Buried Bone

Rare was the U. S. railroad that made money in 1938. One such was Chesapeake & Ohio, which last week reported 1938 earnings of $20,192,650 ($34,034,269 in 1937). Ownership of that rich property is well worth fighting for. During the last year a bitter dogfight has raged between the potent Guaranty Trust Co. and a group of tyro financiers headed by Robert R. Young. Chief bone of contention has been Chesapeake Corp., the holding company created by the Van Sweringen brothers to acquire a 51% interest in the C. & 0. Last week, as Wall Street had long anticipated, the bone was finally buried--in Guaranty's yard.

Immediately above Chesapeake Corp. in the fantastic Van Sweringen pyramid was Alleghany Corp. Robert Young bought control of Alleghany (TIME, May 3, 1937) and proposed merging it with Chesapeake. His idea was that the owners of 667,539 shares of Alleghany preferred--including several potent friends of Guaranty Trust--should surrender their stock and their right to accumulated dividends of $33 per share in exchange for a new type of preferred and common-stock warrants. This plan was thwarted by Guaranty, which held Alleghany's 71% interest in Chesapeake as collateral for Alleghany bonds in technical default.

Financier Young frequently stormed but could not break through this barricade. Last November he admitted defeat by resigning from Chesapeake's board. Guaranty then proceeded with its own ideas for eliminating Chesapeake entirely from the pyramid by distributing to Chesapeake's stockholders their company's assets. Last week, with Guaranty voting; 71% of the stock, 73% of the stockholders approved. When the burial is completed, Alleghany will be directly over the C. & O holding a 25% interest in that valuable property. Robert Young's group, meanwhile. remains the largest owner of Alleghany--but Guaranty will remain in control as long as Alleghany's bonds are in default.

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