(8 of 10)
The Murchisons claim that they do. Says John: "When we take a wild shot at something, it's with our own money and at our own risk; any of our companies where there is public ownership we run much more conservatively." For that reason, the Murchisons tend to prefer private deals, were dragged into the battle for Alleghany almost despite themselves. When they launched the proxy fight against Kirby last fall, the Murchisons' motive was to protect a $40 million investment in the Alleghany-controlled Investors Diversified Services, which manages five mutual funds (with assets of $2.6 billion), two certificate companies and a life insurance firm. On the I.D.S. board since 1954 and a strong influence on I.D.S. management, the brothers were kicked off last year after a Kirby-appointed investigator accused them of using I.D.S.'s vast investment power to get favored financing for their private deals (the charges, though since turned over to the SEC for investigation, were dismissed as groundless by a special I.D.S. committee).
Once the proxy fight began, the Murchisons turned it into a massive indictment of Allan Kirby's conservative operation of Alleghany. They insisted that new management was needed to get the company moving again. They cannily signed up both of the nation's two outstanding proxy-soliciting companies, surrounded themselves with expert legal advice, and in the very shadows of Wall Street set up a shrewd and able team of infighters the like of which the Street had rarely seen. Though at one point they theoretically had more shares of Alleghany common than Kirby, the brothers recognized that their personal wealth could not vie with Kirby's fortune—estimated at up to $300 million—in a bid to buy outright stock control. "Our strategy," says John, who ran the proxy battle, "was to have enough stock to be strong enough to attract the independent Alleghany stockholders."
The Right Note. Having studied Kirby's possible courses of action and decided that he might adopt any one of twelve different strategies, the brothers were ready when Kirby plunged into the market, buying up $25 million worth of Alleghany stock. "It was like a crap game with twelve dice in it," says John, "but the point is that we couldn't be surprised." To keep Kirby from buying up 51% of the stock, the Murchisons, who had themselves been acquiring stock quietly, publicly played the underdog. Kirby's camp fell for the ruse, proclaimed victory, and slowed its purchases. By the time of the cutoff date on stock purchases, the Murchisons had 2,800,000 shares of common stock v. Kirby's 3,200,000—leaving 3,800,000 shares held by independent voters to decide the battle.
At this point, Kirby declared a 5¢ dividend on Alleghany stock, the first in the company's 32-year history. The brothers turned this move to advantage by branding it an attempt to buy stockholder support. Kirby apparently did not realize that Alleghany, basically a speculative issue, was held by speculators who were far more interested in capital gains than dividends. Kirby's conservative philosophy was badly out of tune with the attitude of his stockholders. The Murchisons, by pledging themselves in effect to make the stock go up, struck the right note.