It appears, however, that by the following Monday, August 1, Mr. Currie had arranged with Mr. Woodside of the SEC to send a second letter to stockholders as a compromise means of settling the issue of a possible proxy rules violation. With a copy of this memorandum, Mr. Currie sent to each of those committee members a copy of a suggested drafted letter which Mr. Woodside had agreed would satisfy the SEC if sent out immediately to the same mailing list which received the original letter (IX, 4599). Mr. Currie further advised the members that "failing and undertaking to mail a letter in these general terms, the SEC has instructed the staff to bring an injunction proceeding." Mr. Currie stated that he would call a meeting of the New York committee members if desired, and that he had promised to give Mr. Woodside his answer as early as possible on Tuesday, August 3.

It will be recalled that the Puget president, Mr. McLaughlin, had asserted that the committee membership was interested in promotion of the merger because of the hope of obtaining lucrative fees and because of identification with Washington Water Power Co. Had the committee's communication to the stockholders been cleared with the SEC, the committee would have been compelled, under that agency's proxy rules, to disclose the interests and relationships of the committee members. Rather than do this, the committee chose to bypass the SEC.

On August 3, Mr. Currie sent a letter to the SEC in which he enclosed a proof of the proposed letter to stockholders of Puget. He informed the SEC that this letter would be mailed to the 8,366 stockholders holding 50 shares or more of Puget stock to whom the original letter had been mailed, and that he had instructed the mailing service to proceed with the addressing of the envelopes and to mail the enclosed form letter by noon on Thursday, August 5 (IX, 4600).

In the meantime, the drive for obtaining these signed cards from stockholders had continued unabated. By August 1, 1955, he reported to Mr. Marks and the others that he had received cards from the holders of 443,694 shares (IX, 4599).

BLYTH'S ENERGETIC CANVASS

A part of these results was attributable to the energetic canvass made by Blyth & Co. A company memorandum was dispatched promptly by Mr. Miller to all offices of Blyth & Co. announcing the letter, furnishing the supplies of it, and explaining briefly the purpose of the solicitation of cards and stating (IX, 4597):

Herewith is a list of Puget stockholders in your area owning
100 shares or more. We are seeking to obtain the best card
returns possible from stockholders and would appreciate it
if you will have your salesmen contact as soon as possible
these owners of Puget common. The best plan would be
for the stockholders to fill in the card and give it to the
individual salesmen and then to have all the cards sent to me.
FRED MILLER.

As an indication of how this instruction was received in various offices of Blyth & Co., the following is a quotation from a memorandum of the sales manager for the San Francisco office of Blyth & Co., Arthur J. Dolan, Jr., addressed to all salesmen (IX, 4597):

In connection with the above (the quotation of Mr. Miller's direction in full) we are required to follow the instructions and to contact the shareholders and, if possible, receive their signatures on the cards. Although each stockholder has received the letter from the committee with card we can supply you with additional cards and letters if necessary. Please give this your immediate attention.

In a memorandum to members of the stockholder's committee, dated August 3, 1955, in which he enclosed a copy of the letter which was being mailed to stockholders under date of August 5, Mr. Currie stated (IX, 4600):

Since the committee never did intend to make any use of the cards save as a straw pool of stockholders' interest, there seemed to be no point in making a stand on a matter of principle which would involve unnecessary litigation. This conclusion was further supported by the fact that the climate for a merger did not seem particularly propitious at this time. Apparently Mr. Marks, as chairman of the stockholders committee, did not regard the letter in the same light as is indicated in Mr. Currie's description of it. Significantly, Mr. Marks wrote Mr. Currie on August 5, 1955, the same day that the so-called letter of retraction was mailed to Puget's stockholders (IX, 4601):

The more I think the matter over, the more I am convinced that Kinsey Robinson let us down rather badly.

After seeing the stockholders list, I don't see why he let us go ahead with the letter, at considerable additional expense, and then failed to come through with some merger proposition.

