The Detroit times. [volume] (Detroit, Mich.) 1903-1920, 1911-12-12

pora lions and do not make return OF
their capital TO the interstate COM
mCIcC commission, but which control
the policy and direct the operation or
the roads whose securities they have
purchased. Any artificial stimulus TO
these intercorporate holdings is pub
lie evil Where a railroad controls the
operations OF another railroad by own
Ing "A majority OF its stock, or where
holding company controls the opera
lions OF several roads In the same man
ner. we have all the disadvantages OF
consolidation. without getting all or
zation OF financial power; We do not
get all the economy Of operation which
should go with II.
Apart from this general danger. we
open the way to several specific evils,
Where a railroad controls the oper-
aticnS OF another road by +the owner
ship OF a majority OF Its stock, there
Isl constant danger that the minority
holders will not be fairly treated. The
road thus purchased has become part
or a large system. and Is operated by
the representatives OF the whole sys-
tenn IL is almost certain that the al :
vantage OF the whole Will be preferred
ia tAe-saAaEa+e- intarests- of the part
In matters OF operation. tafhe ana
finance.
Again. the existence OF two or more
companies under the same management.
having separate organizations bnt
united control. invites the concealment
OF financial transactions by the shirt
ing Of charges from one company TO
this may happen in the construction or
a new road IL Is equally possible In
the operation OF an old one.
Financial Dangers.
further effect OF intercorporate
holdings is to- change contingent
charges into fixed ones railroad
company buying the stock OF another
company almost always Issues collat-
eral trust or other bonds 10 pay for IL;
In ether words. IL puts Ihe stocks into
fits own treasury and sells the bonds TO
the public. AS long as the road is
prosperous this change does little
harm. In fact n may appear TO do
good. When a company has been. able
TO buy S per cent stock by the issue
| OF it's own q - per cent bonds, there
+, is an apparent profit OF u per cent an
nualiy on the transaction TO the COM
pany and an apparent reduction In TO-
tai charges which 1t must meet. But
with any dimInution in traffic. the bad
effect OF the change Is at once obvious,
The interest In the bonds remains a
hxed charge against the company. the
have been felt chiefly by the individual
stockholders default. or even a
threatened default, OF interest has an
effect on the credit and confidence OF
the country as whole, and may pre-
cipitate q financial crisis.
so long as different parts of what
IL naturally a connected system OF
railroads are chartered by separate
states there are likely 20 be artificial
obstacles to consolidation: and while
these obstacles exist, we shall md IL
difficult either to check the tendency
toward increased intercorporate mold
ings, or TO deal with the evils incident
thereto. Each instance OF intercorpo-
rate holdings thus furnishes an added
argument for federal charters.
Price of New Issues Of stock.
A most important and difficult ques-
tion Is that OF the price at which new
stock may be issued We believe that
no restrictions except those Of publ
city should be placed upon the power
OF the directors 10 issue new stock pro
rata to their stockholders at or above
less than the existing market value OF
the old stock The experience of Mas
saChusetts has shown that che attempt
u prohibit the issue OF stock below Its
market value has hampered the invest
ment OF capital and has distinctly IN
tcrfered with the development of IA
cilities IL this has been the expert
ence OF Massachusetts, where capital
better results in states where capital
is more scarce.
A further objection TO any attempt
to compel the sale of new stock at =
price above par Is that II implies n
certain warrant that this value. thus
ublicly fixed. will be MAINTAINED In
the future, on the old stock as we'll az
the rev. In thus attempting to limit
profits. IL may actually send 60 guar
No attempt should be made by sta
tute TO limit railroad profits 10 nxed
percentage. or to treat hiBh cash
dividend as necessarily indicating ex-
tortion. Railroad charges must be rea-
sonable: but to try TO control rates
by arbitrarily limiting profits Is 10 put
tire manager who makes his profit oy
level as the one who tries 10 accom-
IRISH The same result through extor-
t!onate charges.
scrip. bond and stock dividends
should be prohibited. They are COM
monty justified on the theory that the
company has in times past put earn
inEs into the property which 1t might
have divided among the stockholders.
and that the scrip dividend merely re-
10 burses the stockholders for what
they have put into the road But. these
sums were put In. either TO make de-
probation and obsolescence good, or as
actual additions to the property. In
the former case the capital account
ought not TO be Increased. In the lat
ter case any such increase gives color
20 the claim that the shippers have
been taxed to pay for the Improvement
~ the property, and that the stock
holders have appropriated the result.
Many OF the stock dividends In past
wears have represented an increase In
the value OF tine pToptINN, uVN pdiu iVi
either by investors or by shippers. but
due simply to the foresight Of the
management in locating and organic
Ing its business wisely. Under these
circumstances a stock dividend to rep
recent this Increased value may pos
siblv have been jsutined. but II Is far
better 20 let the Increased value be
shown by a higher rate OF dividend on
the existing sares OF stock, instead OF
by an addition 10 their nominal
a,nount
Whatever may be the evils due TO
such holdings, an unqualined prohlol-
ton OF the ownership OF stock OF one
road by another involves too much
disturbance % existing relations 10
warrant us In advocating IL: Much
Will be accomplished " we DO away
With the unnecessary extension OF
these holdings and provide for eduit
able dealings between the represent