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August 16, 1948.

MEMQRAHDPM FOR CHAlfMAB MBS8EBSMHH.

This meisoranctuai detail* occurrences since I last talked with you when

you vers In Washington and you Informed ae that you had given consideration to

the problem at to whether Lazard Freret & Co. should be Invited to give Its

opinion in regard to the plan of reorganization of Mexican Light & Power Co* Ltd.

(hereinafter referred to as MexLight) submitted by Mr, MeCloy of the World Bank,

In view of your statement to me that upon your return to Mexico City

you would prepare a letter to be delivered to Andre Meyer and send it to me for

my consideration, 1 did nothing further about this matter after toe last talk

with you in Washington until a few days liter when Ehrlich called upon ma and

asked me whether X intended informing Meyer of the substance ef your telephone

conversation from Washington* X told Ehrlich that X did not think it wise to

call either Meyer or Murnane an it might have the effect of expediting some

unpleasant consents from Meyer which might 1st avoided when your letter, which you

said you were going to send me, was forthcoming with a softening diplomatic

explanation of the situation* Ehrlich asked me if I did not think it advisable

to telephone Meyer and tell him that a letter would be forthcoming from you.

X told aim again that X thought it better to say nothing until your draft

reached ae or unless Meyer or Murnane telephoned me, at X felt sure that if amy

communication was had with them they would went to know Immediately what was

said to Hi whan X reported to you Meyer* s statement to the effect that he would

have to resign his directorship in Sofina and sever all other connections with

Dannie's business unless this matter was straightened out* Accordingly, H&rlich

agreed with me that we would do nothing until the draft of your letter arrived or

until Meyer or Murnane called me. X again reiterated to Ehrlich at the end

of oar last talk that I fait this matter should not have arisen and could have

been avoided before it became public information in the Street, and that I also

felt that if the matter had bean explained to Ed Love he would have been tfce

first to say either that L&zard be consulted or, if for valid reasons MexLlght

wished to use any other firm,that before doing so Andre Meyer be informed of

the reasons why you wished to use the First Boston Corporation and be given a

chsaoe to be the first person to tell the First Boston that for reasons stated

they were going to be consulted. Under usual "Street practice* and custom

the First Boston would then think Meyer and of course say, *¥e want to work

together if possible in this matter) you, Meyer, on the foreign end and wo

both hero** So long as Meyer it a director of Soflna this would be the way

it is done "in the Street". Ehrllch asked so If I did not feel X should do

this st the present time, i.e., speak to Id Love about the matter, and X said

no as I did not feel that without the Chairman's request X should inject myself

into a matter that was being handled by him, even though you had asked me to

attempt to smooth over the matter, «hlch of course I would endeavor to do in

any event.

However, we did not have to await the receipt of the draft of yomr

letter to Meyer because early last week Murnane telephoned my office that they

would like to see me. X called at the office of Lazard Freres and asked for

Murnane but was referred to Meyer, who opened the conversation by asking me if

X had reported to you the message which he asked me to convey. X told him X

had and that X understood you were going to write him. He then summarised

to me a draft of his letter of resignation to Dannie. Xt was couched in very

friendly terms and was to the effect that id view of the great length of time

he had been associated with Sofina and his friendship with Dannie and regard for

him, It was with extreme regret that he felt he could no longer be of service to

Dannie or his organization considering the faet that he had received informa­

tion to the effect that the Company felt that it should ©all upon the First

Boston without even mentioning the matter or discussing it with him, as he

interpreted this action as evidence of the fact that Dannie and Sofina did not

consider his firm of any use to then.

X told Andre that I thought Dannie would he very disappointed to

receive such a letter and that as & matter of fact I had just heard from Ehrlieh

that a cablegram had been received from Dannie stating that he had had a very

friendly visit with Kindersley, one of the Lazard partners, although as X

understood it* nothing had boss discussed by them about the MexLlght matter*

Andre stated that he appreciated what I was trying to do to conform

to Street practice and that ho would wait until he received your letter if it

arrived within a reasonable time, but that he could not In any way retreat from

the position which he had expressed previously, that as ft setter of principle

unless this matter were properly regularized he must, in due respect to his

partners, resign all connections with Sofina. He then went on to say that he

had in the last day or so been •onsulted by Mr. McCloy of the world Baafc on some

foreign matters and that Humane had only recently seen McCloy on some otter

matters, at which time MexLight was mentioned.

