After five years of legal wrangling, International Telephone and Telegraph Corp. and its investment banker, Lazard Freres & Co., entered into a settlement yesterday with the Securities and Exchange Commission on ITT's acquisition of Hartford Fire Insurance Co.
ITT agreed to the publication of findings by the commission without admitting or denying the results. The 26-page report by the SEC traces a series of transactions by ITT, with the help of Lazard, that enabled the company to get a tax-free ruling in 1969 on the merger with Hartford.
In 1974, the Internal Revenue Service revoked its earlier ruling because it concluded that certain facts about the merger had not been disclosed by ITT. The company is fighting the IRS revocation.
To qualify for the tax-free ruling, the ITT-Hartford merger had to be accomplished by an exchange of stock. No money could change hands. Moreover, ITT had to dispose of 1.7 million shares of Hartford that it already held in order to qualify for the tax ruling.
ITT had acquired the shares between November 1968 and March 1969 at an average cost of $51 a share.
In the summer of 1969, ITT asked Felix Rohatyn, a partner in the investment banking firm of Lazard Freres, to find a buyer of the Hartford shares, the SEC said.
Rohatyn, who also an ITT director, with the help of Lazard senior partner Andre Meyer negotiated an agreement on the shares with Mediobanca di Credito Finanziario S.P.A., a Milan bank.
The Hartford stock was delivered in Basle, Switzerland, by ITT to Lazard, which was acting as custodian for Mediobanca, the SEC report said. "Mediobanca established a restricted account in the name of ITT, in which the $88 million purchase price was credited on Mediobanca's books," the SEC said.
In May 1970, the merger was consummated when more than 95 per cent of Hartford shares - including the 1.7 million held at Lazard for Mediobanca - were exchanged for ITT Series N shares, the SEC said. Thus, Mediobanca's account ended up with 1.7 million ITT shares in place of the like amount of Hartford.
As part of the tax-free ruling, ITT was not allowed to control those 1.7 million shares. They supposedly had been sold to a disinterested third party.
But in its report issued yesterday, the SEC suggested that ITT continued to control those shares long after the merger was completed.
ITT and Lazard dispute the SEC allegations, and note that they are challenging similar conclusions in litigation involving the IRS revocation of the tax ruling.