# Memoirs of Henry Villard/Volume 2/40

CHAPTER XL
The Oregon Railway and Navigation Company 1879–80
THE peaceful relations thus established between Mr. Villard and the Union Pacific leaders bore important fruit in another direction. Ever since his first visit to Oregon, he had conferred from time to time with the parties controlling the Central Pacific, in both San Francisco and New York, regarding the possibility of a joint scheme for the connection of the Oregon roads with the Central Pacific system. The Central Pacific people were willing to build to Oregon, provided they could obtain a subsidy from the State, and had submitted a formal proposition to that effect in 1876. It had not met with a satisfactory response, and the plan was dropped. As it was a self-evident proposition that direct railroad communication between Oregon and the rest of the country would be of the greatest advantage to the local transportation lines, it occurred to Mr. Villard to make an effort to induce his new Union Pacific friends to build from Ogden to the Columbia River. The time was most propitious for new railroad enterprises, as the appetite of the public for new securities seemed insatiable. The Union Pacific had years before made a preliminary survey of a line from its western terminus to the Columbia under the direction of General Grenville M. Dodge. Mr. Villard studied the report of this expedition, and, with the material it contained and his own knowledge of the Upper Columbia country, prepared a formal project and submitted it to Jay Gould and Sidney Dillon. They were both favorably impressed with it, and, after several ​meetings, it was agreed in writing to form a construction company for carrying it out, to the capital of which the Union Pacific people should contribute one half and Mr. Villard and his friends the other half. On Mr. Villard's recommendation, they authorized him, as the first step, to acquire a controlling interest in the Oregon Steam Navigation Company, a flourishing company with its seat at Portland, which had a monopoly of the traffic of the Upper and Lower Columbia and Snake River through its ownership of the portages by short railroads around the obstructions to navigation on the Columbia at the Cascades and the Dalles. With this special object, he left New York in April, 1879, on his usual spring visit to Oregon.
In the meantime, new trouble had sprung up for the Oregon Steamship Company. The pooling arrangement with the first opposition had been in force only about seven months when a new competitor appeared on the Portland-San Francisco line. Some California speculators had bought the Great Republic, a laid-up old side-wheeler of great carrying capacity, put her in repair and on the route, evidently for blackmailing purposes. The cutting of passenger and freight rates to losing figures soon followed. The European creditors, who for a long time had received nothing on account of the principal and interest of their original advance, owing to the payments for the new steamers and the losses from the first competition, now became hopeless, and early in the year 1879 Mr. Villard was advised that they were willing to sell out at a large sacrifice. He urged them not to do so, but, as they persisted, he made his first effort to form a syndicate in New York to buy them out. He easily accomplished his object, and the transaction was closed before he went West. It ended his dependence on the creditors, much to his relief, as the duty of satisfying a group of disappointed foreign bankers had gradually become very irksome. The success of the new venture of himself and his friends depended upon the cessation of the opposition. He was surprised on his way ​overland by the news that the Great Republic had run ashore at the mouth of the Columbia and was completely wrecked, but fortunately without loss of life. These tidings led him to consider the practicability of forming, under the auspices of the new Construction Company, an ocean and river navigation company out of the Oregon Steamship and the Oregon Steam Navigation Companies, and he made up his mind, before he reached Portland, to try to accomplish this object. This was the germ of his remarkable creation, the Oregon Railway & Navigation Company.
The Oregon Steam Navigation Company was formed in 1862 with a capital of $2,000,000 by a combination of individual owners of steamboats running on the Willamette and Columbia Rivers. Subsequently the stock capital was increased to $5,000,000 after considerable additions to the properties of the company, paid for out of earnings. It was a close corporation, a large majority of the stock being held by five leading men of Portland, who formed the Board of Directors and exercised actual management. In 1871 these met the party, representing the Northern Pacific Railroad, which had come to the Pacific coast to locate the western terminus of the line and to arrange for the commencement of construction in Washington or Oregon. The directors of the Navigation Company, being alarmed by the prospect of railroad competition with their boats on the Columbia, tried to induce the Northern Pacific delegation to buy them out, and the latter took a proposition with them to the East for the sale of the whole of the Navigation stock for $2,000,000 or forty per cent. of the nominal value of $5,000,000. A deal was consummated in Philadelphia some months later with the purchase by Jay Cooke & Co., for account of the Northern Pacific, of three quarters of the $5,000,000 at forty per cent., half cash and half in Northern Pacific bonds at 90. The Portland directors retained the other quarter of the stock and continued in the management.