At about this point in the conversation Humane came into Andre* •

office and said he had had a man with him and was detained, and Andre then re­

viewed his and my conversation up to that moment. Humane said that ho had

been at the Racquet ft Tennis Club recently where McCloy, whom he has known for

some time and who is a good friend of his, had talked with his About many of the

matters facing the World Bank, among which he had mentioned the MexLlght affairs

and had said that the MexLlght situation was a difficult one to work out*

Murnane then said that ho had Mid to McCloy words to the effect that McCloy

ftjpe

should know that in theory at least Laaard was Sonne* s hankers and that he

therefore assumed that In due course Laaard»s opinion would also be asked about

the proposed plan of reorganization of McxLight and that MeCloy*s reply had

been, "Fine*. In concluding our meeting* I said to both Andre and Murnaae

that X would await the receipt of your letter to Meyer before doing anything

alee and 1&at X was still hopeful that this misunderstanding could be cleared up

without any unfortunate results to anyone} that perhaps Dannie would want the

advise of Laaard to Sofina in any event as * large security holder of MexLight.

I pointed out to Andre that some question had been raised whether it would be

advisable for say banker associated with Sofina in such a close way as through

the directorate as Andre 1 % to publicly endorse a proposed plan and that it

might be more helpful to use well known banking houses not so Intimately con­

nected with Sofina. Andre said that of course that was a possibility which he

had very much in mind and which he could arrange abroad to be properly handled*

Ve concluded our meeting on this state of facts. X reported the substance of

our conference to Ehrlich.

The next day, X believe it was, when I reached my office X found a

note on my desk that M Love would like to talk to me from Hyanais, Massachusetts

and to please call operator 29» I did so and the subject of our conversetAoa

vac exclusively the facts and position of what had occurred in regard to

Mexl&ght consulting First Boston without first having mentioned the matter or

discussed it with Meyer. Ed Love began his talk by saying that ho was very

much dlstrubed by what had occurred} that in talking with you he had sot had la

mind that It was necessary to consult first Boston to the exclusion of any other

house of an equally capable character} that in fact toe re were many houses

eapable of advising on a proposed plan of reorganisation for MexLight} that

Arthur McCain, Prosident of the Chase Bank had himself mentioned the subject to

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Charles McCain, the President of Dillon Heed, who could also have done the

work jast as well, as could Lasard for whom Love had a high regard, but that he

(Love) had suggested George Woods only because he felt that Woods was of tho

same type mind as he waa; that, except for his position with the Bank, Lore

could have advised personally ©a the plan just as easily as not and he therefore

felt that Woods could do the same and mentioned him to yott} that If you had

told hin or jogged his mind that Mey«* vas a director of So fine, ho' would cer­

tainly have suggested that the matter fee mentioned to and discussed with Meyer

first and reasons given Meyer why First Boston was mentionedj and that he fait

that had you then wanted the First Boston also in the natter they could have

worked together without any trouble.

X told Ed Love that 1 was sure this natter would be harmonized la

some way. lie said he felt wry badly about the situation and wanted Dannie t©

know that he was sorry this should have occurred. He said he would call Woods

and asked if X knew him. I replied X did not. He then said that I would

undoubtedly hear from Woods and ha 'wished I would see Woods as he thought X'

could straighten out the matter.

On Thursday afternoon Woods telephoned me and asked me if X could

meet with him at luncheon on Friday and said he would like to have hi* partner,

Addiaaell, join with u® as he knew that Addinsell was a great personal friend

of George Mamaa*. I, of course, said X would, but subsequently he called me

back and said that addlnsell had an engagement for luncheon on Friday and asked

If X could meet with them Friday afternoon. X told him X would arrange it if

he would * phone when he was free after luncheon whoa X would go over and see

them. After luncheon on Friday Woods called me and said he would like very

much to put the matter off until lit30 today (Monday),

X was not l a the off ice Saturday* Ehrlleb telephoned me tha t Mr,

Lorle had just read to him & copy of jour l e t t e r to Andre Meyer and tha t he

was dlstrubed about I t as he f e l t tha t 1% would upset Meyer. Lorie had also

read to him ft copy of your l e t t e r to me, but when X asked whether your l e t t e r

had enclosed the or iginal l e t t e r to Andre (because I had understood when you

