Henry Jacques Gaisman - Mastermind!

Discussion in 'Safety Razors' started by GlennConti, Aug 16, 2019.

  1. GlennConti

    GlennConti Well-Known Member

    Of interest to me is what the rumors of the New Blade and New Razor were doing to the stock price in 1929. Why did the stock price move up so much between July 1, 1929 and August 1, 1929? There was a 25% move up in the price during that time. I will investigate further. Either rumors of new products or great earnings report (bogus as we would find out later) or something else.
     
    brit likes this.
  2. Rev579

    Rev579 Well-Known Member

    Had they disclosed more accurate numbers, the market share would have looked smaller, less attractive to prospective start-ups, and would have likely been beneficial in the long-run. Again, purely speculation, they could have been their worst enemy here.
     
    brit and jmudrick like this.
  3. jmudrick

    jmudrick Well-Known Member

    Could just be a reflection of the bull market of the time, June had been a very good month for the market generally, I'm sure that continued into July for many companies. Or could be reflection of the overstated earnings and related dividends being paid .

    Sent from my Pixel 2 using Tapatalk
     
    Last edited: Aug 22, 2019
    brit likes this.
  4. GlennConti

    GlennConti Well-Known Member

    Gillette-Versus-S&P500.jpg

    So I have compared Gillette's stock price movement to the S&P 500 (ie the Market as a whole). They generally move together until the AutoStrop patent infringement against Gillette suit is announced in April 1930. It kind of normalizes until August 30 1930 the two are almost identical (ie a $1.00 in Gillette invested in Jun of 1929 is in the same place as a $1.00 in the S&P 500 index Aug 1930). August remember is when AutoStrop and Gillette merger talks first hit the press. October is when the merger is announced as practically complete, but the small shareholder suit occurs at the end of October. Looks like it was the small shareholder lawsuit that really tanks the stock when corrected for the S&P 500. There is no news yet about accounting irregularities at Gillette.
     
    brit likes this.
  5. jmudrick

    jmudrick Well-Known Member

    Per my earlier comment you can see the anomolous stock price recovery in August which Adams attributes to the behind the scenes Directors' pool purchase of shares to finance the merger.

    Sent from my Pixel 2 using Tapatalk
     
    brit likes this.
  6. GlennConti

    GlennConti Well-Known Member

    Yes, so the small shareholder's beef with Gillette I need to study further. I mean what's their beef? When they were planning their suit Gillette's stock price was in line with the market as a whole. Seems like, and I don't know yet, but they just wanted the company to make them whole for their normal losses due to the depression. But like I say I need to do more work.
     
  7. jmudrick

    jmudrick Well-Known Member

    Stockholders had some serious issues with Gillette Directors:

    (TIME, Oct. 27). "Gillette thus retains the supremacy which AutoStrop's patents threatened. And gratifying to Gillette stockholders was the news that the New York Stock Exchange, reported displeased by the great publicity regarding Gillette's accounting, had consented to list the new stock to be issued in the transaction.

    Although last week's vote assures consummation of the deal it does not remove two ugly thorns from Gillette's venerable hide. First of these thorns is the widespread knowledge that Gillette's reported profits for the past several years were not all real profits. Sales to foreign subsidiaries were billed at prices just under the U. S. market price, apparently for the purpose of letting the profit fall to the U. S. company at once to avoid high foreign income taxes. If all the razors and blades sold to subsidiaries had been resold to the foreign consumers at once, the profit would not have been overstated. Upon readjustment of the figures to a fully consolidated basis, accounts receivable shrank from $17,000,000 to $4,000,000 while inventories soared from $5,000,000 to $12,000,000. The total profits from 1925-29 under the old system were $69,500,000, an overstatement of $11,000,000. This sum was subtracted from Gillette's surplus, as was $4,600,000 used to develop the much advertised new razor and blade.

