[From Capital, Aug. 6, 1974] BANKS AND SECURITIES Ownership study shows that more than half the stock of the nation's 38 airlines is held by 30 large stockholders. The study was made by the Civil Aeronautics Board at the request of Sen. Lee Metcalf (D-Mont.), chairman of a Senate government operations subcommittee investigating concentrations of ownership. CAB requires airlines to report any stockholder with more than 5% of their shares. However, real concentrations may be obscured by the use of street names to facilitate trading. CAB said it tabulated stock concentrations by comparing street names with a list of actual holders. Largest single holder of airline stocks is the Bank of New York. It holds 12.9 million shares-3.7% of all the shares outstanding. Next come Chase Manhattan Bank, 3%; Morgan Guaranty Trust, 2.3%; and Bankers Trust, 2%. U.S. SENATE, COMMITTEE ON GOVERNMENT OPERATIONS, SUBCOMMITTEE ON BUDGETING, MANAGEMENT, AND EXPENDITURES, Mr. ALBERT L. RAPP, Vice President, The Bank of New York, DEAR MR. RAPP: I have your 30 August letter regarding the Civil Aeronautics Board's study of the thirty largest stock-holders of air carriers. You point out that there is no indication in the report as to voting rights to the stock, and note that I emphasize this point in my remarks in the 25 July, 1974 Congressional Record. I enclose for your information Part One of our hearings on corporate disclosure. I call your attention especially to my letter to CAB Chairman Timm on page 587. You will see that I ask that information regarding voting rights be included in the CAB report. I believe the CAB did well to do as much as it has in so short a space of time to translate nominee accounts to institutions and to aggregate the holdings. The next step is to determine voting rights to the stock. I agree that this should be done for a variety of reasons, promptly, one being to correct misinformation about holdings in which the institutional investor holds no voting rights. I hope that you will cooperate with the CAB to the end your custodial accounts are properly attributed in airline reports to the CAB to the parties who exercise voting power. I am sending a copy of this letter to Chairman Timm, and I am also sending him your letter and enclosures. Very truly yours, LEE METCALF, U.S. Senator. MEMORANDUM PREPARED BY SECURITIES AND EXCHANGE COMMISSION DIVISION OF CORPORATION FINANCE IN RESPONSE TO SENATOR METCALF'S INQUIRY CONCERNING THE REPORTING OF OWNERSHIP OF STOCK OF EASTERN AIR LINES, INC. BY MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. As a result of information submitted at the Hearings on Corporate Disclosure conducted on March 21, 26, and 28, 1974 before the Subcommittee on Budgeting, Management and Expenditures and the Subcommittee on Intergovernmental Relations of the Committee on Government Operations of the United States Senate, it appeared that as of December 31, 1973 the account of Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) with the Depository Trust Company had approximately 11.4% of the outstanding shares of common stock of Eastern Air Lines, Inc. (Eastern) which shares were held in the name of Cede & Co. However, Eastern's proxy statement mailed to shareholders on or about March 22, 1974 failed to identify any person as owning of record or beneficially as of March 8, 1974, more than 10% of Eastern's outstanding securities, as required by Item 5(d) of Schedule 14A under the Securities Exchange Act of 1934. As noted in the enclosed letter of June 24, 1974, counsel for Eastern asserts that the company had not received the letter of September 28, 1967 from the New York Stock Exchange and therefore was unaware of the procedures to be followed in reporting shares held of record by Cede & Co. as were set forth in that 37-733 74 pt. 3 47 letter. After the staff of the Commission brought this matter to Eastern's attention, it agreed to incorporate henceforth the reporting procedure of attributing shares held in the name of Cede & Co. to the respective depositing members in its required filings with the Commission. GAMBRELL, RUSSELL, KILLORIN, WADE & Forbes, Mr. PHILLIP R. FARNSWORTH, DEAR MR. FARNSWORTH: Eastern Air Lines, Inc. (Eastern) has been requested to explain its omission to report to the Securities and Exchange Commission that Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) is an 11.9% shareholder of Eastern. As of March 8, 1974, Merrill Lynch was a holder of record of 242,481 shares of common