The St. Louis Republic., 1902-08-04
Recapitalization Plan Differs Wide
ly From Any Other Experiment
With Corporate Finance.
SWEEPING THEORY ADVANCED.
Majority Claim Right of Persons
to Do What They Choose
With Their Own
Property.
REPUBLIC SPECIAL.

| REPUBLIC SPECIAL.
| New York. Aug. S.-The theory that a
man may do what he will with his own has
been advanced in Wall street in justifica-
| ton of the remarkable character and un-
| usual provisions of the Rock Island recap
| italization plan. The persons who propose
| the plan own fiye-sixths of the stock, it Is
| said. and the argument is carried further
with the statement that they have read
| justed it to suit themselves.
The minority can sell their holdings II
| they do not like the financial scheme or
withhold securities from the plan, and the
public is under no obligation or conpulsion
to buy the new bonds and new stocks.
All this is undoubtedly true. All persons
lave an unauestioned right to do what they
| will with their own property, provided that
the rights of no one else are invaded and
| no one else IS injured. This point is purely
| elementary and has been sustained again
| and again in the case of minority share
! holders who, If they come properly accred-
tied. have equal rights with majority in
any court IN the land. Bondholders also
| have rights and. in the case of the Rock
: Island recapitalization plan. 1t is not i'm
possible that these may be tested.
Carried to lis ultimate conclusion, the the
ory that man can do what he will with
his own implies. in the case of the Rock
Island recapitalization plan, that the road
is personal asset Of the controlling party,
and that this interest is under no obliga-
tions except to themselves.
The courts of the country, however, have
repeatedly taken a contrary view In the
case of common carriers. These obtain
their charters and franchises from the peo-
pie establishing a contract the fulfilment
Of which has again and again been enforced
by the proper and competent tribunals
when attempts have been made to evade the
carrying out of provisions.
Entirely New Experiment.
The Rock Island recaptalization plan DIFF
fers widely from any experiment that has
vet been made with corporate finance. The
acquisition Of the property by the Iowa cor
poration is carried out through legal fic
ton that the Iowa company buys the old
corporation stock.
One may fairly ask what public utility is
served by this public corporation, through
the scheme of financial legerdemain. Sew
enty-five millions of old Rock Island stock
goes into hat or dark closet and emerges
with a possible S225,0O0oO0 in characters
stamped upon the transmitted certificates.
By the operation not a mile of road and
not one dollar of property has been added
to the system that could not have been OBJ
tanned under the original charter provisions.
Ever since the inception of railroad enter
prise companies have bought properties and
have paid for them in stocks or bonds, and
no one has questioned their right to do so
IL the acquisitions were desirable and the
prices paid reasonable. One may very just
ly crit!cise. on the other hand a financial
scheme which primarily transforms a con-
tingent charge of 100000 into a fixed
charge with foreclosure provisions. Partic-
ularly may they do so when that operation
is conducted for the personal benefit of a
controlling interest in the party who de-
81 % .h,,Aa ~ ID 30, ~
The original criticisms of the Rock Island
plan were based upon semiofficial state
ments. In Rock Island circles this was
termed Unfair. 1t cannot be said. however
that official announcement of the scheme
has brought forth details which serve to
modify the original adverse conclusions. or
lead to the belief that the criticism was i'll
founded. In fact. the charter provisions of
the New Jersey company, not announced in
the official statement, are of such character
as to bring forth no defenders and leave
but few apologists.
1t is unnecessary here to go into the de-
tails of the provisions by means OF which
a self-respecting body may for all time
control the import and railroad system at
tritiing outlay, may buy and sell their
own stock at will and exclude sharehold-
ers from an examination of the companv's
books, except under restrictive clauses.
which amount to practical notification
Of the right.
These matters. and. for all practical pur-
poses, the nonvoting quality of the common
stock. have been well thrashed over during |
the week. further consideration of the
specific details would be profitless now in |
the light of the more important and vital
principles Of corporate finance which are |
involved
The terms OF the Rock Island recapitali- |
zatton project hung like pail over Wall |
street during the week. Stock prices be-
Qr11n 1or rr-f@
breaks. which served to remind brokers |
how stocks act when more sellers than buy
ers appear in the market Business was
conducted upon diminishing scale and one
Saturday came well nigh to standstiII
1t is difficult to avoid the conclusion that
the result was, in part, due to the fact
that the more recent adventure in high !
finance has disturbed confidence Such re-
suits, 1t is well known. followed the forma-
ton Of the Amalgamated Copper Company.
the original suggestion of the .billion-dol-
ar trust Of trusts" promulgated by some
Of the present Rock Island interest and,
more recently still. the Atchisons $3O,c0J,-
100 debenture note ISSUE
Inc investor does not like surprises or
experiments with capitalization Rock Is
and bonds-both the mortgages and the
1rst 6s-have been regarded as an excel
ent investment and have been admitted to
savings banks, but this was due to more |
conservative management in the past, after
he influence OF the mistake of 1880 had
been forgotten. than anything else
Speculative Market slows Down.
1t was naturally disturbing for careful
men to learn that. in addition to all the
stocks and bonds which are to come out
against the old Rock Island stock, arrange
nentS have been made to permit the in
crease Of the bonded debt of the old COM
pany.
1t has been pointed out by high au-
horfties in financial affairs that the pres
mt attitude Of the public furnished the best
against such enterprises as that
II the Rock Island road.
1t Is indeed interesting to see the public
to what has been in progress
Tor months in Wall street in the way OF
neddling with corporate finances. Wall /
treet Is dealing with a very different pub
ic now than 1t was only eighteen months
go The enormous capital creations of the
intervals and the various schemes in high |
mace have made the public cautious in
ne extreme, and such 4 plan as that of |
he Rock Island road will certainly not |
assist in the restoration of confidence, |
,ither at home or abroad.
Whether II gets into the court or not is |
matter Of little consequence so long as
he public maintains its cool-headed atti- |
lde. Enough enterprises are under review
Y the courts already to make il inconse-
uential whether another gets there or
OF.
The slowing down of the speculative
market during the week is the very lest
jz4,,ev Nta% Rnrr1d hor