talked with a® from Washington l a s t tha t you were going to send the o r ig ina l

l e t t e r to ae to look over before sending I t to Andre) Ehrlica could not remember

whether your l e t t e r enclosed the or ig inal or merely a copy. X told him not to

worry as we would take up the matter Monday,

When I reached the office th i s morning X found your copy of the l e t t e r

to Andre end also found that he had telephoned me three times. When X 'phoned

him he was very excited. As I to ld you on the telephone, X had explained to

Andre when I had seen him previously that f i r s t Boston had not been chosen ft*

the "bankers" of MexLigit but had only been asked by you to give you t h e i r

opinion on the reorganization plan proposed by the World Bank and tha t your

consultation with the F i r s t Boston had been res t r i c ted to tha t one request with

no Indication whatever tha t the F i r s t Boston was one of the "banker** or was to

be the "bankers* of MexLigttt» as tha t terra i s used in thft •S t ree t" , i f tha t

subject should ever come up in the future. Frankly, George, I had thought

whan I talked with you on the •phone and you said you would redraf t your l e t t e r

to Andre that I had suggested tha t you s t a t e tha t fact BO as to do away with

the inference as i t i s know here on the Street t ha t the Company was appointing

the Fir a t Boston i t * •bankers*.

In h i s excited condition on the 'phone th i s morning, Andre said tha t

your l e t t e r did not conform to what I had said you were doing* Also t h a t

i t did not r e f l ec t the fac t s , as you stated in the second paragraph tha t Aft

had offered the services of Lazart Freres in carrying through the reorganize Man

•»Qa

plan. He pointed out, quite rightly, that he had not offered the services of

Lasard Freres for any such purpose nor for any purpose at allj and, frankly,

George, if you got the impression from anything I said that Lazard was offering

its services, you have misunderstood me. What Andre has been saying la only

what X warned might occur and attempted to obviate when I mentioned at the

Directors Meeting in Toronto and again at the last Directors Meeting in Saw York

that Wall Street banking firms which have a partner on the directorate of a

corporation expect, as a Vail Street custom, that whan any matters involving

financial questions come up for discussion in such a corporation or its sub­

sidiaries, the member of the board of directors who is a partner of the banking

firm will be informed of the facts and his opinion asked before the management

takes any definite steps to do anything about the financial matters and foat is

all that Andre is objecting to, namely that ha was ignored. Obviously, wa

know that upon being Informed, Andre or any other banker 1 B a similar position

Wtuld do his best to argue that his firm be used or be allowed to place the

financing*

You must appreciate the fact, George, that these bankers in Vail Street

are extremely touchy about their ao-ealled "public relations" or personal

position on boards of directors of companies or parent companies controlling

subsidiaries and they cannot afford to have whispers or rumors going about the

Street to the effect that they have been ignored, or not consulted, or over­

looked about something that It going on with other bankers without their

knowledge in the system. It affects the "good will" of their firms. X

can thoroughly understand their position as a matter of principle and X am

therefore not at all surprised at what has occurred} and X think everybody

here, including Ed love, would give you the same advice which I have tried to*

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However, I don't consider the matter to© serious if everything is harmoniously

worked out unless, of course, Dannie should fee that he is perfectly satisfied

to have Andre's resignation and the severance of relations with unpleasant

feelings.

Andre ended his telephone conversation this morning to the effect taut

in addition to not liking what had occurred about his being ignored and not

informed of what was going on, he vat worried about being connected In the

future as a director of Softna if letters such as yours weal going to bs written.

He felt that you wer% too good * diplfiaat frost everything he had been told about

yout to understand the receipt of a letter which stated that he had offered

services which he had never offered. I told him to stop his worrying becauss

I was quite sure that you had not understood either Ehrlichia or ay reports to

you and that a misunderstanding might readily occur in long distance calls and

Inability to sit down in the same room and discuss matters thoroughly ts make

sure that each one in the conversation understood every fact and report,

especially in view of the pressure undo* Which you were having to work in

flying around between Mexico, Mew York, Washington, Toronto, et al. I told

Andre that I had an appointment *t 11130 with Mr, George Woods and that I had

contemplated reporting to you as soon as X had had that conversation and X

advised him to be calm and quiet.

