silberstein directorate. The money went on purchases of Penn-Texas voting stock for Landa and Karr and on the expenses within PennTexas of a rebellious shareholders’ cabal known as the Protective Committee.

This committee, headed by Landa and Karr, won the support of many PennTexas shareholders by pointing out. in thousands of circular letters, alleged maladministration by the board.

In 1957, however, Landa’s committee failed to rally enough proxy votes to upset Silberstein’s control of Penn-Texas. Robert III recalls: “My father couldn't afford to finance Landa and Karr for another year. So he abandoned the scheme. It may be that Landa and Karr were keeping something from my father. In any event, much to his surprise, they continued operations in Penn-Texas on their own.”

Meanwhile Silberstein, still in the PennTexas driver’s seat and still waving fortynine percent of the F-M votes in the Morse family’s face, remained an unnerving threat. As the 1957 annual meeting approached the Morses learned to their dismay that Silberstein was in control of fifty percent of F-M voting stock.


And baby makes thirteen

Many a Windsor, Ont., motorist has done a double take upon encountering a station wagon with little faces seemingly pressed to every square inch of window, and no School Bus sign on top. There is a helpful word of explanation painted on the side, though: “Stop counting — there are twelve of us.”

In a desperate attempt to save themselves the Morses investigated Silberstein’s methods, found evidence of several technical breaches of corporation law, and filed a civil action against him in Chicago.

On May 16, 1957, a federal judge granted the Morse petition that Silberstein be enjoined from taking any further action to gain control of F-M for five years. With both sides now holding fifty percent of the stock, neither could manage F-M effectively. So the court ruled that during the five-year armistice the management should be divided among four Morse directors, four Silberstein directors and one independent.

L. R. Gaiennie says: “It was an uneasy balance of power which reduced executive morale in F-M to zero. I could see that neither side would win. So 1 resigned.”

In December 1957 the Morse family’s fortunes took a temporary turn for the better. Silberstein found his Penn-Texas Corporation in deep financial trouble. The company had incurred a debt of more than ten million dollars through buying F-M stock at inflated prices. In an attempt to meet the debt Silberstein sold five Penn-Texas subsidiaries.

Despite the fact that he was then seventy-eight, Robert I was quick to exploit Silberstein’s disadvantage. He borrowed five and a half million dollars and bought back from Silberstein, at forty-six dollars a share, the hundred and sixteen thousand F-M shares that Silberstein had bought from Charles H. Morse II.

In January 1958 the Alfons LandaDavid Karr team stunned the Morse family by returning to the scene of the battle as a third contender for control of F-M.

Still heading the Protective Committee within Penn-Texas, Landa and Karr boost-

ed their campaign against Silberstein by ascribing the company’s difficulties to his buying of F-M stock at unrealistic prices. In June 1958, Landa and Karr won a majority of the Penn-Texas shareholders’ votes. Silberstein was kicked out of the presidential chair, a chair immediately occupied by Landa. Silberstein sailed ruefully for Europe, mailed his resignation from London, and later sold his Penn-Texas stock.

Landa, whose rise within Penn-Texas had been made possible by Robert II’s three - hundred - thousand - dollar subsidy, now turned on his former supporters and resumed against F-M the attack that Silberstein had failed by an inch to drive home. After buying up stock from independent holders in the name of PennTexas he marched into the 1958 F-M annual meeting with proxies for half the votes.

The 1957 court order against PennTexas prevented Landa from taking effective control of F-M until 1962. But the Morse family knew it was only a matter of time before their power in the company would vanish.

Robert 111 says: “My father was heartbroken. My grandfather was exhausted. Neither felt up to further fighting. My grandfather was paying interest of two hundred thousand dollars a year on the money he’d borrowed to buy back his brother’s shares from Silberstein. He recognized Landa as the winner of the battle. He sold all his F-M stock to Penn-Texas for nine and a half million dollars. My father did the same with his.”

Sadly the Morses joined Landa in a successful petition to the courts for a rescinding of the 1957 order freezing the management for five years. Management of F-M thereupon fell entirely to Landa, who made the company a subsidiary of Penn-Texas. Then he changed the name of Penn-Texas to Fairbanks Whitney Corporation, in recognition of its two biggest subsidiaries.

By this time Robert III was an F-M vice-president. "But I knew there was no future for me under Landa,” he says, “so I quit.”

L. R. Gaiennie says: “Bob Morse’s reaction to the whole affair was emotional. It distressed him to see his family out of power after four generations. So he looked to Canada, the family’s last industrial stronghold.”

At engineering and high finance Robert Hosmer Morse III had shown promising beginnings. After graduating from Princeton he served three and a half years as a lieutenant in the U. S. Navy. His job was testing diesel engines at Annapolis, Maryland. He spent his off-duty hours playing the market. Neither his father nor his grandfather had ever given him any capital. Yet, out of his naval pay alone, he built up a stake of a hundred thousand dollars.

On leaving the navy at twenty-five, he dreamed for a time of living independently of the family company. And he did something that inhibited any feelings of reproach he might have felt later toward Silberstein and Landa. With a USN buddy, he invested all his money in the stock of a Maryland bank. Then he waged a proxy fight of his own for control of the bank. “We failed,” Morse says with a smile, “largely on account of the apathy of the shareholders toward our letters about the supposed mismanagement.”

