Evening star., 1942-06-04
Sale Of 10000
Pepco Shares at
PdrApproved
Honkin Dissents;
Holds Actual VoIue
Mems Stock Dividend

Mems Stock Dividend
Sale Of $4,000 shares Of common
stock Of the Potomac Electric Power
Co. to its immediate holding COM
pany, the Washington Railway g.
Electric Co., at 500 a share-ap-
proved late yesterday by the Public
Utilities Commission-touche on
charges that the issue would con-
stitute an illegal stock dividend"
This and other charges were
made by Gregory Hankin. the Com
mission chairman, in a 5,0O0-w word
opinion in which he dissented from
the ruling made by James H. Flan-
agan and Engineer Commissioner
Charles w. Kutz. the other PUG
members.
1t revived debate over the acqui-
sition by the North American Co., a
giant utilities holding company, of
stock In Washington utilities in the
light Of the terms of the La Toilette
Anti-Merger Act. North American
controls Wreco, which owns all of
the common stock Of Pepco.
Several months ago, at the in
stance Of Mr.. Hankin, the Utilities
Commission began a probe OF North
American interests here, but most
Of these issues were excluded from
the proceedings over the 10000
share stock issue, and reserved for
later action. The Securities and
Exchange Commission also Is con-
sidering the future of North Amer
lean.
Sees Big Resale Value.
Mr.. Hankin declared that the
value Of Pepco stock, II sold pub
hcly would be between $500 and
$500 . share. rather than the 500
par value stated In the approved
petition. He said: "One thing is
clear: If Wreco is permitted to ac-
quire these 10000 shares of stock
for some $4,000, 900, then it will be
quite possible for the Wreco to dis
pose OF these shares at their actual
value. namely, $4,000, 900 to $l8,-
600, 900, thus transferring some S12,-
100000 to SIS ,0o0, 900 from surplus
into profit"
He added that this brings up the
question of whether the issue would
constitute a stock dividend. Quot
ing the law banning stock dividends,
Mr.. Hankin said:
III the value Of the stock is some
where between $500 and $500, and
If Wreco as the sole holder of Pepco
Is permitted to acquire such stock
as 500, then the excess in value of
the stock over par Is being dis
tributed to the stockholders as a
stock dividend, contrary to the pro-
vision OF the statute.
The witnesses for the companies
took the position that so long as
there is a consideration paid for the
stock, 1t cannot be regarded as q
stock dividend. This, OF course, is
absurd, because then the statute
may be circumvented by the pay
ment Of nominal consideration for
any stock issue. with the result that
a stock dividend may be declared
under the guise of a sale of stock.
which Is exactly what the COM
panies now are seeking to do"
Company ofncials denied this was
so at hearings on the issue.
The commission majority, from its
review Of the April 9 hearing on the
case, found that the proposed
finance plan to be "the most ap-
propriate method Of raising the S.
100000 presently required and Is in
the public interest, and in the in
terest Of investors and consumers"
Differing sharply with Mr.. Hankins
views. the ma jority declared suspen-
sion OF the usual competitive bid
ding rule was warranted in this
case in view of the fact that Wreco
owns 100 per cent of the Pepco
common stock.
Restricts Pepco Dividends.
The majority also declared, There
is nothing in the record of this pro-
ceeding to indicate that the pro-
posed transaction, If consummated,
will result In the declaration of
stock dividend: in fact, the testi-
mony offered by both commission
and applicants witnesses and the
authorities referred to in the record
justifies our finding that the sale
=" will not result in the declara-
ton OF q stock dividend to the ex-
tent of the value of such shares in
excess Of 500. We. therefore, find
that the price Of 500, being the par
value Of the stock, is an appropri-
ate price"
The order carries restrictions on
cash dividends Pepco directors may
order until December 81, 1914.