Jay Cooke & Co. held the three-quarters of the ​Navigation stock as collateral for their advances to the Northern Pacific when they failed in 1873, and the stock became part of their bankrupt estate and was distributed by the trustees managing it, mostly in small lots among the numerous creditors of the firm in part settlement of their claims. The recipients knew nothing about the Navigation Company, and the stock came into the market at very low figures. The Portland directors were not slow in improving this opportunity to buy back the control of the company, and they and their friends held again, in the spring of 1879, over four-fifths of the stock.
On his arrival in Portland late in April, Mr. Villard immediately asked J. C. Ainsworth, the president of the Navigation Company, whether he and his associates were willing to sell their holdings. After some deliberation, they informed him that they were disposed to sell, but they wanted a high price, and suggested that, before beginning formal negotiations, he should inspect all their properties, and to that end visit the Upper Columbia and Walla Walla country once more. Accompanied by one of their number, he spent ten days in doing this. His previous highly favorable impressions of the Upper Columbia country and of the present and future business of the Navigation Company were fully confirmed. On his return to Portland, an inventory of the company's properties was produced, aggregating $3,320,000, including a fleet of side- and sternwheel steamers and the twenty-one miles of portage railroads. A statement of earnings for several years was submitted, with an offer to sell 40,320 shares at par. The directors thought that it was too big a deal for Mr. Villard, but, as the earnings showed twelve per cent. on $5,000,000 for the past year, with a certain large increase for the current year, he considered it a fine bargain and one well worth securing. They readily entered into a plan he had matured on the Upper Columbia, after seeing the difficulties of handling the large and fast-growing grain traffic owing to the natural obstructions to navigation, which involved breaking ​bulk three times and the use of three sets of boats. It was to form a new company, which should absorb both the Oregon Steamship Company and the Oregon Steam Navigation Company, and which should be provided with capital enough to build a narrow-gauge railroad from the Lower Cascades up the left bank to a connection near the mouth of the Snake River with the existing narrow-gauge road Jto the town of Walla Walla. This railroad would secure, in his judgment, by the safe occupancy of the Columbia Valley, the only outlet of eastern Oregon and Washington to the Pacific, against both river and railroad competition—a far more important matter than the economical transportation of wheat.
After days of negotiation, it was agreed that the new company should be organized under the name of the Oregon Railway & Navigation Company, with a capital of $6,000,000 stock, and issue $6,000,000 six per cent. bonds. Mr. Villard secured for $100,000 cash an option till October 1, to call for 40,320 Navigation shares at par, paying for them fifty per cent. in cash, twenty per cent. in the bonds, and thirty per cent. in the stock of the new company. He was allowed $1,000,000 stock and $1,200,000 in bonds for the acquisition of all the Oregon steamship properties and for a fourth large new steamer; $2,000,000 stock and $2,500,000 bonds to raise the cash required for Ainsworth and friends, leaving $1,800,000 stock and $1,500,000 bonds for the purchase of the thirty-five miles of the Walla Walla railroad and the construction of the new railroad along the Columbia. For $10,000 he obtained an option, also till October 1, to buy the Walla Walla line at a satisfactory price.
