The Bismarck tribune. [volume] (Bismarck, N.D.) 1916-current, 1932-04-26
By JOHN w. LOVE


Copyright, 1892. NEA Service, Inc.)
The story of Samuel insults rise as
public utility magnate. recently cli-
NAKED by the receivership of his giant
Middle West Utilities company which
was worth $4,000 900 900 at its peak, is
no more amazing than the story of
how he operated financially in build
Ing up his billions.
Beside the physical expansion of In
sulrs companies ran his remarkable
financial system. equally the product
of his genius. It is his financial sys-
tenn, represented by his holding COM
panies. which is in trouble now. The
operating companies are not involved
in the receivership.
just before the World war insult set
out on his campaign of conquest, buy
ing property after property, scrapping
little power stations and building new
and larger ones. stringing his lines
across the prairies and the noun
tains and along the lakes and rivers
and, finally, the Atlantic ocean and
the Gulf. Gradually, his operations
spread into 80 states from New Eng
land to Texas, in a wide variety of
utilities which included ice plants, gas
plants and other lines but was mostly
power.
AS insult built an electric system he
paid for it by bonds or notes which
he sold to the public. He retained
part or all of the common stock,
which was the voting stock-and
therefore controlled the company,
though he might have very little
money in it,
Then he would sell his common
stock to holding company of his
own, which owned the stocks of sew
eral similar properties.
Next he would issue notes with the
stock of his holding company as Sc
curity, and sell these notes to the pub
lie. This would give him funds to buy
several more properties and form
them into similar holding company.
After he got together a series of
holding companies he would unite
them under another holding company,
a sort Of super holding company, and
repeat the process.
Frequently he would retain only a
fraction of the stock of holding
company and sell the rest to the pub
lie, in little Jumps. While the public
would hold most Of the stock. insult
would have by far the largest lump,
and that gave him the management.
Often he would not sell the stock. but
only voting trust certificates. which
left unquestioned control with insult
and gave the stakeholder the divi-
dends. insult believed in customer
ownership, but not stockholders "in-
reference"
So long as prices of public utilities
were rising, and more and more pe0-
pie were using current, and more and
more had money to invest in the Sc
curities insult always had for sale
there was no end to this method OF
expansion.
There were only two or three ways
this sort Of thing ever could come to
q stop. One would be when insult
and others who were doing the same
thing had bought all the power plants
in sight. Another way would be wher
insult and his rivals began bidding
against each other for properties, ane
paying prices much higher than they
needed to. A third way would be
when the bottom would drop out o.
prices, including the cost Of building
q power plant.
All three things happened. more o.
less. Toward the end Of the grea
bull market in stocks. and even vel
into 1880 and 1881, insult was paying
high prices for properties he wante,
very much. His companies kept OF
building, though at q less rapid rate
They ran up bills and had to borrow
from the banks. They ceased to b.
able to sell stocks to the public at tn
old speed. or even to sell stocks at ali
Finally, their companies began to los
money.
One Of the companies which los
money happens to be street railwa.
IN Scranton, Pa. This street railwa!
can be used to illustrate how the Mid
die West Utilities was put together.
The railway had bonded debt o.