Evening star. [volume] (Washington, D.C.) 1854-1972, 1903-09-19

70 uOiQ ana 10 control. ibis was OLCS tu0
form of the Standard Oil trust but it be-
came illegal under the Sherman antitrust
Law. But, while that form Of combination
has disappeared, the name has remained.
The trust Is now understood to be q great
company transacting an Interstate busi-
ness. and SO far controlling production as
to be able In large measure to reduce the
n1s OF and to shs , ssa
and evils OF the trusts is not germane to
the subject Of this article, but public opin-
ion seems to be shaping itself along this
line that. SO far as they permit OF greater
economy and efficiency in production. so as
to establish stability of prices and rates
and so as to enable the United States to
invade the foreign market with success.
they are an advantage to the country, and
that their evils and certainly their power
to maintain monopolies can be curbed by
the application Of President Roosevelts
policy of publicity.
Genesis Of Steel Trust.
In the promotion of trust the initiative
may be taken by several manufacturers
who realize the advantage Of combinations.
or by some outsider who sees an oppor-
tunity to make money by bringing together
number Of manufacturing plants, per-
haps representing an entire industry. Some
times the consolidation is the result Of
forces which make 1t imperative to COM
bine in order to avert disastrous trade
war The creation of the United States
Steei corporation IS understood TO nave
been the consequence of Andrew Carnegies
ability to divert traffic from the Pennsyl-
vanta railroad and to build steel plant
in opposition to one owned by j. Pierpont
Morgan. The situation threatened to be
a serious one, but the difficulty was averted
by buying Mr.. Carnegie out at his own
price.
Process Of Promotion.
But however the initiative may be taken,
the operation requires, first, the services Of
promoter who brings the various inter-
ests together and plans the organization
Of the company. Sometimes the promoter
Is a banker. but If he is not. banker must
soon be interested in the scheme. for the
organization is so large that 1t requires a
and generally the new company needs added
capital. The banker forms what Is known
as an underwriting syndicate"-that Is to
say, an association of capitalists who adj
vance the money needed and guarantee or
insure the marketing of the new securities
which may be issued. The word under
writer" was originally term Of marine
insurance, and originated In the custom OF
persons who were willing to share in the
tnsuring Of a ship about to go to sea, writ
Ing their names on circular describing the
ship and Its cargo. and posted on board
in tiAs shipping quarter Of London. Now.
however, the term Is one of universal appu-
cation in finance.
An Example.
Let us suppose that there are six plants
engaged in a certain line Of manufacture
which it is proposed to unite in a single
company. President McKinley's Industrial
commission reported that some trusts were
organized on the basis of $50 worth Of stock
being issued for SO Of cash and tangible
property secured the difference being wa
ter which was distributed among the SELL
ers. the promoter and the underwriting syn
n ncfyo jerI,f I4I
1t on the public. But let US suppose that
our company is somewhat more conserva-
lively organized Keen competition had
been reducing the profits Of the six rival
concerns SO that each of them were earn
ing, let us say. about $4,000 a year. New
ertheless their owners demanded 81 900, 900
for each Of the plants. although that was
probably much more than the actual capital
invested. The promoter. however, who I'M
dertakes to combine these rival concerns
estimates that. If consolidated. with such
economies to be introduced. and with such
stable prices as could be maintained, the
combined earnings would be over $7OO, 600.
But he ascertains that additional working
capital Of 81 100000 is required. So it is pro-
posed to issue stock amounting to $4,000
600. The different owners of the six plants
are willing to tax half payment in stock
and half in cash. This requires in addition
to the 100000 new capital. $3,O0O,OOO to
pay for the plants. or 100000 in all. The
promoter interests banker. who, looking
ing syndicate to advance the "a 900 600 re-
quired to organize the company, and to
place the stock on the market. The new
stock would then be divided something like
this: Three million dollars to the sellers.
the former owners Of the plants; 81 100000
to the promoter. 81 100000 to the underwrit-
ing syndicate and IS 100000 offered to the
public. AS 100000 cash Is required, the
syndicate takes the 100000 stock to be
disposed of to the public. at the price per
share of $50. which would yield the neces-
sary amount. Perhaps it Is able actually to
sell the stock at $85 share. in which case
the underwriting syndicate would obtain a
profit of $25O.OOO cash in addition to stock
Of par value of 81 900 900. which if disposed
of at $85 per share. would yield $3.50. 600,
making a total profit Of 81. 100 600, less ex-
penses, this being fully 25 per cent on the
amount advanced.
Underwriting Profits.
Now, it does not always follow that the
organization would be on basis like this.
No attempt has been made to present an
ideal organization. Indeed. 1t would prob
ably be difficult to sell a new industrial
stock. even giving promise OF per cent
dividends, on a basis of $50 share. At the
time this is written the Z per cent preferred
stock of United States Steel Is selling at u.
Moreover, the underwriters might not De
willing to take stock in payment for their
bod ahric tnr,6