The final chapter is likely to be written today in the newest, hotest takeover battle -- American Express Corp.'s bold bid of nearly $1 billion to acquire the sprawling McGraw-Hill publishing empire.
The word from sources close to McGraw is that the board at its meeting today most likely will reject the credit card company's latest offer to acquire all of McGraw's shares at $40 a share. Originally, American Express had offered $34 a share and said it would go ahead even if the bid was rejected. Now though, American Express, in a change of strategy, has said it will only proceed with its now offer on a friendly basis.
However, the additional $6 a share, I'm told, has in no way prompted any change of heart by McGraw chief Harold McGraw. As one source close to the publishing company put it: "We want American Express as much as we want the plague."
Meanwhile, I dropped in to see the embattled Harold McGraw last week.
Distressed and beleaguered, McGraw apced nervously back and forth in his spacious 49th floor executive offices in the McGraw-Hill building overlooking the Avenue of the Americas. Outside the plate glass window, it was bitter cold and snow was falling. But inside, the 61-year-old boss of the McGraw-Hill publishing empire was hot under the collar.
McGraw was making it clear to me that he'd walk out on the company -- maybe even start a new publishing firm -- if American Express gets its hands on McGraw-Hill. "Do you think I'd be here for five minutes if that happens?" he bellowed during a 90-minute interview. "How could I work for those people?"
One could sense the fierce and swelling pressure the man was under. "I'm fighting for this company's life," he told me a few minutes later, bolting from his couch.
That he surely is. American Express (call it Amexco for short), armed with oodles of cash and anxious to offset a declining share of the credit card market, is making a bold $830-million raid -- by means of a decidedly unfriendly bid on the sprawling McGraw-Hill complex.
McGraw-Hill's shares four years ago were selling at just $6. Accordingly, Amexco's bid is bound to attract a good many profit takers. To make matters worse for Harold McGraw, the estimated 23 percent of the company's stock held by the McGraw family is anything but a unified block. There are widespread reports of divisions within the family, and Harold himself holds only about 3.4 percent of the shares. Hardly a reassuring position for a man fighting to hold control of a company.
Some folks allied with Amexco suggest that two of McGraw's cousins, John and Donald, the owners of roughly 5 percent of the shares, could well cast their lot with Harold's enemies.
Though Harold McGraw may claim there are no basic divisions among the fragmented McGraw family, the same can't be said about his relationships with Amexco's two top officers, chairman James Robinson III and president Roger Morley. He despises them. His biting assessment of Robinson's integrity is based on a firm promise that he says the Amexco chief failed to live up to -- namely, that Robinson no longer would seek control of McGraw-Hill after the company rejected an Amexco offer (made via telephone) last spring. And his anger at Morley stems from the fact that the Amexco president kept his seat on the McGraw board during the very time the credit card company was planning its bid. Nearly frothing as he spoke of Morley, McGraw declared, "What he did was outrageous and a lot of other things like illegal and a violation of everything I believe in. How can anyone with any integrity do that?"
Judging from my conversations with Harold McGraw plus the tone of his company's strident newspaper advertisements, a clear-cut strategy seems to be emerging on the part of the publishing giant to ward off the marauders.
Harold McGraw will continue to raise questions about the editorial independence and integrity of McGraw's publications if they were under the Amexco banner. He will also try to put as much heat as he can on Amerco's directors to get them to scrap the bid. And of course he will solicit all the help he can from the antimerger proponents and antibigness regulators in Washington.
What if Amexco increased its offer? I asked McGraw. What about your obligations to your stockholders.
After responding that he wasn't about to ignore the rights of any stockholders, he made a fist, smashed it into one of the cushions on his couch and howled, "what they're doing is immoral and illegal... And how in the blue blazes can you put a price on something that's immoral and illegal?"
"Immoral and illegal?" I asked. "It's immoral the way the offer came about [a reference to Morley's being on the board]," McGraw responded. "And what's illegal is in the antitrust area. Just ask our lawyers."
