New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1899-05-13
CAPITAL IN NEW COMBINATIONS.

Reyond question the injury done to industries
and the country by the excessive issues or
stock nv new combinations far beyond the
actual or even estimated values Of properties
taken I'D has been very great. But popular
NEUTRALITY-SUSPICIOUS. as to the nature OF the evil
are many and various, and II recent discus
siops Of the subject only some of them have
been considered In view Of the disturbance
of the money markets last week. commonly re-
ferred to transfers Of many millions on account
of the formation OF new companies, 1t seems
we'll to fix attention upon the fact by many
overlooked. that these organizations always
draw considerable new capital Into the busl-
ness they represent. On the face OF things, II
the owners Of an old plant accept S1,OOO,OOo
for II in cash, or in stock which they sell to
the public there is no absorption of capital, but
only n transfer. Some people go out OF the
business taking out S1,000,000, more or less,
while others come in with the same amount
which the sellers receive
But the practical working Of the operation
is quite different. In nearly every case large
amount Of stock, usually several millions, Is
allotted to the promoters and underwriters, ana
they are rarely restricted by agreement and
can never be in fact prevented from dlsposing
of the whole or part Of their stock, as they
NAV please. In addition there Is raised large
working capital amounting to several millions
more. which long -headed men know it Will be
easier to raise in connection with the first issue
of stocks, expected TO be enormously profitable
than to obtain by borrowing or by selling treas
urv stock when the company has reached
positlon of difficulty. Taking one case MS
typical of many. the plant and goodwill pur
chased were held by appraisers worth about
SIG 100000 for which per cent cumulative
preferred stock was given with as much com
mon stock as bonus. or to any who preferred
tho appraised value was paid In cash. Also
81 600 900 was subscribed for working capital.
and So 600 or a tenth OF the final issue. was
allotted TO promoters and underwriters. If all
the owners Of old plants accepted the stock and
hold II. about s9O00O0O would be withdrawn
from the public by distribution OF stocks on
which the company would be expected to earn
dividends. If part Of the old owners sold. the
amount they put out was also drawn from the
public.
! Where circumstances vary widely with
different concerns only rough guess can be
made Of the proportion Of capital taken from
the public in all the operations OF the year.
But there is usually combination OF n few
influential and active men who because repre-
senting the more powerful concerns financially
or on account Of their previous success In the
| business secure for themselves leading places
in the management Of the combination. In
der 10 retain these they arrange as far as they
can TO have majority Of the new stock held
Inv their friends and former associates. Hence
In most cases II Is probable that considerably
less than a majority of the stock goes
to the public On the other hand. among the
concerns taken into a combination there are
always several weaker and less profitable than
others. which are led to accept the stocks or
cash offered because the amount Is more than
owners could otherwise realize and these have
natural reasons for dsposing Of their stocks to
the public. When the stocks taken by the pub
lie for the working capital provided are also
considered, and the stocks which promoters and
underwriters receive, but Of which they will
naturally sell at least part, probably not much
less than third Of the entire stock Is likely
TO be marketed in such cases as the one sup
posed
Part Of this Is mere exchange; one set Of
men take capital out OF the business while
Others put az much into IT, But the men who
} go out cannot be restrained In any way from
going into the same business again II they
, choose. Naturally, some who held old plants.
not favorably located or with machinery not the
best consented TO sell because they foresaw
, that the money obtained. with or without asso-
| citation with others in like position, would en-
. able them to put UP new works. In the most
desirable locations and with the latest and best
machinery. so that they might expect to COM
pete successfully with the big combination. 1t