I called at the First Boston Corporation this morning and had a wry

pleasant conversation with Messrs* "Woods, Addinsell and Ford. They told me

they had heard of the apparent mix-up lAth Lazard Freres and Addinsell took it

upon himself to explain that he understood Meyer's position and that he would

be Just *s upset had the situation occurred to him* Tor instance11, said

Addinsell, as near as X can remember his exact words, "I am a director of the

Virginian Railway and I had quite a row with ¥• P.. Coe when that company's

management *cooked up* a financial matter after consulting with other bankers

without Jay knowledge of what was go lag on, I thoroughly understand Hyer's position

and sympathise with, him** He further stated that Humane vas one of hit test and

moat intimate friends? that first Boston and Lasard worked together in many Matters

and wished to continue to do so without misunderstandings or up-sets.

I stated that X wondered whether Sofina, as distinct from MexLlght,

might not want to Itself consult Lassard on the plan of the World Bank. Mr* Ford

immediately said he thought this was an excellent idea and that of course lizard

might be of great help in Europe in the exchange of securities, etc. Woods then

aaid that fa© had been very interested to hear what we had said and that he wanted

to remind his partners of the following facts, namelyt that it was just two

weeks ago today that h© had been consulted by you on the subject of the World

Bank plan} that at that meeting he had told you he did not know whether or not

First Boston would accept the job of giving an opinion or adtising on the plam

but would look over the matter and study it} that therefore he did not con­

sider that First Boston at this time had agreed with you to give any advice and

he wondered whether, In view of the present situation, they ought to do so.

Both of his partners and I immediately urged upon Woods that ne should continue

to meet with your request to give the benefit of advice on the matter, I

emphasised the fact that I understood the matter to be a very serious one vis ft

viz the World Bank and that X undercstood you to say that you felt it would

be an extremely delicate .natter to Inform McCloy that Lasard vas also

advising on the matter. Both Ford and Addinseil laughed and said,

"Obviously Humane has already talked with McCloy and in any event, it is

none of McCloy*s business what you do about consulting banker** The

Company is entitled to consult any bankers it wishes to and MeCloys

knows that and would not have the slightest objection to Laaard also advising

on the plan", Addinseil also said that he had been up at Humane'•

fishing place la the Adirondack® cad hat seen McCloy there with Mamaae and

knew that they were good friends.

Mr* Hoods tiien said that it eeeaed to hia It would be quite alright

for L&sard to advise Sofina and go Along on a joint opinion and that all that

he eould see in the situation was the obvious one that should there be a public

financing at any time in the future, in addition to the First Boston, Lassard

would be in the financing and, as Woods put it, "why not?*, and stated they

would be perfectly willing and glad to work together with Lazard as they did in

Other natters.

Mr. Addinsell then volunteered to write you to suggest that you go

along with the idea that Lazard should also he entitled to examine into the

plan and state its opinion. Ford raised the point that it might net be proper

for the First Boston to suggest to you what to do by thus writing and he

suggested that Z write you suggesting that you aeatton to the First Boston that

Lazard was being asked by 3ofiaa, at a holder of a large quantity of the

securities of MexLlght, to advise on the plan and that they be given every

facility to do so. Ford pointed out that undoubtedly aaay holders of securities

of MexLight would consult their bankers when, as and if any plan of reorgani­

sation is promulgated, as to what they should do about their holdings $&& it

is quite in order that Lazard1* opinion and advice and advantageous help abroad

be now secured. he said there light vail be something in what I mentioned

to the effect that perhaps Lazard*s endorsement abroad might not be a good thing

If the connection of Andre Meyer with Sofina were disadvantageous from a

publicity standpoint, but he agreed that Lazard would know how to get around

that poistin aiding abroad.

Mr, ¥oods concluded by saying that their investigation was about

completed and they would be ready very shortly to tell you whether they would

be willing to •seept employment regarding advising on the plan.

In the circumstances, I would propose, if you a© loafer havo say

objection, that JDamie communicate with Andre Meyer end ask his firm to

examine the World Bank plan as now proposed and give its opinion to Sofia*)

that la order to expedite the matter , Inasmuch as urgency is required, he

request you as Chairaaa of MexI4.#t to afford Lazard every opportunity to

examine whatever data is necessary to give its opinion on the plan for JfexLight

if that is agreeable to the First Boston - sad 1 am sure it will bo.

*• til,-•—I

J.D.D.

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