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Bidder Says He Intentionally Made False Offer For Dayton Hudson

June 24, 1987

CINCINNATI (AP) _ One day after P. David Herrlinger made a false $6.8 billion offer to buy Dayton Hudson Corp. that sent the company’s stock price soaring, the stock broker was out of a job and receiving medical treatment, while the question remained: Why did he do it?

Before being hospitalized for an undisclosed reason Tuesday, Herrlinger told WKRC-TV in Cincinnati that he intentionally made the stock bid even though he did not have the money to back it.

″It’s no more ahoax than anything else,″ he told The Wall Street Journal in today’s editions. ″An offer is really an intangible thing.″

Herrlinger was fired by his employer Tuesday morning after the firm learned of the bid. He was later admitted to a hospital by his family for treatment of an unexplained illness, according to a friend.

The stock of the retailing giant Dayton Hudson, meanwhile, gyrated wildly, moving up as much as $9 a share shortly after news of the bid was reported by the Dow Jones News Service, a wire service followed closely by the financial markets.

The stock jumped to $63 a share, before settling back to close at $53.12 1/ 2 , down 87.5 cents from Monday, in composite New York Stock Exchange trading.

A television reporter for WKRC-TV, who confronted Herrlinger at his home Tuesday after the story began to unravel, asked: ″Wouldn’t you describe it as a little unorthodox, the approach you’ve taken.″

″No,″ Herrlinger replied, laughing.

″You’re offering $70 a share and you don’t have the money to pay for it?″ the reporter asked.

″Right. But I mean, a lot of people do that,″ Herrlinger replied.

Herrlinger told the Cincinnati Enquirer that he did not regret what he had done.

″I made a lot of brokers happy today; hopefully, a lot of shareholders, too,″ Herrlinger said.

According to various sources, neither Herrlinger nor his former employer, Capital Management Corp., owned any stock in the Minneapolis-based retailer or stood to profit from the sharp jump in price following disclosure of his offer.

But stock regulators and others involved were piecing together information to determine the extent of the losses - and gains - that might stem from the affair.

Friends of Herrlinger were more concerned about what might have prompted the trustworthy worker and family man to concoct the false offer.

″You don’t have a business story here, you have a medical story,″ said Anthony Covatta, a neighbor and lawyer who acted as Herrlinger’s spokesman.

″This is not one of your cagey Wall Street guys trying to pull a scam,″ he said.

Attempts to reach Herrlinger’s wife and family in Cincinnati were unsuccessful Tuesday. The telephone at Herrlinger’s house was constantly busy throughout the day.

His brother, Tom, works for the E.F. Hutton & Co. Inc. office in Albuquerque, N.M., according to David Browning, manager of that office.

Tom Herrlinger learned of the Dayton Hudson story when it moved on the Dow Jones wire and was surprised by the news, Browning said.

Browning said the brothers were in touch on Tuesday, discussing both personal and business matters.

He said Tom Herrlinger had not profited from any of the movement on the Dayton Hudson stock.

The often confusing, day-long saga began when Herrlinger notified Dow Jones that he represented a company called ″Stone Inc.,″ which he said was offering to buy Dayton Hudson for $70 a share. He said Stone was a private investment firm that included members of the wealthy Stone family of Cincinnati.

After calling Herrlinger back to try to confirm his identity, Dow Jones - which is read by thousands of stock traders, brokers and other Wall Street professionals - reported the offer.

Dayton Hudson for weeks has been mentioned as a prominent takeover target. The Landover, Md.-based Dart Group has inquired about buying the company, according to Dayton Hudson, but the Minneapolis-based retailer has shown no interest.

The New York Stock Exchange halted trading in Dayton Hudson at 9:35 a.m. EDT after seeing the Herrlinger report, but moving like a spreading brush fire, the stock continued trading on the Boston Stock Exchange and in the national-over-the-counter market, where it rose to a high of $63 a share.

At least 72,200 shares of the stock changed hands on the Boston Stock Exchange at prices in the low 60s. In addition, a block of 131,500 shares traded in the national over-the-counter market at $63.

Wall Street sources said the brokerage firm of Morgan Stanley & Co. apparently handled the bulk of the buying and selling of the stock at the Boston exchange.

Peter Roche, a spokesman for Morgan Stanley, declined any immediate comment, saying the firm as a matter of policy did not comment on its activities in the markets.

Dayton Hudson maintained it had no contact with Herrlinger or Stone Inc.

When trading resumed on the New York exchange at 11:35 a.m., the stock was at $59, but the price began sinking as traders became suspicious at the delay in confirmation of the offer by independent sources.

By that time, Herrlinger had been identified as being a portfolio manager and securities analyst with Capital Management Corp. Richard Miller, president of Capital Management, disclosed he had fired Herrlinger that morning after hearing him link the firm to the offer for Dayton Hudson.

Miller said Herrlinger, who he estimated was 44 or 45, had been with the small firm for three years and was regarded as a good worker.

Miller told The Journal that Herrlinger had spoken about Dayton Hudson on Monday, and said to Miller, ″Let’s make an offer for Dayton Hudson.″ Miller said he took the remarks as flippant humor.

Following the disclosure of Herrlinger’s firing, Dow Jones stated the buyout offer might not be bona fide, and Covatta confirmed it. By then, the stock had dropped back to the $54 range.

Everett Groseclose, managing editor of Dow Jones News Service, said late Tuesday the Herrlinger report was checked carefully before a story was transmitted. ″This was a recognized somebody with a legitimate firm. The information he gave us was bad,″ Groseclose said.

Covatta described Herrlinger as a ″pillar of the community″ who had not recently shown signs of aberrant behavior.

The New York Stock Exchange stated it would conduct an analysis of price and volume changes in Dayton Hudson stock to determine whether any securities laws were broken. The exchange said that following the six-week procedure it would determine whether to make its findings public or refer them to the Securities and Exchange Commission for a possible investigation.

Miller said neither his firm nor the portfolios it managed held any Dayton Hudson stock, and Covatta said he had no reason to doubt Herrlinger’s statement to Dow Jones that he also owned none of the shares.

Dayton Hudson has about 97.4 million common shares outstanding. It is one of the nation’s largest general retailers, with sales of about $9.05 billion in its 1986 fiscal year.

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