However, one financial source close to Amexco's top management challenges this allegation, declaring. "Our lawyers tell us our position is perfectly legal."
Though a low-profile Robinson refuses to take any calls, a source close to him suggests that Harold McGraw himself has been, in his public statements, pretty hypocritical about the entire affair. His reasoning: McGraw's glaring omission of the fact that he personally greeted the Amexco acquisition proposals, both last spring and recently, in a favorable way.
For example, I'm told that when Robinson initially approached McGraw-Hill, Harold gave strong thought to it before turning it down. And at the time, the story goes, he spoke glowingly of Amexco's people and its operations. Furthermore, I'm told, McGraw's parting comment -- viewed by Robinson as encouraging words for the future -- was that Amexco would be the first company McGraw-Hill would turn to in the event of an unfriendly takeover bid by a hostile third party. "If anyone ever comes after me, you'll be our first white knight," McGraw was reported to have said then.
Even more significant, my source says, when Robinson and Morley made the merger proposal personally to Harold McGraw the evening of Jan. 8, at no time during the meeting (about 20 minutes long) did McGraw reject it. And to this very same meeting, says my source, Harold was again full of praise for Amexco -- leaving the clear impression among the visiting Amerco executives that a favorable response from McGraw-Hill was a possibility.
Another intriguing sidelight, according to my sources: Though Morley handed McGraw an undated letter of resignation at that meeting, at no time during the conversation -- despite the outrage McGraw expressed later -- did McGraw ask Morley to leave the board.
The source raised an especially critical point -- namely, why didn't McGraw say no to the merger proposals immediately if he was so adamantly opposed to them? So back I went to see McGraw.
Commenting on his phone conversations with Robinson last spring, McGraw said, "I never told him he'd be our first white knight, but I did say someday you can get on the white knight line. It was the wrong thing to say but I thought that was the end of it. He assured me it was the last damn time he would ever bother me. And the only reason I ever agreed to think it over was because he asked me to sleep on it... and I was being courteous."
As for that Jan. 8 meeting, McGraw told me the only reason he didn't reject the acquistion proposal and accept on the spot Morley's leeter of resignation from the McGraw board "was because I was so shocked." Then, in an almost pleading tone, he added, "So help me God, there was no intimation on my part that we ever wanted a deal. There's no reason on God's earth that I would want that."
McGraw acknowledged, though, that he did end the meeting by shaking hands with the two men and remarking that he would take up the matter (the acquisition offer) with his general counsel.
Speculation is running high on Wall Street as to what McGraw-Hill might do if an Amexco takeover of the publishing company looks imminent. In brief: Will McGraw-Hill look for a white knight to save it from Amexco's clutches?
One leading publishing analyst, Ken Noble of Paine, Webber, Mitchell. Hutchins, regards such a possibility -- as do some sources close to Harold McGraw -- as a very likely course. Some of the candidates Noble regards as potential acquirers of the publishing company: ABC, RCA, MCA, Warner Communications, Control Data, Sperry Rand, and Texas Instrument. Noble, by the way, thinks Amexco will be unsuccessful in its pursuit of McGraw-Hill. (I think the same way and bet a buck on that with an Amexco source.)
In response to the white knight talk, McGraw hedged: "I'm not trying to encourage any suitors in any way, and I'm not advocating them. But there always is that possibility. Anything, as long as you're alive, is a possibility."
In the heat of the battle, anyone, especially an emotional man like Harold McGraw, might well say things he would later regret. And clearly, his use of inflammatory words such as "deceptive" and "despicable" in describing the top officers of Amexco falls into that category. It made me wonder if someone couldn't get McGraw and Robinson (along with Morley) to smoke the peace pipe.
McGraw would have none of it. He angrily offered only one fourletter word for Robinson and Morley.
You guessed wrong -- it was "Nuts!"