The evening times., 1899-12-29
FINANCING OF COMBINES
Views Of Mr. Fairchild, Former
Secretary Of the Treasury.
An Address Delivered Before the
American Economic Association at
Earnings and Expenses Suggested.
Ideas About increases of Capital.

ITHACA. ". Y. Dec 29.-The sessions
of the American Economic Association
were resumed today. The feature of the
day was a speech by former Secretary of
the Treasury Fairchild on the Financing
of Trusts" Mr.. Fairchild said in part:
During the processes which l have de-
scribed. underwriting syndicates have
probably been employed to make sure that
a sufficient amount of securities shall be
sold to secure the cash needed. and there
have been one or more bankers who may
have loaned the money needed, pending the
final launching of the new company. and
may also have been employed to bring out
its securities-that is. offer them for sub
scription by the public. Syndicates and
bankers must be paid their commissions
out of the surplus securities.
Perhaps a concrete illustration may
help toward a clearer understanding of
Just how this part OF the financing OF these
combinations is managed.
Let us assume that the promoter has Sc
cured options upon the plants. assets, and
good will of ten separate manufacturing
concerns. for which he is to pay, under the
terms of his options. s3,000,000 in cash and
s.. 900 900 in preferred stock and $4,oOO.oOo
In common stock of new company OF $2o,-
900. 600 capital thalf preferred stock. TO
be formed to acquire the entire plants.
stock and other assets. coed will, etc, OF
the ten concerns specified, and to have.
when formed. at least 81, ,000. 600 OF work.
ing capital.
LAS soon as these options are in this dafi-
mite shape the promoter goes to some finan-
cial house or firm OF private bankers for
assistance in raising the S4000.0G0 OF cash
which the plan requires. He presents tie
facts as TO his options and his programme.
and proposes that If they will arrange
syndicate to underwrite or guarantee the
purchase of s4,06oCO0 Of preferred stock
and 81 00o,oO0 common stock for $4,000. 600
in cash. he will give them commission OF
5000 sares OF the common stock OF The
company.
The bankers give the entire project
careful investigation, usually EMP Dying
experts and accountants to report upon the
facts as to the business and profits OF the
constituent companies. II the result is
satisfactory the promoter gets a favorable
answer. and the bankers become the mana
gers of an underwriting syndicate.
In carrying out this part OF the pro-
gramme they, proceed to lay the matter
before the individuals or companies TO
whom they desireg to offer an interest IN
the marketing of the stock. This is natu-
rally done by submitting copies OF syndi-
cate agreement. reciting that the subscrib-
ers agree to purchase at par the number
of shares of preferred stock set opposite
their respective names. receiving as
bonus an equal amount Of common stock
but the whole conditioned upon there being
an aggregate subscription equal to the
81 coo 900 TO be raised.
.'If the amount is oversubscribed some
subscriptions are either thrown out or cut
down II it is not subscribed the project
has to be abandoned or modified In some
cases the desired end is sought by pubic
announcement of the terms on which SUD
scriptions will be received
III the entire si,G0o,o00 Is subscribed the
next step is to require the payment Oh Tue
subscriptions allotted. This gives the syn
d;cate managers the 81 .000,0 cash which
the p,an requires. The new company Is
then INCORPORATED. with an authorized cap
itsI of 10000 GOO preferred and SlO.-
OOO 600 common stock. OF which perhaps
s. COO of the common stock is paid up al
opce and on this the company besins
business with a regular board of directors.
THE stockholders owning this first S3.Ooo
of stock lffty sharesl then vote TO autnor-
ize the increase of the capital to the
ration and approve the issue of all the ad-
ditional stock in a block 10 John Doe. the
promoter in exchange for the various
plants. assets, etc, and the s1.eooos cash
which the new company was TO acquire
Then by simultaneous transactions John
Doe gets the sl0. .00o.o 600 preferred stock anu
80 a95. 900 common stock: OF this. Se.ooo.oo9
OF the preferred and Si.0oo.eeo oil the com
mon stock is passed on TO the owners OF
the original companies; 81 ,00O. 600 OF each
is passed to the syndicate, whereupon 1t
turns over to John Doc the $i.OoO.Ooo IN
cash, which he in turn uses 10 pay the casn
required by the options and that wnicn Is
to 20 into the treasury of the new company:
at the same time the titles to the various
properties are passed to the new company.
John Doe then finds himself, after turning
over to the banking house which formed
the syndicate the 5000 shares OF common
stock agreed upon as commission for It's
services. the possessor of 1880 shares OF
common stock of the par value OF 81, ,4so,VOo.
"As to the effect upon the money market
of all these new securities, II Is hard 10 say.
1t must be remembered that the great bulk
of them Is in the hands OF the owners OF
the original constituent properties. 1t must
also be remembered that the cash capital
provided upon the formation Of the new
corporation has taken from the money mar
ket a large amount of industrial CONNER
cial paper; in its place is the borrowing
upon the securities Of the new corpora
tions.
"As to what proportion the one bears to
the other, there are no data to be had. At
a venture, however, would say that there
is little, II any, more money loaned now
upon the shares Of the new industrial COM
binations than there would be now loaned
upon the business paper Of the constituent
concerns had the combinations not been
formed"
Concluding, Mr. Fairchild says: "a great
help and safeguard would be some well-de-
vised plan of publicity as to corporate
earnings and expenses"
THoRITE IN THE ARMY.
Why the Explosive Was Not Used In