The Navigation people did not think it possible for Mr. Villard to raise so much cash, and considered him a reckless fool to put up the stake of $100,000, which they felt certain of pocketing. He left Portland at the end of May in a high state of elation at what he had achieved, and reached New York on June 8. The scheme he brought with him differed from that agreed on with the Union Pacific people; ​but as it contained so much of immediate promise, he was confident that they would gladly accept it. He submitted it at once to Jay Gould, but the latter received it coolly, and within a few days sent a note to Mr. Villard saying that he and his associates preferred not to participate. Nothing daunted, but rather glad at this parting of their ways, Mr. Villard invited his financial friends to join in exchanging the new Oregon Steamship for Oregon Railway & Navigation securities, and to subscribe for the required cash payments for bonds at 90 with a bonus of seventy per cent. in stock. He met with such prompt response that within ten days he was able to telegraph to the Portland parties to send on their Navigation stock for delivery on July 1, when all the cash, bonds, and stock due on it would be ready to be paid and delivered to them. This was actually done, and in addition the balance due to the foreign creditors for the Steamship Company was remitted and enough cash left in the treasury of the new company for the fourth new steamship and for beginning construction on the Columbia River railroad line, which was being surveyed as rapidly as possible. This quick work caused astonishment in American as well as in European financial circles, and the achiever of it received far more public notice than he ever expected or cared to have. It would seem a trifling operation in these later years, in which scores of millions have often been raised by syndicates for the reorganization of railroads and the formation of industrial combinations, but in those early days it was an unexampled performance.
The reception of the securities of the new company by the public also made an extraordinary "record" best shown by the following incident. Mr. Villard was overworked, and, after setting up the Oregon Railway & Navigation Company, embarked for Europe with his family, early in July, for a rest of some months. The shares were listed at the New York Stock Exchange during the summer. He did not return until late in November, and, on ​reaching the dock, he noticed one of his counsel in the crowd waiting, waving a piece of paper at him. It turned out to be a broker's report of a sale at 95 of the stock that had been given five months before as a bonus. This rapid rise was due to the fact that the net earnings of the two constituent river and navigation companies were sufficiently large to warrant the payment of bond interest and eight per cent, dividends on the stock, payment at which rate had already been commenced. This astonishing increase naturally raised Mr. Villard to a still more commanding position in Wall Street. Yet it was but the beginning of a series of like successes.
The vast region drained by the Columbia and its tributaries formed a very empire in its extent. Its material development was entirely dependent upon the present and future transportation facilities within its limits. Mr. Villard's rule over these and, through them, over the whole future of that promising part of the country was rendered all but absolute by his personal success. He was fully conscious of the duties his great task imposed upon him to the new corporation and to the people of Oregon and Washington. He devoted himself to their fulfilment with all the energy at his command. Before going to Europe, he had closed a contract for the construction of the fourth steamer, named the Columbia, which was the finest in every respect that had left the yards of John Roach, the well-known ship builder. Having become interested in the incandescent electric lighting as perfected by Edison, he insisted upon having the Columbia provided with it. Roach was strongly opposed at first to the innovation, but yielded, and the first electric plant ever placed on a sea-going vessel went into the new boat and gave perfect satisfaction. The novel illumination was also at first objected to, strange as it may now seem, by the marine underwriters.
The shipment of railroad material for the Columbia line also occupied his attention. It having been decided to formally consolidate the two constituent companies with ​the controlling one, the acquisition of the outstanding minority of the Oregon Steam Navigation stock devolved upon Mr. Villard, and proved a troublesome undertaking. Last, but not least, a contingency arose in the resumption of construction activity by the Northern Pacific in Washington Territory, which threatened the monopoly of the Oregon Railway & Navigation Company on the Upper Columbia. The former company had succeeded in raising enough capital to build that part of the main line from Lake Pend d'Oreille to the confluence of the Columbia and Snake rivers, known for a time as the Pend d'Oreille Branch. The continuance of this line down the right bank of the Columbia, parallel to the Oregon Railway & Navigation Company's line on the opposite bank, was a menace to the latter, whose location really constituted an indisputable encroachment, moreover, on the right of the Northern Pacific to build on either bank. Mr. Villard entered into negotiations with the Northern Pacific early in 1880 to obtain, in consideration of a liberal traffic contract, a concession of the right of way on the left bank to his company, and an agreement on their part not to build on the other bank. It was then merely agreed, however, that he should meet the late Joseph D. Potts, of Philadelphia, one of the directors, on the Pacific coast, and with him go over the ground and find a basis for a mutually satisfactory arrangement. They met, travelled together, and joined in recommendations to their respective corporations, and early in the fall the preparation of a contract embodying the above suggestions was begun in New York. Mr. Villard spent the greater part of the summer on the coast, and expedited the construction work on the different lines as much as possible. In view of the negotiations with the Northern Pacific for using his company's Columbia River line, and of the surprising increase of the river traffic, it was decided to abandon the narrow for the standard gauge. An exploration trip which Mr. Villard made with Messrs. George M. Pullman and William Endicott, Jr., of Boston, ​through eastern Oregon and southeastern Washington led to the determination to commence at once the construction of a number of branch lines as feeders to the river line. During this tour he met and addressed gatherings of settlers at different points, explaining his purpose to give them railroad communication, and urging them to increase their wheat planting. He made it a point to ask his hearers what rate on wheat to tide-water would be satisfactory, and was able to promise them lower rates than they asked. He defined his policy as that of a beneficent monopoly, and his executive action bore him out, for, upon the completion of the Oregon Railway & Navigation Company's railroad system, the cost of transporting grain to the sea was at once reduced forty per cent. and more.
