The morning news. [volume] (Savannah, Ga.) 1887-1900, 1900-01-04
MAKING OF A TRUST.
EX-sECRETARY FAIRCHILD DE-
sCRIBEs TIE VARIOUS STEPS.

rIrt Played by prOmoter-His Conn
pensation often Very LarEe-HOw
the Underwriting Syndicate Is Sc
cured-A Concrete Illustration.
From the New York Mail and Express
Ithaca, \. Y, Dec. 2S.-Ex- Secretary of
the Treasury Fairchild read an interesting
paper on "Financeering Of Trusts" before
the American Economic Association at
Cornell University here to-day. He de-
scribed the formation of great combina-
tons, speaking in part as follows:
Several manufacturers. whose factories
are in as many different places, come to
believe that it is for Their advantage to
unite their various businesses; they con-
suit as 10 the value of their respective
real estate, tools machinery and business
connections; then they organize a corpor-
alton under some state where the laws are
suitable for their purpose, providing for
a maximum of securities of various kinds,
mortgage bonds, preferred and common
stock-all or any of these, as they may
determine-and then sell their properties
to the new corpora lion, taking in payment
such proportions as the value Of each
property is to the value of all of them.
The Promoters Part.
"Or, in another case, the promoter acts.
He goes to each of the Manufacturers,
obtains an option upon their properties
agreeing TO pay for the sam me, it may be in
cash or in securities of the new corpora
ton, or partly in cash and partly in secu-
a-sN and
agrees to sell the properties upon which he
has his options to the new corporation for
all the securities that 1t has issued. He
then distributes part of these securities 10
outsiders-neW men, generally called the
public-another part of the new securities
for cash, which is used to pay the money
TO those manufacturers who have agreed
to take money in whole or in part; and
also an agreed part of the cash thus real
lied is kept in the treasury of the new
corporation as a working capital to avoid
the necessity of selling the paper of the
new company, as probably all of the con-
Germs thus combined had been obliged to
do before the combination was made.
This provision Of cash for working capital
is also generally made, in whatever way
the combination be brought about; 1t is
certainly always done if good judgment
and prudence have been respected in the
formation of the combination. In many
cases, l think, II may De Salu tnat QUE
of the strong inducements which have
caused manufacturers TO enter into these
combinations has keen that they might
be freed from the worry and peril of con-
stantIy raising money on their business
paper to carry on a business which was
not equipped with sufficient cash capital.
His Compensation.
AFTER enough of the securities have
been distributed and sold to fulfill the en-
gagements of the promoter, he tries 20
have a good supply left in his hands to
reimburse him for his expenses and pay
him for his time and labor. In some in
stance this pay is said to have been very
large Naturally as to this I have no posi-
tive knowledge in any instance-only ru-
NOR and gossip. This method of payment
is the same as that of the reorganizers OF
railroad and other concerns. 1t is in the
nature of lawyers contingent free, de-
pendent upon the success of the undertake
ing or suit, and is naturally larger than
1t would he If made in cash.
During the processes which I have de-
scribed underwriting syndicates have
probably been employed 90 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 money needed pending Tie
final launching of the new company, and
may also have been employed TO bring out
its securities, i. e., offer them for subscrlp-
ton by the public. Syndicates and bank
ers must be paid their commissions out
of the surplus securities.