Evening star., 1926-12-16

agement, frequently makes an oppor.
tunity to sell out seem attractive. /:
! is device for coupling financial with
drawal with personal resignation from
| a business.
| OF course. as in the case of Dodge
| Bros, when control reposes in the
| heirs of the active managers, rather
| than in the hands of the founders,
/ other considerations are operative.
| Frequently the heirs have neither the
disposition nor the capacity to con-
tinue active direction of the affairs
| of large corporation, and, in turning
the helm over TO others, prefer to
withdraw their cash investment, so
, that they can reinveSt the proceeds
in a diversified list of high-grade Sc
curities, thus adding elements of
safety to their investment position.
In switching from more or less specu-
lative common shares to high grade
bonds, they forego the hope of further
profit in return for an assurance that
their principal will be conserved in
tact In the case of extremely
wealthy individuals, a determining
factor is the question of taxes. It
seems attractive to substitute tax
exempt municipal bonds for common
shares of industrial corporations,
which are subject to Surtaxes.
In the case of active managers, like
Mr.. johnson, the sell-out gives them
a graceful and attractive way to take
profits Without an arrangement with
investment bankers. the dominant in
terest could not readily dispose of
control in the open market without
seriously depressing the price of the
shares.
Uncommon Before War.
Such sell-outs were uncommon be-
fore the war The conditions which
now give rise to them We're existent
only in incipient form. The newer ar
rangement is made feasible because In
recent years the country has de-
veloped a broad investment and specu-
lative market.
Investors have an appetite for Sc
curities of companies in any trade or
industry which has a record of sue
cess behind it. Moreover. Nhe busi-
ness of the country has grown so
prodigiously in recent years that
small groups, no matter how wealthy,
no longer feel capable of carrying the
risks and burdens of ownership with
out the support of the financial pubic.
At each Sell-out, cynics Snicker, sug-
gesting that the public is being asked
ord of the transformation of privately
owned into publicly owned companies
by no means justifies such an attitude.
Many companies, including May De-
partment Stores, F. w. Woolworth
Co, Postum Cereal, and scores of
others. are now capitalized in the
open market at figures which make
the prices at which they were origin
ally offered by their sponsors seem
exceedingly cheap.
My conclusion is simply that the
shares of each new proposition which
comes before the public must be inde
pendently analyzed in the light of the
special facts surrounding them. The
history Of se1l-outs under the auspices
of reputable investment bankers by
no means warrants general attitude
of suspicion toward such operations.
In practice, the small investor as a
matter of fact shows preference for
the securities of companies which are
well known to him. Popularity there
fore is an asset in marketing Sc
curities, though in the actual science
of finance it has less bearing on the
worth of securities than underlying
assets. earning power, and prospects.