New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1899-04-12
COMBINATIONS AND CONSULTATIONS.

1t is possible that the slump in trust stocks
last week may tend to retard the formation
Of more industrial combinations at least until
experience has shown what practical results
are to be expected from the new mode of do
ing business. So long as there was hungry
and apparently Unsuitable market for all sorts
Of stocks purportng to represent profits in le
climate industries the temptation to join in
combinations and unload part Of the stock on
the public was great But if the speculative
market for tpust stocks ceases to absorb them
the inducement to join combinations will be
materially diminished. The operation Of form
ing the recent combinations has been often de-
scribed. Options were obtained on number
of plants, appraisers were allowed facilities
necessary for an estimate Of the value of each
with its material and products on hand, its
going business and profits hitherto, its good
will. patents. contracts and all other elements
of value For the entire value thus estimated
a sum usually regarded by the sellers as ample
compensation was paid in preferred stock, CIV
ing them prior lien on all earnings of the
property up to a certain per cent Then as
much more common stock was thrown in as
bonus.
In the later combinations it seems to have
to cover liberal payment for the actual value
Of properties combined besides big profits to
promoters and ample provision for cash in the
treasury, and then to issue about as much more
common stock. The manufacturer taking part
in the combination could hold his preferred
stock as pure business venture, If he deemed
that advisable, and could realize cash bonus
for his consent through sale of part or the
bic market recently seen it is evident that
many embraced this tempting opportunity, and
the public has recently acquired common stock
amounting to many hundred millions in par
value which was issued against no ascertained
value whatever, but as a special bonus The
records Of the exchange also show that pre-
ferred stocks amounting to many hundred mill
ions have been sold by somebody. One has
only TO consider that in every such consolida-
ton there must be several concerns relatively
less capable in competition than others. which
the others will therefore have to carry In time
of stress Men in the business who know this
are quite likely to part with some of their stock
before the stress comes.
If the strict valuation Of certain properties
shows an aggregate earning power worth about
S7,5o0,OOo, and about 81 100000 more preferred
stock is allowed for working capital and at
least 81. 10000 more for fees of promoters and
underwriters, making S100O0OOO preferred and
as much common stock for a business hereto
fore earning comfortably on S7,500,000. what is
the prospect Of getting good dividends on S20,-
100000? There may be great economies in
management. but 1t also happens that in many
cases large consultations are managed less
economically than plants under the direct con-
troll of owners. Competition may be restricted
and larger return for production secured, but
IT is as certain as anything future can be that
price which yields more than normal profit
to q consolidation will suffice to bring into ex-
stence many and powerful competitors.
When sober and hard-headed people in the
days Of speculation In boom" cities and town
lots and Western lands were greedily paying
from 5000 to 500 an acre for land which the
same men would not have bought at SO an
acre little earlier people outside the craze
were astonished But human nature is so con-
stituted. The theory that big consolidation.
controlling many plants can do more work
and do 1t more cheaply and proftaby than
many small and competing concerns has seized
upon the minds Of many. and they are bound
to know more about 1t before they quit. They