Evening star., 1933-09-26
TRACTION MERGER
RESULTS ANALyzED
Y.E. Booker Completes Study
of Effects on Capital
Investors.
BY EDWARD c. STONE.

way g. Electric Co. will mean to some
10000 Washington investors in the two
corporations is pictured in technical
analysis completed today by Y. E.
Booker, head of the investment house
of Y. E. Booker & Co. AS already.
stated in The Star, the merger will
mean more to the holders of Capital
Traction issues than to investors in
Washington Railway & Electric secur-
tiles. On this point Mr.. Booker ex-
plains:
The merger is a far more vital mat
ter to the holders of securities of the
Capital Traction Co. than to those Of
the Washington Railway & Electric
Co. In fact, so far as the individual
stockholders of the washington Rail-
way & Electric Co. are concerned, the
merger is relatively unimportant. This
is due to the fact that the S6,500,000
of common stock and the S8,500,000
of per cent preferred stock of the
Washington Railway & Electric Co.
represents ownership of the entire COM
mon stock of the Potomac Electric
Power Co. in addition to its street
railway properties Earnings from the
power company alone for many years
have been far in excess OF the amount
required to pay the present S5 dividend
on LQe IedIiNdy c. LANSNAAN
Co. preferred stock and the dlVlaend
of ST a share en- its common stock
Under the merger agreement, the
washington Railway g. Electric Co.
simply sells its street railway proper
ties to the new Capital Transit Co. and
receives in payment $4,000, 900 in ccm-
mon stock of the new company This
common stock will be held in the treas
ury of the Washington Railway & Elec-
trio Co., together with all the common
stock of the Potomac Electric Power
Co., which it already owns. ms VIII
result in the Washington Railway q
Electric Co. becoming purely holding
company. Therefore no exchange OF
stock certificates is involved so far as
its present stockholders are concerned.
The investment position of these two
stocks will be relatively strengthened
by whatever extent earnings from their
street railway properties are Increased
rs a result of the consolidation.
Different With Traction Holders.
From a standpoint of the Capital
Traction stockholders, however, the sit
nation is altogether different. This
company is dependent solely upon its
TRANSPORTATION facilities for its revenues.
It's capital structure is very simple,
consisting of S12000000 common stock
of S100 par value, and $685. ,oO0 OF
per cent first mortgage bonds Onoer
the merger agreement this Sl2,OOO.O0u
of common stock will be exchanged for
S12 900 900 of common stock OF s1Oo
par value in the new company Capital
Traction stockholders therefore, Will
receive share for share of stock IN the
new company, of the same par value
as that which they surrender, and Will
benefit from whatever increase In net
earnings the consolidation may brlng
about.
"The Capital Traction Co. showed
net earnings during the II months,
S57 ,289, after paying all interest charges,
depreciation ETC., and for the six
months ended June 80, 1888, the com
pany showed net earnings of S16,314
after all charges.
The Washington Railway & Electric
Co. reported net earnings on its street
railway properties, after all charges,
and eliminating dividends received
from the Potomac Electric Power Co.,
for the II months period ended De-
cember 81, 1882, of $28.494, and for
the six months ended June 80, 1888. |
showed a deficit Of S29, ,383.07.-
Earnings Hard to Estimate.
Because of the past close relationship |
between the Washington Railway &
Electric Co. and the Potomac Electric |
Power Co. and the advantages the
street railway company enjoyed as
result of a lower power rate and the
privilege of reselling electric power at
a profit, its earnings in the past cannot
De taken as an accurate indication OF
what it will show under the new ar
~angement, where many of these ad-
VantageS will be eliminated. No fig
ureS are available as to how much these |
intercompany relations were worth to
the railway properties, and it Is, there |
fore, virtually impossible to ascertain
just what the actual earnings from
the railway properties would have been
without them. The only official fig
ures available are those filed with the
Public Utilities Commission showing
total income and expenses for the rail-
way properties. These figures include
dividends received from the Potomac
Electric Power Co.. profit from the re-
sale of power and a substantial amount
of income representing interest on in
yestments. Dividends received from the
power company are, of course. def
nitely known factor and can be de-
Quoted, but the various other ad-
vantages from intercompany relations
cannot be definitely arrived at.
w Lille Illc SCo SOlLPdily WALL AAdfC
working capital of 81. 500 900, largely in
vested in bonds, and will receive sub
stantial income from this source, the
aggregate of such income will be con-
siderably less than that which the
Washington Railway & Electric Co. has
received as interest on investments dur
ing the past several years.
Important Bond Factors.
zr xr,;l
be largely offset by reduction of S.
948150 in the amount of Washington
Railway & Electric 4 per cent bonds
to be charged against railway opera
tions. There are outstanding approx
mately S1O,000,000 of these 4 per cent
bonds, and in the past the entire in
terest has been charged against the
railway properties of the Washington
Railway & Electric Co. Under the
merger agreement, the new railway
company will be responsible for only
s4O0O,0 900 of these bonds. This will
Immediately bring about an annual re-
926, and will, of course, increase the
equity applicable to the common stock.
The merged company also will be
relieved of the salaries of crossing po-
licemen, amounting to $4,000 annual
ly and paving COSTS amounting to ap-
proximately $4,000 annually. thus max
ing total immediate savings of
1915 ,O004 annually. To arrive at the
total economies to be expected, there
must be added to this S375,O00 the
amount of operating economies which
will result from unified operation. That
these economies will be substantial ap-
pears certain, but no reliable figures are,
available at this time Unofficial esti-
mates range all the way from $500,0O0
10 as much as 81 1,O00,0 900 annually.
ALSO of great Importance to the
stockholders of the new railway COM
pany is the provision for purchase of
electric power from the Potomac Elec-
trio Power Co. at favorable rates. While
it is estimated that the power company