New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1904-06-19
The Financial World.

Wall Street IS treated to a Southern PacifS
sensation. The company announces that Il viii
issue 500 100000 OF per cent preferred stock
of which S4OOO0OOO will be offered to stoco
holders at par, convertible into common stocl
share for share at the option of the holder. ans
redeemable by the company at 115 between July
1905 and July 1910. Each hundred shares o.
present common stock has the right to subscrihs
to twenty shares Of preferred.
That this method OF raising money has been
adopted becomes the subject Of lively discussion
in Wall Street OF course the eminent hnan
ciers who sponsors OF the plan must have
given careful consideration to all available ways
and means before adoption; but there are some
features which seem open TO question. The
Southern Pacific Company has been controlled
by Union Pacific since 1901. so that any consId.
Grafton OF Southern Pacific matters must include
Union Pacific. 1t is officially stated that since
1901 Southern Pacific has become indebted ia 4.
Union Pacific to the amount OF about $4,000.
600 for which Union Pacific holds negotiabis
obligations. These would. OF course, be avail.
able for purchase of preferred stock. converting
floating debt into the equivalent OF funded
debt ahead Of the common stock-to the advan,
tage of Union Pacific. II not necessarily to thu
detrinent OF Southern Pacific.
There has been much criticism Of recent rail,
road borrowings short time notes at pen
cent or more. the contention being that bonds
could have been negotiated at less cost TO tina
borrowing companies. This Southern Pacific
transaction goes furthest in that direction. Of
course. the $40O00OO0 to be Immediately is
sued is sure to be subscribed for, or the con-
sentative bankers financing the scheme would
never have identified themselves with it. IA
none Of the remaining S6OOOOOOO is issued
Southern Pacific will pay per cent for years
use of S4O.OOO.O0O. and if at the end Of the yeaa
it exercises right OF redemption at 10, IL pays
additional bonus of 10 per cent. or a total ot
30 per cent. The same rate would apply to any
part Of all of the remaining S60,OOOOOO Il
issued Assuming the extreme case of total fs-
suance and ultimate redemption, Southern Pa.
cifc must Fay S7.OOOOOO per annum and
bonus of S15OO0O0O whenever redemption &C.
ours. Here, again. must be considered the re.
iatOns with Union Pacific which. from Its
holdings of Southern Pacific. secures about one,
half of Southern Pacifc's extraordinary pave
ments
Southern Pacifc's earnings have in recent
years been constantly expanding and enormous
sums have been disbursed for construction AMI
betterments to which common stockholders
other than Union Pacific. have patiently acqui.
esCed in the hope of the property reaching a
dividend-paying standard. Now. these common
stockholders VIRTUALLY a minority see placed
ahead OF their stock a preference of $1OOOs0.0nI
able by the payment of a bonus of $1J.0GOWl0
at some time within the next eleven years Il
certainly puts a heavy tax on the onnpany-.
and defers indefinitely its capacity 70 pay divi-
dends on the common stock Earnings may il
| crease, of course. to point where preference
dividends be sustained and something -
earned for the common as well. but a very his
level of earnings has already been reached. al
subsequent growth is likely to be slower TIN l
the pace OF the last three years. Meanwhi
common stockholders. If they so choose can. 3D.,
the extent of their 20 per cent allotment
come preference shareholders. At the price -
as. when the plan announced. one hundre
shares Of Southern Pacific had a value Of 81 ST. D..
by investing $1,000 more in preference shares I
total value of $4,000 will receive a dividend "a
$40 year and possible bonus at some futu- \
time of $500
Can the common stock. under these condftfouss
maintain present quotations? Other comroII
stocks similarly situated-southern Railway and
Erie. for example-sell lower.
However. there appears. as yet TO be DC ore
ganized opposition to the plan from any quarters
singular enough. in view OF the readiness ta
criticise much less challenging dsvelopmsnts--
as. for example. the movement afoot TO endeavor
to fOrcibly terminate the Ontario and Western
voting trust. There is no question that tha
property has been handled IN mastery fashion
by the trustees. They took charge OF Il when &c
minor local road with gross earnings OF
S1.JOOG10: they have developed it to a great an
thracite carrier with gross earnings OF $4,000
go. and it is within hailing distance OF dtvi-
dends Why should not the trustees be per-
mitted to round out their work near
completion? To what extent dissatisfaction
exists is problematic-at all annual stockholders
meetings held during the existence Of the voting
trust over 80 per cent OF the common stock has
always approved and ratified the trustees ac-
ton.
REWRITING 10 recent comment in this column
on Toledo. ST. Louis and Western. il is In
structive to note that in his first report Presi-
dent Benjamin Norton pointed out that results
In the transportation department for the year
had not been as satisfactory could be wished.
Equipment was inadequate. and this alone
would be sufficient TO hinder the most favorable
exhibit Of operating results that would other
wise be possible There was an enormous excess
of tonnage. and there can be no doubt OF the
embarrassment caused by lacking facilities
What the initial growth OF business was can be
Judged from this arrangement OF official figures
for the four years 190O-O3. averages per mile OF
road being given in addition to totals 10 show
how density of traffic progressed:
Passenger miles Ton miles
Total Per mile Total Per mile.
1900 ~ O1S 1OT 1885 242. AZ 537,154
1901 % 373O63 51.S27 349.O44.272 773.9S4
1892 - S64514 55132 357.ss5 66S 793.5Ss
tono 0-e nIO en AS1 O1O Oll