Somewhat chastened, he joined the family company.

“I fully expected,” he says, “to succeed my father and grandfather as president and chairman. Then Landa won the proxy battle. After that I decided to examine what the family had left—Cana-

dian Fairbanks-Morse, in which my grandfather owned forty-five percent of the stock.”

Morse took with him to Montreal L. R. Gaiennie, a young man whose “progressive policies and ethical standards” he had always admired.

Morse and Gaiennie found the Montreal company an antiquated concern. The main floor of its five-story building on St. Antoine Street contained an Edwardian-style showroom for pumps, engines, machine tools, warehouse trolleys and other massive and miniature engineering merchandise. On the top floor a machine repair shop rumbled eight hours daily, gently vibrating the ceiling of the executive offices below. Many of the sixteen warehouses from Halifax to Vancouver were run down or out of date.

At each warehouse bewildered managers tried to master the intricacies of hundreds"of lines ranging from diesel engines for seagoing freighters and gigantic generators for light and power companies to television sets, vacuum cleaners, stoves, batteries and spark plugs.

Although sales of more than thirty million dollars a year were yielding a comfortable five percent net profit, Morse could not abide the hodgepodge nature of the stock arrangements and the happygo-lucky business methods. He resolved to take this family house and put it in order.

“My personal assets.” he says, “still amounted to only a hundred thousand dollars, and that included the value of my house in Chicago. I had married and acquired two small children and — you know how it is — I had been living like most other young executives, up to my salary. I needed two million dollars to buy out my grandfather’s holdings in Canadian F-M. I tried to borrow it from an American bank that had dealt with my family for years. But it wouldn’t lend me the money. So I went to the Bank of Montreal. The management hardly knew me. But it lent me about a million and a half without demur. I was impressed at its enterprise. Later it would have lent me the remaining half million I needed, but my grandfather had already offered to take my note for it. So I was able to buy him out.”

Morse then reorganized the financial structure of Canadian F-M. Through sales of preferred non-voting stock he managed to pay off in less than two years the money he owed, yet he was able to retain forty-nine percent of the voting stock.

He increased the company’s available cash by selling off warehouses and moving his merchandise into rented modern showrooms, and by selling to Penn-Texas a block of stock Canadian F-M owned in American F-M. In this act he severed the last tangible link between the two companies.

Morse then began to streamline the Canadian sales organization. He abandoned, for example, the company’s least profitable lines, which consisted mainly of consumer goods. At the sixteen branches sales managers were no longer responsible for the gamut of F-M’s lines, which were broken into divisions.

While Canadian F-M headquarters remains in the old St. Antoine Street building the executive staff will move shortly to offices in a new skyscraper and the showrooms and workshops will be established in a one-floor building in the suburbs.

Before Robert Morse III took over, Canadian F-M produced few of its own products. There was — and is — a small factory in Sherbrooke, Quebec, but the overwhelming bulk of its merchandise came from the American company. Now Morse is doing what his great-grandfather

did a hundred years ago. He is sustaining the company’s sales volume by serving as a middleman for other manufacturers’ wares, but gradually increasing the number of lines produced in its own factories.

In pursuit of this policy Robert III last year absorbed into Canadian F-M the Rudel Machinery Company Ltd. and Dynamic Engineering Ltd., both of Montreal, Skinner Scales Ltd. of Vancouver, the Howe Scale Company of Rutland, Vermont, and a small Mexican engineering plant. Early this year he acquired the Johnston Pump Company of Pasadena, California.

In scales and pumps the Howe and Johnston companies gave the American F-M its hottest competition in the U. S. market. At the same time the former family firm is rising to meet Morse’s challenge in Canada. Early thi& year it announced that a subsidiary, the Canadian Locomotive Company of Kingston, will begin to make industrial scales and pumps and sell them in Canada.

While both F-Ms are now squaring up for battle in each other’s territory Robert III and Landa maintain a front of friendship. Canadian F-M still sells many American F-M lines. The most important line is marine diesel engines.

But Robert III hopes to be entirely free of his old company’s influence within a few years. In the meantime, he’s making

Canadian F-M more truly Canadian. He’s brought to the board several Canadians, including Henry Gifford Birks, head of the jewelry company. And ninety-nine percent of the stock is now held by residents of Canada.

Robert Morse III utters none of the usual platitudes about Canada’s golden opportunities and vast untapped wealth. “Let’s face it,” he says, “the United States is still the bigger market. Generally speaking, American companies move into Canada. We are a Canadian company moving into the United States.”

He goes on, in his courteous but hardheaded manner: “When I came here there were rumors that I was just another Yankee and that I was only up here to sell out my family’s interests. I found a rising sense of Canadian nationalism on the part of the company’s Canadian customers. They prefer to buy from Canadians. So to give my staff confidence in my intention to make this company prosper, and to please its customers, 1 am changing my nationality. If I have any other reason at all for changing my nationality. that reason lies in the fact that the change will simplify my personal taxation problems.”

Morse addsr “My holdings in Canadian F-M are such that if the company does badly I shall be a poor man. If it does well I shall be a rich man.” it