    The second thorn concerns the act of Gillette directors in selling stock to the company at a price far in excess of the present market. A group of minority stockholders sued for damages because of this, threatened to restrain the merger until they were assured that approval of the deal does not waive the directors' liability. The directors claim that all but one have taken back the stock at the same price the company paid, that the single exception is King Camp Gillette, who last week was too ill to be approached on the subject."

    When the case was settled the Directors were ordered to repay Gillette $400k +. Some had earlier written checks to repay bonuses taken on falsified earnings in addition to ultimately losing their positions in the company (Fahey, Pelham, Thompson, Aldred)..

    Sent from my Pixel 2 using Tapatalk
     
    Last edited: Aug 22, 2019
    GlennConti and brit like this.
  8. GlennConti

    GlennConti Well-Known Member

    Gillette-Versus-S&P500-1929-06-1932-12.jpg

    So yes! The small share holders of Gillette took a bath much worse than the market in general. Look at the charts for 11/01/1930. Ugly!

    The Data and Timeline:

    GilletteStockTimeLine.jpg
     
    Last edited: Aug 23, 2019
    jmudrick and brit like this.
  9. GlennConti

    GlennConti Well-Known Member

    10000 - 1692 = 8308 loss on Gillette.
    10000 - 2607 = 7393 loss from market crash.

    7393/8308 * 100 = 89%. If I am thinking clearly, 89% of Gillette’s loss in stock value was due to market forces. Therefore only 11% of the share price decline was due to mismanagement. They really seemed to have mismanaged the merger, but the Wall Street investors didn’t make them pay.
     
    brit likes this.
  10. jmudrick

    jmudrick Well-Known Member

    Hehe this is called having fun with statistics. If you chose 9/29 (peak) and 1/31 (bottom) as starting and ending points -- the usual data points cited -- you'd get much different numbers . After this period Gillette was stabilized under entirety new management -- the Directors the NYSE wanted out were out or in their way (all were off the Executive Committee) by early '31 -- and Wall Street punishment abated, perhaps even with some optimism of a turnaround. I don't there was any cause for optimism in the market generally at that point, the economy wouldn't hit bottom until March '33.

    Sent from my Pixel 2 using Tapatalk
     
    Last edited: Aug 23, 2019
    brit likes this.
  11. GlennConti

    GlennConti Well-Known Member

    June 1 of 1929 to December 1 of 1932. This is when the New was decided on by Gillette till when the small shareholders suit was settled. That’s how I picked the time frame. I didn’t adjust the time frame to make the numbers fit. This is how it worked out. Gillette was high then went higher then the market tanked.

    The New was conceived. Gillette designed the New. Gaisman outmaneuvered the patent deal. Infringement suit. Merger talks. Over payment to Gaisman. Then the merger. Then the bad accounting found. Then small share holder suit. When the mess cleared at settlement, I stopped the time. If anything, other time frames are arbitrary. Mine is based on the events then I checked the stock prices and let the chips fall where they may.

    If you just pick the Gillette high to Gillette low, that is arbitrary as concerns the human actors. And even if you do that, I would still wager that market forces were a large determinate to the Gillette stock price drop. I’ve looked at it in detail. Bad management is not the large force.
     
    Last edited: Aug 23, 2019
    brit likes this.
  12. jmudrick

    jmudrick Well-Known Member

    Ok I don't see it that way but I understand your methodology.

    Sent from my Pixel 2 using Tapatalk
     
    brit and GlennConti like this.
  13. GlennConti

    GlennConti Well-Known Member

    It is weird to think the theory you are relying on gets upended if the time frame is expanded by a few months on one side and a year or so on the other (9/29 to 1/31) to (6/29 to 12/32). Doesn’t seem very firm.

    As far as Gillette’s stock prices, I think I’ve gotten as much insights out of them as I can for this time period. Much of stock pricing is irrational anyway.

