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Big Holder Challenges First Executive's Chief

December 08, 1987|AL DELUGACH | Times Staff Writer

A major stockholder of First Executive Corp. challenged its president and chief executive, Fred Carr, on Monday about its much-publicized relationship with the "junk bond" business of Drexel Burnham Lambert.

Carr responded by criticizing those who have written unfavorable stories about him in the financial press and by defending his firm's investments in the high-yield, high-risk bonds.

At First Executive's annual meeting, Travis E. Reed said the "constant cloud" over Drexel Burnham has hurt investors. In addition, he said, it has resulted in efforts by California and New York regulators to put a "rein" on the proportion of junk bonds in First Executive's portfolio.

Reed is a Los Angeles investor who was assistant secretary of commerce briefly in the Ford Administration. In late 1984, he made an unsuccessful bid for the Denver-based parent of Frontier Airlines. Reed last week disclosed that he controls 4% of First Executive's stock and is seeking major changes.

In his brief questioning of Carr at Monday's meeting, Reed did not refer to his efforts to interest stockholders and financial institutions in mounting an attempt to restructure the insurance holding firm.

After the session at the company's Los Angeles headquarters, Reed said he believes that the firm should be "disaggregated" by a sale of assets. He said he will continue his efforts to that end but declined to outline his next move.

Carr was asked by Reed to comment in particular on an Oct. 12 story in Barron's magazine about his dealings with Michael Milken, head of Drexel Burnham's junk bond department.

"It is hard to dignify trash," replied Carr, who said that is what the article amounted to.

The chief executive went on to say that the company's relationship with Drexel Burnham is a "professional" one and that it has given First Executive an "unusual opportunity to compete in the financial services industry."

"We are mischaracterized" in the press, Carr said, adding that stockholders "will have to suffer with me until the attacks stop."

Reed did not continue with questions but said in an interview afterward that Carr's response did not satisfy him.

One potential obstacle to Reed's efforts is a transaction by management to help another insurance firm, ICH Corp. of Louisville, Ky., to increase its stock holdings in First Executive. ICH agreed not to go above the 25% level for at least five years under a "standstill" arrangement.

Agreement Revised

On Oct. 8, Reed had criticized First Executive for issuing to ICH an option to buy 10.5 million new shares for "an appallingly low price" of $17.15 per share.

Since the Oct. 19 stock market crash, however, the First Executive's stock price has dropped below $9 a share. According to the proxy statement for Monday's meeting, the agreement has since been revised. ICH, which presently owns 9.6% of First Executive, still intends to buy shares on the open market or from the company until it raises its stake to about 21%.

In the interview, Reed said he believes that the purpose of the option at $17.15 per share was to help entrench First Executive management. He said the deal will not be an obstacle to him until and unless regulators approve it.

Monday's meeting was held as scheduled after the company rejected Reed's request to postpone it for 30 days. Reed voted his shares with the management slate to reelect two directors at the meeting.

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