stock of Eastern (.013% of total number of shares outstanding). In addition, according to information furnished Eastern by Cede & Co. (the nominee of the Depository Trust Co.), as of March 8, 1974, Merrill Lynch had on deposit with Cede & Co. 2,211,620 shares of common stock of Eastern. The total of the two groups of stock, 2,454,101 (12.9% of total number of shares outstanding), does not constitute either ownership of record or beneficial ownership of more than 10 percent of the outstanding voting securities of Eastern by Merrill Lynch for purposes of reports Eastern makes to the SEC. On May 23, 1974, Eastern was advised by the SEC that a letter dated September 28, 1967, from the New York Stock Exchange to Secretaries of Listed Companies set forth the procedure for reporting shares held of record by Cede & Co., i.e., "that issuers should attribute shares registered in the name of Cede & Co. to the respective Clearing Members of Stock, Clearing Corporation in accordance with information supplied by that corporation showing the number of shares held for the accounts of the respective Clearing Members." The files of Eastern's Corporate Secretary do not reflect receipt of this letter. Certainly if Eastern had been on notice of the communication throughout this period the applicable filings would have reflected the procedural reporting requirements established therein. In addition, in view of the unique nature of Čede & Co. and the circumstances under which it holds shares of record, Eastern is of the opinion that no shareholders were materially adversely affected by failure to report Cede & Co. as a holder of record of more than 10 percent of the outstanding voting securities. Indeed, to reflect Cede's holdings could mislead the beneficial owners of Eastern's voting securities into thinking that a substantial percentage of its voting securities was controlled by a single entity. Eastern makes every effort toward fully complying with each statutory requirement in its reports to the SEC and its shareholders, and now that it has been furnished a copy of the New York Stock Exchange communication Eastern will incorporate henceforth this reporting procedure in its required filings. Very truly yours, M. JANE SNYDER, MERRILL LYNCH, PIERCE, FEnner & Smith, INC. PHILIP R. FARNSWORTH, Esq. DEAR MR. FARNSWORTH: In accordance with our telephone conversation of yesterday, please be advised that our books and records indicate that, as at March 29, 1974, Merrill Lynch held a total of 2,169,191 shares of the common stock of Eastern Airlines Incorporated, as agent, for 8,934 of our customers. Of that total which, to the best of our knowledge represents 11.39% of the total number of shares of Eastern Airline's common stock outstanding on that date, 280,626, or 1.47% of the outstanding were beneficially owned by participants in Eastern Airlines' Employees' Monthly Investment Plan. Merrill Lynch held all the above shares in its name or the name of its nominee, as nominee, and did not maintain, nor do we presently maintain, any beneficial ownership therein. We trust that the foregoing information satisfies your inquiry. However, should you have any additional questions or wish to discuss any aspect of this matter further, please do not hesitate to contact me. Very truly yours, MARTIN PORTNOY, Law Department. APPENDIX E-COMMON STOCK HOLDINGS, BY INDUSTRY GROUP, 1972 Staff Note: The following summaries were prepared by Professor R. M. Soldofsky, and G. N. Naidu, University of Iowa, from data by Julius Allen, Congressional Research Service, published in Part I of Senate Document 93-62, 'Disclosure of Corporate Ownership." A similar table, showing common stock holdings of the airline industry by bank trust departments in 1972, appears in Part I of these hearings, page 172. The portfolio companies whose holdings are analyzed all supplied information regarding their 30 top stockholders on a voluntary baisis. The banks holding the stock may have sole, partial or no voting rights. The companies whose stockholders are listed in this section are those which voluntarily supplied the information to Senator Metcalf in 1972, in response to his request to the 324 largest companies (ranked by sales) in six categories (industrial, banking, retail, transportation, utilities and insurance). The complete responses and analysis appear in Senate Document 93-62, "Disclosure of Corporate Ownership". COMMON STOCK HOLDINGS OF OIL INDUSTRY BY BANK TRUST DEPARTMENTS IN THE YEAR 1972 |