"MISSTATEMENTS AND OMISSIONS" IN COMMITTEE LETTER

Subsequent to the hearings, Mr. McLaughlin filed with the subcommittee a list of "misstatements and omissions of the stockholders' committee letter of July 20, 1955 (V, 2164). These centered on the stockholders' committee's assertions that through a merger Puget stockholders would get a continuing investment in the Northwest, that the merged company could build load safely and aggressively, that the State Public Service Commission had approved the merger, and finally that the merged company would be a stronger, better invest

ment.

The committee's letter, said Mr. McLaughlin, failed to point out that Puget's growth potential was better than Washington's; that its estimate of Washington's plans to increase load actually were the projects of the Pacific Northwest Power Co., of which Washington was only a part; that approval by the State Public Service Commission was not final, and that approval of the Federal Power Commission had not been obtained; and finally, that the conclusion of a merged company being a better investment, based on the Jackson & Moreland report, was invalid, as that firm did not make the complete investigation which the committee said it authorized.

The long delayed special meeting of the stockholders of Puget was finally held on October 20, 1955.

Whatever had been the intentions of the holders of the shares of stock claimed to have been represented by the stockholders committee

at the time of the letter of July 20, 1955, or previously to the stockholders meeting, it would appear that the decision had been reached to support Mr. McLaughlin and the present board of directors by the time the special meeting was held on October 20, 1955. For it appears that in excess of 88 percent of the outstanding stock was voted at the meeting in favor of the reelection of the present management and board, which was practically all of the shares represented at the meeting. In stating this in his presentation to the Puget stockholders on October 20, 1955, Mr. McLaughlin observed that was the highest percentage of shares voted for the election of directors in any year since the common stock became publicly held in 1943, and that furthermore, out of the 33 percent of the stockholders of Puget who lived in the State of Washington, the records showed that over 95 percent of the total shares held by them were represented by favorable proxies sent to the management (V, 2167). Mr. McLaughlin further reported that Puget's earnings so far that year had been the best in its history.

On September 21, 22, and 23, 1955, the subcommittee conducted public hearings. Among those who testified were Messrs. McLaughlin, Robinson, and Parrott, officers of Bond & Share and of Ebasco, and officers or partners of several of the investment banking and brokerage houses which were members of the stockholders' committee. The subcommittee obtained under subpena photostats of numerous pertinent documents and other data from Puget, Washington, the stockholders' committee and its members. The testimony and exhibits of the hearings are contained in the printed record. The documents referred to in this report are found in the record or in the appendix.

În all correspondence to Mr. McLaughlin and to Puget stockholders, the stockholders' committee claimed that they owned or represented a substantial number of shares of Puget stock. An analysis of the data submitted to the subcommittee by the individual members of the stockholders' committee indicates that a few of these firms held only a few shares of Puget or none at all, that they had no requisite written authority to act for their customers, and that they held substantial shares of Washington stock (IX, 4602).

The attempted merger of Puget into Washington has never been consummated. Mr. McLaughlin, in his statement to the Puget stockholders at a special meeting in October 1955, indicated his belief that the subcommittee's hearings "cast a revealing light on the close relationships" of the stockholders' committee with Washington and marked the closing episode to the attempt to have Washington absorb Puget under the guise of a merger.

On January 27, 1956, the stockholders' committee announced it was disbanding as the merger no longer appeared feasible. Its announcement stated (IX, 4601):

We wish to advise you that this committee, organized to
promote a merger between Puget Sound Power & Light Co.
and Washington Water Power Co., has been disbanded,
because such a merger does not seem possible of accomplish-
ment at this time.

O

82282

Printed for the use of the Committee on the Judiciary

UNITED STATES

GOVERNMENT PRINTING OFFICE

WASHINGTON: 1956

14

COMMITTEE ON THE JUDICIARY

JAMES O. EASTLAND, Mississippi, Chairman

SUBCOMMITTEE ON PATENTS, TRADEMARKS, AND COPYRIGHTS JOSEPH C. O'MAHONEY, Wyoming, Chairman

MARCUS A. HOLLABAUGH, Counsel
JOHN C. STEDMAN, A88ociate Counsel
JULIAN CAPLAN, Consultant