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Too Many Take the Buck, Pass Responsibility

In the nick of time, CSX Corp. on Monday offered $28 a share for the stock of Sea-Land Corp., the largest U.S. container ship company, and thus may have saved it from a takeover by financier Harold Simmons. Simmons, who owns 39.5% of Sea-Land, had planned to acquire the rest this week for $26 a share through Amalgamated Sugar Co., an Ogden, Utah, beet sugar processor that he owns.

Cash offers, takeover talk, the same old tiresome story. Does it make more than two bucks worth of difference if CSX or Amalgamated takes over Sea-Land?

Well, yes it does. CSX, the railroad holding company, will be able to work with Sea-Land to form an intermodal transportation system. On the face of it, a stronger company serving U.S. and world markets could emerge.

Simmons, on the other hand, wanted Sea-Land in order to use its cash assets to acquire still other companies. Simmons, proclaimed by his own public relations material to have built a personal fortune in the hundreds of millions in the last 25 years, is a 54-year-old Dallas-based businessman whose business is taking over other companies. Simmons doesn’t like to put it that way though, nor does he like the terms takeover or raider. He prefers to describe himself as an investor who buys when he perceives more value in a stock than the market is saying it’s worth.

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But Simmons is not a passive investor, content to sit with his stock and wait for the market to validate his judgment. After acquiring 9.5% of Sea-Land last year at about $18 a share, Simmons first offered $25 a share for the company--which called his offer “most unwelcome"--then upped it to $26. But the offer wasn’t unwelcome to Sea-Land’s institutional shareholders; they sold eagerly, and Simmons accumulated 39.5% of Sea-Land’s stock. If he now sells out to CSX, his profit could be $40 million--a 20% return on a $200-million investment.

Does It for Profit

He doesn’t claim to be a Boy Scout. “I don’t feel I have to justify what I do as being altruistic,” says Simmons in the office of an estate that he owns in Santa Barbara. “I do it to make money, for myself and my family and my children.”

But he does claim to be a force for good in the economy, a catalyst and reformer “promoting the free flow of capital in the markets, promoting capitalism.”

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Most company managements that Simmons has dealt with would use far less complimentary terms to describe him.

What’s the truth of the matter?

That Simmons represents a fairly prevalent tendency in our economy these days, one that we might call the trading tendency. It is a view of business that, in Simmons’ words, told the management of an Oregon timber company to speed up the tree-cutting schedule “because shareholders want a maximum price for their stock, and they want it within a reasonable period of time.” It is a view of business that is more short-term than long-term.

But we don’t gain much understanding if we dismiss or criticize Simmons on that score. He didn’t make his fortune in isolation. He made it by taking advantage of the propensity to trade for quick profit by institutional investors, who these days hold more than half of the stock in every one of our large corporations. By owning large blocks of stock, and yet trading them as if they had no responsibility for the consequences, the modern institutions make the takeover game “easier,” says Simmons, “much easier.”

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Some academic experts maintain that there is no inherent conflict between the goals of the modern American corporation and those of the modern shareholders. Simmons is smarter than that. He knows there is a conflict. A company manager whose stock he was acquiring explained to him, says Simmons, that stockholders were only one of his concerns. “He said, ‘Look, Harold, my concerns are my employees, my management staff, my customers, my suppliers.’ ”

Many would side with the broader view of the company manager, and, indeed, his view is in keeping with what history tells is U.S. society’s understanding of the corporation’s purpose. So what is to resolve that view’s conflict with today’s pattern of shareholding? The free market, says Simmons--whose principal holding is a government-protected sugar firm.

“I’ll come in, or Carl Icahn, or Irwin Jacobs, and we’ll buy enough of the stock so that if management doesn’t do its own restructuring, we’ll restructure for them.”

Faced with that prospect for the long-term future of American business, perhaps institutional money managers and the company pension funds on whose behalf they do their investing--or trading--might think about whether ownership brings with it any responsibility for judgment.

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