Montana labor news., 1944-05-11

Power Co. He was thoroughly familiar
with the write-up, and that PIT him in
a strong position to demand equal treat
ment for himself.
. .
@. Mr.. Smith, if the Commission were
to consider the second transaction as a
bona fide arms length purchase by
Montana Power Co. from John D. Ryan,
in that event what do you believe would
be the cost to the Montana Power Co.?
A. It would be the equivalent cash
cost Of the securities which it issued.
That is, the actual market value of
those securities, and by market value I
the cash which could be realized
at that time from the sale of the securi-
ties.
@. And by the securities, you refer to
the $5,OOO,OOO of preferred stock and
the 171k million Of deferred dividend
common stock, par value?
A. That is correct.
@. Mr.. Smith, do you believe it is
proper under the circumstances of this
case in %evaluating securities of THIS
kind, to value the assets and translate
the value of the assets into the market
value Of securities?
A. No, 1 do not.
@. Will you give the reasons for your
answer?
A. The valuation of fixed assets such
as those of a public utility by any method
that I know about-and I think 1 am
familiar generally with most methods
would probably give a figure which
would be far from the true cash value.
I say that because of studies of valua-
lions which I have made. and also be-
cause the method does not follow the
correct principle. The correct principle
is to get the cash equivalent of the Sc
curities issued, and that cannot be OBJ
tanned by finding a value through some
appraisal of physical properties.
Fol instance, if 1 were to sell a piece
of land which I could get 5000 for in
the market, to a corporation, and the
corporation insisted upon paying me in
securities, I would insist upon getting
securities which I could convert then
and there into $4,000 cash, regardless of
the volume or the par value of the Sc
curities.
I might explain the situation another
way, from facts in this case.
In 1906, Butte acquired a SO in the
Great Falls Electric Properties from
Ryan. The price was $500, 900 in cash.
In order to get the cash, Butte sold a
million dollars par value Of stock There
was a cash discount of $500, 900. Now,
the cash cost was $50O,O 900 and that rep
resented the cost of the properties. Had
the stock been issued to Ryan at a mil
lion dollars, the cost still would have
been $500, 000-what he could have got
ten in that days market by converting
the entire million dollars Of securities
into cash. That is what we mean by
cash equivalent. I do not believe that
you can get the cash equivalent by a
process of valueing or appraising the
physical properties Of a public utility
company.
@. Mr.. Smith, when did the Great
Falls Power Co. merge into the Montana
Power Co?
A. February II, 1871 beg your par
don-Great Falls merged in 1929.
@. I understood that the staff used
as the cost Of the properties owned by
the Greas Falls Power Co. in 1918 the
investment by Montana in the first half
interest in the Great Falls Water Power
& Townsite Co., plus the investment
Ryan made in the second half?
A. That is true.
@. And there has also been recog-
nized the cost of all the additions made
from 1918 to 1929 by the Great Falls
Power Co.?
A. That is true.
@. Mr.. Smith, if you were to substi-
tute the cost to Great Falls itself fol
the investment of Montana Power Co.
which the staff has determined, would
the resulting cost be greater or less than
that which the staff has used?
A. It would be less.
@. BY approximately
A. $4,000
@. Mr.. Smith, are you familiar with
the transaction whereby Mr.. John d
Ryan and his associates acquired the
power site properties they transferred to
the Thompson Falls Power Co., and
whose stock in turn was exchanged by
Ryan for the common stock of the Mon
tana Power Co.?
A. I am.
@. Will you describe your understands
ing of those transactions?
A. The Milwaukee Railway acquired
from Ryan and someone else through
Ryan certain properties known as the
Thompson Falls sites. Later Ryan pur-
chased these sites from the Milwaukee
Railway and also the Fish Creek site
paying twice the investment Of the rail
way plus interest on the investment. The
amount Ryan paid on February II, 3
was S929,OO0 in round figures. On the
same day, Ryan transferred the proper
ties to his Thompson Falls Power Co.
in exchange for IS, 200, 900 par value Of
the latter's stock. In that transaction
in my opinion, the Thompson Fall
Power Co. wrote up the plant account
by S4.O7l, 600. Likewise, on the sam
day. the Thompson Falls stock owneC
by Ryan and his associates was trans.
ferred to Montana Power Co. in ex-
change for SIS, OOO,OO par value Of stool