The producers news. [volume] (Plentywood, Mont.) 1918-1937, 1928-03-30

Speaking of the concentration &c
control which is made possible and
generally results from the oroani f.-a,
i IIon VI the hoidlng company, Mr.. Rip
ley gives the following examples:
suppose principal operating COM
pany, A, has four subsidiary HOLDING
companies, B, c, D and E. Compan4
Il buys subsidiary for $1,000 COO;
II passes it on to D for $1,25O,O00
u passes 1t on to c for $1,5OO.OOO: &
TO Tor S1,750,000; B finally to 4
for S2,OOO,OO0. Nothing has been add
ed to the group in the way of earn
lngs, and yet B, c, d and E right
each declare a dividend of $3.50 0GO
pIcflt to A. Such things are rarely
done, certainly not in such bald "a
SIMON as this, but over a very CON
siderable period of time such trans
actions DO crop out despite their indie
feasibility"
Although Mr.. Ripley says that such
things are rarely done, he neverthe-
less cites Instances in which exactly
that sort of thing has happened. And
referring particularly to the method
/ by which, through the device of The
holding company, the control of Tie
whole organization is concentrated in
the hands of the so-called "top boIding
company GPy Mr.. Ripley says:
One of the baldest cases on record
OF concentration of control of a ton
holding company is thus described
from personal experience by the edi-
tor of the Atlantic Monthly:
In June 1924, the capital stock of
the Northern States Power COMPANY
OF Delaware included $6,17O,OO0 IN
common shares of 500 par value.
With the control of this stock went
the control of the company. On july
l, however, of the same wear a new
stock was issued of no par value. en-
titled Class B Stock, to the tune of
100000 shares at $40 a share. This
stock carried voting privileges and its
ownership insured control. On the
last day of this same year, 1924, it is
interesting to observe that of this is
sue 1928 shares were in the nos
session of the parent company of the
Northern States Power Company, the
Standard Gas & Electric COMPANY
A fairly complete transaction!
But to delve little further into the
Elyslan mysteries of modern finance
Ihls same parent company, the Stan
dard Gas & Electric Company, realiz-
ing that the wide sale of its securities
was spreading the control as we'll as
the ownership of its stock, issued L.
OOO,OOO shares of voting stock at 81
per share. These peculiarly priced
shares, carrying absolute control OF
the company, were taken over bodily
; by the company's promoters, H. M
, Byllesby and Company. Thus, after
realizing the market value of the
shares of the Standard Gas & Electri,
Company and its subsidiary corpora
lions, the original promoters purchas
ed It's continuing control at nomina
price. They have eaten their cake
ana they have it still"
. Another evil and danger of the
hrI0lng company method referred Il
) by Mr.. Ripley, is the fact that it en-
, ables these companies to branch out
into other lines of enterprise nc
; strictly belonging to their field an,
, often highly speculative in their ma
, ture. This tends to render the Who'll,
structure less stable and, therefore
their investments less secure. Thi
tendency also is indicated in the Stan
. dard Gas & Electric Co., the paren
\ organization of the Northern State
y Power Company. Mr.. Ripley says:
'But when the Standard Gas
Electric Company owns a majority O
the common stock and some of tn
! preferred shares, and guarantees "a
i to principal, interest, and sinking
fund $8,300,000 worth of bonds of tn
:; Shaffer Oil Company, "a complete uni
in the oil industry, embracing petro
. leum production, transportation, rein
ing, distribution and marketing
= becomes matter of substantial inter
y est, not only to the 10000 ordinar
e and customer stockholders, but to
general public scattered over some 1
!: states of the Union as well. Yet tn
= Standard Company in its annual RI
= port does not give even a resume c
= the affairs of this oil concern"
" The whole tendency and the preseI
= practices of the private power con
panies which are too carefully an
extensively analysed by this conse
!. vative authority, Prof. VIM. z. RIPPLE
- and which he is at great pains
- describe and warn the people of tt
y country, but more particularly Il
p companies themselves, against, is t.
re wards the overlooking of the capt.
~ accounts, the concentration of contr
= into the hands of the so-called 'tC
y companies" and the attendant and i
VI creasing insecurity of the whole
\ nancial structure. We would recoT
mend to our members and especial
nc those who care to go further into Il
~ details of this matter, a careful stut
le of Prof. Ripley's book.
a Capital Charges Never AmOrtized
y Entirely aside from this whole que
a te ton of over-capita1ization which \
" have found to be very general the
~ is another and more important pha
ne to which neither Prof. Ripley nor al
ey of the usual writers of this subje
- seem to have given any attention.
refer to the fact that the private pc
er companies never pay off or amC
tie their capital accounts. They S
very frankly that they do not attem
to amortize their capital accounts a
insist that it cannot and should not
done. Herein lies the greatest diff
ence between private and public {
terprise. A public enterprise, whetl
it be a municipal light and pow
plant or a great system of hyd
electric plants such as that of Onta
to which we shall refer later, or ey
a public school building or pub
road or bridge, always arranges
pay off or amortize the capital
count. And if the public enterpr
is a revenue producing project
capital account is amortized out
earnings. In other words, publ