    I am making headway with P&G!!! I may have access to their documents shortly. I’ve worked it out and did what they asked, so they said they will scan and provided me almost unfettered access to the Gillette archives!!!
     
    Last edited: Aug 23, 2019
    brit and jmudrick like this.
  14. jmudrick

    jmudrick Well-Known Member

    Hmm the same is obviously the case for the timeframe you selected if you narrow it as I already pointed out. So ?? Let's move on . Glad you are making progress with the documents.



    Sent from my Pixel 2 using Tapatalk
     
    Last edited: Aug 23, 2019
    GlennConti and brit like this.
  15. Ijustmissedthe50s

    Ijustmissedthe50s The Warnee

    I am LOVING this thread!!!
     
    GlennConti, brit and jmudrick like this.
  16. Rev579

    Rev579 Well-Known Member

    This is certainly increasing circulation!
     
    GlennConti and brit like this.
  17. GlennConti

    GlennConti Well-Known Member

    GilletteConfidence.jpg

    I wanted to look at one more thing and that is "confidence in Gillette management*". What this graph shows is how much savvy betting people would pay as a premium; or, have to get as discount to have their fortunes tied to the management team at Gillette. As you can see in November of 1929 Gillette management was well regarded and the savvy person would pay almost a 20% premium to get their bets inline with Gillette's team. This premium continued until February of 1930. Even the "crash" could not shake people's confidence in Gillette's team. In fact, people may have been more comfortable having there eggs in Gillette's basket given the shaky times. From March 1930 to October 1930, meh! Gillette's team was considered about the same or slightly below average. There was an average discount of about 7%. That is, yes I'll go with Gillette but only if their management team's services go on sale! However, from October 1930 to March of 1932, big discounts on Gillette's management team's services were needed to induce people to align their stars with Gillette's. Confidence hit the bottom on February 1931, where people would only go with Gillette at a 40%+ discount. By April of 1932, the team at Gillette was back to being considered average or slightly below average. And this mode was to continue until December of 1932 (the end of this snapshot period).

    * - I needed a proxy for confidence. What this actually is is the difference between the Gillette stock price and the S&P 500 index price. The S&P 500 index (or I could have used the Dow Jones Industrial 30) is where a betting person puts their money if they want it to track the average of the top 500 best run and managed companies in the US. People have a choice between average management or Gillette management. When Gillette's stock price is at a premium to the average, people think Gillette is better than average and are willing to pay extra for that privilege. However, if they think Gillette management is poorly running their affairs, discounts are needed to induce savvy players to side with Gillette. Remember even during the darkest of times there were still speculators willing to buy Gillette in hopes that Gillette could turn things around and right the ship over the longer haul. So that's it.
     
    Last edited: Aug 24, 2019
    brit and jmudrick like this.
  18. GlennConti

    GlennConti Well-Known Member

    1930-10-17-BondOfferingAdvertisement.jpg

    How was Gillette going to structure the deal to buy AutoStrop? Above is the advertisement that went to the public on October 17, 1930. Here is the deal in as simple as terms as I can make it:

    All this was taking place in 1930. AutoStrop had 310,000 shares of their stock outstanding. This represented full ownership in the company. I'm sure Gaisman owned many of these shares. The shares in AutoStrop were of two types Class A and Class B. Usually Class B shares are limited in some way as to not get dividends or not have voting right control in the company AutoStrop. There were 87,500 shares of Class A and 222,500 shares of Class B. But that doesn't really matter as far as Gillette was concerned, they were buying each and every one and not making any distinction between them. What the share holders of AutoStrop were going to get was 310,000 shares of a new class of Gillette Stock to be issued on January 1, 1931. This new class of stock was a preferred stock. Preferred stock gets paid a dividend and stands in front of common stock as far as claims against Gillette if things go south and assets get sold in a bankruptcy. And, Gaisman had also negotiated that the Gillette preferred that they were going to get would also have voting rights in meetings to control the actions of the company Gillette. So, as of Jan 1, 1931 there would be two listings for Gillette in the stock market price sheets; the old common and the new preferred.

