Evening star., 1925-03-15
RAIL MERGER TALK
HELD MOST VITAL
Stock More Than Holders of
Bonds Likely to Profit by
Consultations.
BY GEoRGE II. HUGHES.

Special Dispatch to The Star.
NEW YORK, March 1.-THE de-
velepments Of the greatest interest
from an investment standpoint this
week have been in the railway field
and chief among these the announce
rnent that the Rock Island had Sc
cured control of the st. Louis-South-
western.
The general understanding is that
this is the nucleus of a new vast
Southwestern system of which the
Southern Pacific will ultimately be
the head. Thus the consolidation
process which the law contemplates
and tentative plans for which the In
terstate Commerce Commission has
drawn up begin to take angible form.
or course the commission has still to
put its official Endorsement upon the
operation as indeed it has still to
act upon the larger 'nickle plate
combination.
Meaning to Stockholders.
Tho Importance of these mergers
10 security owners lies in expected
economies of operations which will
increase net income and improve the
status both of bonds and of stock.
In one respect this latest union is
peculiarly significant. The st. Louis
southwestern has a. comparatively
low property valuation and a COM
paratively high earning power, while
the reverse is true with the Rock
Island. Putting the two together,
assuming that eventually there will
be some exchange of securities, al
though nothing of the kind is con-
templated at present, a better balance
between valuation and earning power
will be restored and there will be that
much less chance of the combined
roads being forced to share surplus
earnings with the government
AS IL stands the Cotton Belt" is
one of the few roads earning over
per cent on valuation and so, theore-
tcally at least, under the law COM
pelled to contribute toward the gov
ernment's reserve fund. 1t is true
that the valuation set by the commits
sion Is disputed by the road, as it Is
in almost in every other instance
but the principle remains the same
There is a strong incentive for a
large road in the position of the Rock
Island to acquire one capitalized as
Is the st. Louis is-Southwestern. Prob
ably the acquisition of the New Or
leans, Texas and Mexico by the Mis-
souri, Pacific represents a working
out OF the same idea.
Bond Gain Less Evident.
All this may represent a real benefit
to stockholders, but 1t is not so easy to
see how the status Of the bondholder
Is bettered. Some gain in market
price may temporarily result, but the
fundamental thing to be borne in
mind Is that bond is always secured
upon its specific part of the property
ana the value that particular portion
or the main line or branch, as 1t may
o., yho1a t.
traffic producing powers are the only
determining factors in fixing value.
Prices and value are not always the
same thing, but in the long run value
fixes the price
Freight loadings continue higher,
although there was a drop in the last
week of February due to the observ-
zrce of Washington's birthday. For
the first nine weeks of the year load
lngs were greater than In any similar
period on record. February alone
did not make SO good a showing and
investors as well as spectators will
watch with interest reports from now
on to see whether there may not be
q turn OF the tide. 1t is interesting
to note that the Southern and South
western districts make relatively the
best statements.
Turning to the bond market prices
are below the high of the year, but not
slghincantly SO. There has been a
check to the upward movement, but no
real decline. United States Government
ponds have showed no response to the
slowly hardening character of the
money market. Only two of the active
liberty issues sell to yield 4 per cent.
The Treasury has successfully foated
per cent bond issue at a price
ABOVE par for the first time since 1911.
This fact and the large demand
which appeared this week from saw
ings banks for high grade railroad
mortgages shows that the surplus of
investment capital is still very large
Whetner 1t is large enough to pre-
vent a reaction in the general bond
list In view of the competition from
new offerings remains to be seen.
The one thing that is clear is that
speculative buying for the advance in
bonds is no longer attractive.