To provide the additional capital required by the change of gauge and for the construction of feeders, the capital stock of the Oregon Railway & Navigation Company was increased by $6,000,000, which was offered to the stockholders at par, who took it readily, as the market price of the shares had risen to above 180 before the new issue. In his first annual report as president, published in the summer of 1880, Mr. Villard announced that 115 miles of the river line were about being completed, and that the grading on the branch lines in southeastern Washington was done.
During his sojourn on the Pacific coast in 1880, a project for another company matured in his mind, the object of which should be the development of the natural resources, mineral, agricultural, and otherwise, of Oregon and Washington, and the North Pacific coast generally, in cooperation with the Oregon Railway & Navigation Company. The name of Oregon Improvement Company was adopted for it, and it was authorized to issue five millions of stock and five millions of bonds. The latter were offered at par with the full amount of stock as a bonus, and were eagerly subscribed for by Mr. Villard's followers. His success was even more immediate than with the Oregon Railway & ​Navigation Company, as the subscriptions sold at a premium of from forty to fifty per cent, before the lists were closed, and the shares reached 91½ at the New York Stock Exchange within a few months. The new company bought and worked a coal railroad and mine in western Washington, and purchased a large body of select agricultural lands from the Northern Pacific in the so-called Palouse country in eastern Washington; brought out three large new coal steamers from the Atlantic coast; erected a great coal dock at San Francisco, and eventually acquired the capital stock of the Pacific Coast Steamship Company, which had pooled its earnings with the Railway & Navigation Company for the San Francisco-Portland line. As the last-named company had a good many dealings with the Improvement Company, Mr. Villard decided not to assume the presidency or be a director of the latter, but he directed all the investments of its capital elsewhere referred to.
Early in the summer of 1880, a change occurred in his relations to the Oregon & California. During his visit to Germany in 1879, he had informally agreed with the Frankfort committee of bondholders to bring a proposition before the Oregon Railway & Navigation Company to buy all the interest of the bondholders in the two Oregon railroads for a guarantee of principal and six per cent. interest on half their nominal holdings of Oregon & California bonds. A committee of Navigation directors, consisting of Messrs. Pullman and Endicott, was charged to examine the roads and report upon the proposition. But Mr. Villard himself withdrew it when a Scotch company commenced the construction of a competitive narrow-gauge system in the Willamette Valley. As the Navigation Company operated boats on the Willamette which affected the traffic of the railroads, he deemed it his duty to resign as president of the Oregon & California and as a member of the committee, which he did at the time stated. But the severance of his relations with that company did not ​continue long. During 1879 and 1880, the control of the majority of the Oregon & California bonds had gradually passed from German to English holders, who started a movement in London for the reorganization of the roads. A plan was perfected, and, with Mr. Villard's knowledge and sanction, was unanimously approved at a special bondholders' meeting.
In order to provide capital for the completion of the Oregon & California to the California boundary, where its junction with the Central Pacific was expected, the issue of new six per cent. bonds, at the rate of $20,000 a mile and $12,000,000 preferred and $7,000,000 common stock to be given in exchange for the old seven per cent. bonds, was authorized. Under the direction of the Improvement Company, with Mr. Villard's assistance, an underwriting syndicate for $6,000,000 of the new bonds was successfully formed, after which he was reflected president of the Oregon & California Company, which had absorbed the Oregon Central. The work of continuing the main line southward from Roseburg was at once started and pushed energetically.