    So, where was the money for these new shares coming from. Well, Gillette had to borrow it. Basically, there was an underwriter/bank (Lee, Higginson & Co.) that Gillette was going to get the $20 million Gillette needed to purchase 310,000 shares of its own common stock on the open market. I believe how it was going to work is Gillette would buy 310,000 shares of Gillette common stack and then rip them up and issue 310,000 shares of new preferred to give to AutoStrop share holders. As an aside, Gillette had already purchased most (over 200,000) of the common shares needed to do the deal (later to be called "the pool") before any of this was announced to the public, but more of that later. An underwriter is basically a middle man with a lot of cash that will give you kind of a bridge loan. They gave Gillette cash ($20 million) but then got their money back from the public shortly there after by issuing bonds (it's just a loan but officially called a debenture and I'm calling it a "bond" here). Gillette needed $20 million because the stock was selling at about $68 per share and they needed to retire 310,000 shares (310,000 * 68 = $21 million about). So, Gillette got $20 milly cash and they paid the underwriter 12,500 shares of common to do the deal (21,500 shares x $68 approx share price = $850,000 or 4.25% commission or fee 850,000/20,000,000).

    What did the public get in the offering above for their giving money to the underwriter? Well for each $1000 purchase they would have a claim against Gillette that Gillette would legally have to honor. This claim stands in front of the preferred stock and the common stock if things go south at Gillette and Gillette can't pay their bills and the company gets liquidated. First and foremost they would get a 5% "coupon" which means they would per year get a payment of $50. To sweeten the deal the underwriter's said you only have to pay us $960 for the $1,000 face value bond. These bonds/debentures were "convertible" which means they could be presented back to Gillette and Gillette would give you 10 shares of common stock in exchange. Not a good deal at $68 per share, but having options is good especially if the stock price jumps dramatically. Further these bonds were "gold debentures". What does that mean? If the bonds were held to maturity 10 years later in 1940, not only would you get $50 cash per year and the option of convertibility to common shares, but at the end you could get $1,000 worth of gold at term instead of cash dollars. Plus there was a market for these bonds you could just sell them to someone else if you wanted to get out of the deal. Sales like these happen and the $1000 bond gets sold either at a premium or a discount depending on the market for them at any given time.

    That's about it. For $20 million now, everybody gets a piece of the action - AutoStrop share holders , Gillette share holders, the underwriters, the bond holders. Oh and PS, Gaisman would get 2 seats on Gillette's board and the underwriters would get two seats on Gillette's board. Oh and AutoStrop share holders wanted to do the deal because Gillette's stock was trading at about a 7 to 10% higher price than AutoStrop shares.
     
    Last edited: Aug 24, 2019
    brit and jmudrick like this.
  19. jmudrick

    jmudrick Well-Known Member

    Great summary. Worth noting that originally the deal Aldred et al struck with Gaisman in early July involved only 310k shares of common stock, but that deal went bye bye after the NYSE audit disclosures.

    Sent from my Pixel 2 using Tapatalk
     
    brit and GlennConti like this.
  20. GlennConti

    GlennConti Well-Known Member

    Also, I forgot to mention that there were 2,205,000 shares of Gilllette outstanding attached to $63 million in assets in Gillette. After the purchase AutoStrop shareholders and Gaisman would control 310,000 shares of Gillette out of 2,018,769 shares (for some reason they reduced the number of shares outstanding from 2,205,000 to 2,018,769 in this deal) or 15.36% of Gillette. AutoStrop had assets of about $6.4 million. Therefore, Gaisman's book value went from $6.4 million for 100% of AutoStrop to $9.68 Million for 15.36% of Gillette. (Ping me if that isn't clear, and my numbers are a little loosey-goosey).
     
    Last edited: Aug 24, 2019
    brit and jmudrick like this.

Share This Page