Evening star. [volume] (Washington, D.C.) 1854-1972, 1911-07-01
s7EEl TRUST PROFIT
Report Shows Liberal Earn
ings on Watered Stock.
BIG SLICE TO PROMOTERS
Those Who Effected Merger Got
S62, SOC, 900 in Cash.
CONTROL OF ORE DEPOSITS
Powerful Weapon in Hands of
Trust, Says Commissioner of
Corporations Smith.
BIG SLICE TO PROMOTERS
CONTROL OF ORE DEPOSITS

| Restriction Of competition Is declared
to have been the prime object of the
organizers OF the United States Steel
Corporation. which. capitalized at ST.
4o2 ,OOO,o 600. had tangible property worth
only s6s2 100000; the corporation, hav-
| ing concentrated It's efforts to secure
ore properties. now owns IS per cent
of the lake ores. upon which the pres
ent steel industry is based-these are
some of the conclusions reached in the
long expected report of Commissioner
of Corporations Herbert Knox Smith
on the steel industry. part one of which
was submitted to the President today.
Discussing in detail how "the i'm
pending struggle of the giants" was
averted almost overnight by the forma-
tion of the great combination of COM
binations, taking in $50 subsidiary
companies controlling so per cent of
the total crude and finished steel pro-
duction of the country. the report says:
Competition Was Sharp.
Until 1898 the bulk of the business was
distributed among very considerable
number of concerns. There was sharp
competition modified by frequent pools of
greater or less duration and effective
ness
Then came an era of great combinations
the report continues. with capitalizations
ranging from $3OOO0,oOO TO slOO,OOOOO0,
mergers of many smaller companies,
which instead of eliminating competition
threatened to bring price cutting on
larger scale than ever before. In 1899
1900 there were three great companies
the Carnegie Company, Federal Steel and
National Steel-dominating the production
OF crude and semi-finished products, and
six concerns-the American Steel and
Wire. American Tinplate, American Steel
Hoop. American Sheet Steel. National
Tube and American Bridge-controlling
the lighter finished products.
This was the period when the struggle
of the giants was impending and when
the formation of the United States Steel
Corporation was conceived and brought
about. All nine of the companies named
were combined. and later the Union Steel
Company, the Clarion Steel Company
and. in 1907. the Tennessee Coal. Iron and
Railroad Company. were taken over. The
promoting syndicate putting the deal
through netted So. 100000 in cash,
Paid Large Dividends.
During the ten years of fits operation,
the report says, the steel trust has paid
average annual profits of II per cent on
the money invested. In this connection
attention is called to the fact that con-
siderable part of the investment is in I'M
ing that dividends from paying properties
must be much larger than the average
would indicate. Insisting upon con,out-
ing profits upon tangible property val
ue basis, the report says that the steel
corporation in defending it's book valua-
ton undoubtedly would claim that there
was a merger value" AS to this, the
commissioner says:
1T is probably true that the variou
properties acquired by the steel corpora
ton, taken together with the organiza-
ton of this company as a going concern,
do have value in excess of the sum
OF their values as separate entities. The
coordination and Indignation made pos
sible by the combination of such proper
ties under single control undoubtedly
tend to reduce costs either through
economies or through removing the neces-
sity of paying profits to others.
Question of Public Policy.
Further. in so far as the concentra-
ton of the industry under control Of
single concern gives to it monopolistic
power over prices and production, this
may result in an increase In its earn
ing power and consequently in an in
crease Ia it's value as a going concern.
This involves. however, the reduction Of
actual or potential competition. To allow
single company, which has secured the
bulk of given industry, credit for such
merger value basis on which TO earn
profits raises, therefore. question of
far-reaching public policy. To regard a
valuation SO arrived at as justifying such
profits under these conditions is whether
the profits themselves, used to determine
the capitalization, were reasonable
Since the corporation has been directing
its efforts particularly toward acquiring
and extending complete control over ore
properties, its percentage of production
has decreased. As against ca per cent
of all crude and finished production in
1901, says the report, the corporation
now has not much over 80 per cent, lin
dicating conclusively the continuous pres
ence of strong and increasing Independent
production
Competition Is Modified.
However, the commissioner finds that
competition, so far as prices are con-
cerned. has been modified by the policy
of Cooperation inaugurated at the
Gary dinners" about which so much
has been said before the congressional
steel investigating committee
The present valuation Of the combines
tangible property Is placed at s1.1s7 ,OOO-
600. as against s., 46s OO0. 900 outstanding
| securities. an increase of about $4S7 ,OOO,-
COO in property. while only about S6S, OOO,-
COO has been added TO capitalization
Reviewing the combines present posi-
ton In the industry, the report says that
from the beginning the corporation has
overshadowed its principal rivals. even
| exceeding all of its competitors COM
bined. and while in the ten years of
operation its control of production has
dropped from 90 to 30 per cent, approx
| mately, its position in ore reserves is
much stronger.
| The advantage of controlling 73 per
cent of the lake ores, on which the in
dustry is based. is materially enhanced
| by extensive control of rail transporta-
ton from the mines to the lakes. In his
letter accompanying the report Commits
sioner Smith says that in capacity rather
than in actual production the corporation
Is materially stronger than the production
hgures indicate, and suggests that in
case of continued trade depression this
strength probably would show itself in
increased control.