THE DISTEIBUTION OF SECURITIES IN 
 THE FORMATION OF THE UNITED 
 STATES STEEL CORPORATION 
 
 BY 
 
 MAURICE H. ROBINSON 
 
 REPRINTED FROM POLITICAL SCIENCE QUARTERLY 
 Volume XXX, No. 2, June, 1915 
 
 NEW YORK 
 
 PUBLISHED BY GINN & COMPANY 
 
 1915 
 
THE DISTRIBUTION OF SECURITIES IN 
 THE FORMATION OF THE UNITED 
 STATES STEEL CORPORATION 
 
 BY 
 
 MAURICE H. ROBINSON 
 
 REPRINTED FROM POLITICAL SCIENCE QUARTERLY 
 Volume XXX, No. 2, June, 1915 
 
 NEW YORK 
 
 PUBLISHED BY GINN & COMPANY 
 
Digitized by the Internet Archive 
 in 2017 with funding from 
 
 University of Illinois Urbana-Champaign Alternates 
 
 https://archive.org/details/distributionofseOOrobi 
 
1 1 ^ C I ^ ^ 
 
 V 
 
 R5&4<i 
 
 
 THE DISTRIBUTION OF SECURITIES IN THE FOR- 
 MATION OF THE UNITED STATES STEEL 
 CORPORATION 
 
 / 
 
 D uring the period from 1898 to 1901, when the forma- 
 tion of industrial consolidations was most active, com- 
 paratively little attention' was given, either by the pro- 
 moters, the underwriters or the owners of the constituent prop- 
 erties, to the important economic problems connected with the 
 effects of the various consolidations upon the relative status of 
 the parties in interest. In certain cases complaints were made 
 in conferences, and occasionally in the financial press, that the 
 owners of important plants were unfairly treated in the distri- 
 bution of securities, but in general the answer to such charges, 
 “ If you don’t like the terms you can stay out,” was considered 
 a sufficient justification for any plan that proved acceptable to 
 a sufficient number of interested parties to ensure its adoption. 
 
 Attention in a large way was first called to the seriousness of 
 the problem in the Harriman suit against the Northern Securi- 
 ties Company, the Harriman interests asking for the return of 
 the securities exchanged for Northern Securities stock, rather 
 than a pro-rata distribution as proposed by the directors and 
 approved by the stockholders. After the case had been ex- 
 haustively argued, the Supreme Court refused to sanction the 
 petition of the Harriman interests for several reasons — one of 
 them being the difficulty of preserving the equities in the situ- 
 ation between the Hill-Morgan and the Harriman groups by 
 the use of the direct-return method. The pro-rata method was 
 approved, one of the important reasons being that in this way 
 all parties at interest must of necessity receive an equitable 
 interest in the several independent companies created by the 
 order for distribution. The continued success of the United 
 States government, acting through the Department of Justice 
 and the courts, in forcing the dissolution of many of our more 
 important consolidated corporations, has given more than an 
 academic interest to the problems necessarily connected with 
 
 277 
 
POLITICAL SCIENCE QUARTERLY [Vol. XXX 
 
 278 
 
 the equitable distribution of securities, both in the process of 
 formation and in that of disintegration. 
 
 Already the Northern Securities Company, the powder con- 
 solidation, the Standard Oil Company and the American 
 Tobacco Company have been disintegrated and their securities 
 distributed by the pro-rata method on order of the Supreme 
 Court. A decision against the Harvester trust has been ren- 
 dered and its dissolution is now in process. The suit of the 
 United States government against the United States Steel Cor- 
 poration, asking for its dissolution, is being expedited under 
 the law with all possible speed. Several other cases are either 
 before the courts or have been settled without litigation by 
 conferences between the representatives of the corporations and 
 of the government. Under these circumstances a more exact 
 knowledge of the process by means of which consolidations are 
 formed is a necessary prerequisite to an understanding of their 
 economic effects upon shareholders, whether such aggregations 
 of capital are permitted to remain intact or are forced to disin- 
 tegrate by order of the courts. 
 
 I 
 
 In general there are three fairly well defined methods in more 
 or less common use for the distribution of securities in the for- 
 mation of consolidations. The first in practical importance 
 may be called the bargain method; the second, the Moore 
 method ; the third, the scientific method. 
 
 When operating under the first plan, the promoter provides 
 for a maximum of securities to be issued by the central corpo- 
 ration and then enters into contracts or agreements to exchange 
 the securities authorized for the securities of the companies 
 which it is hoped to consolidate into one company on the best 
 terms possible. The more favorable the rate of exchange in 
 any particular case, the larger the share of securities which will 
 remain in the hands of the promoter. Since some of the 
 owners of the various properties included in the plan of con- 
 solidation are shrewder at bargaining, or more favorably situ- 
 ated for independent action, it necessarily follows that those 
 thus situated invariably obtain in the distribution of securities a 
 
No. 2] 
 
 DISTRIBUTION OF SECURITIES 
 
 279 
 
 larger interest in the consolidation than the intrinsic value of 
 their plants would justify. 
 
 The Moore method was devised by Mr. W. H. Moore and 
 was used by the Moore brothers, W. H. and J. H., in the 
 American Tin Plate Company, the American Sheet Metal 
 Company and several other consolidations promoted by them* 
 during the period of active consolidation. The first step in the 
 Moore plan is to secure cash options on all the properties that 
 are considered desirable for the consolidation, so far^ as such 
 options can be obtained at acceptable figures. A plan for the 
 financial organization of the consolidation is then prepared. 
 Next, arrangements are made with underwriters to supply the 
 necessary funds to take up all the options at the appropriate 
 time, or such portion thereof as the promoter judges will be 
 required. Finally, each owner of securities in the companies 
 on which cash options are held is offered cash or securities in 
 the new corporation at his option. If all the option-givers 
 should choose to take their pay in cash, there would necessarily 
 be required large resources in ready funds to ensure the suc- 
 cess of the promoter’s plan. Generally, however, the option- 
 givers have preferred to take securities, and the promoters 
 using this method have so arranged their financial plans as to 
 favor this inclination. According to the report of the Indus- 
 trial Commission, it was customary to offer each of the option- 
 givers seven per cent cumulative preferred stock equal in ^ 
 amount to the face value of the cash option, and a like amount 
 of common as a so-called “ bonus.” The offer of the promoters 
 to give two hundred dollars’ worth of stock instead of one hun- 
 dred dollars in cash appeared so attractive, on its face, that the 
 owners generally took the securities rather than the cash. The 
 requirement for cash was thus reduced to a small fraction of 
 the values involved in the deal. It was usual, as would be ex- 
 pected, for the promoter to issue common stock in liberal 
 quantities, and the total amount in excess of the preferred was 
 retained in his own hands as a reward for his services. In the 
 case of the American Tin Plate Company, 10/28 of all the 
 common stock issued was thus retained. 
 
 The third method, denominated the scientific, exists in' the ^ 
 
28o 
 
 POLITICAL SCIENCE QUARTMLY [Vol. XXX 
 
 world of finance as an ideal rather than as an actuality^ Briefly, 
 it consists in issuing securities to the owners of the constituent 
 properties in exchange for their interests in such a way that 
 each will receive his proportionate share in the increased earn- 
 ings in case of success, and share also his proportion of the 
 losses in case of failure. This object is accomplished by issuing 
 ( I ) preferred stock equal in face value to the tangible assets 
 with such dividend rate, conditions of issue and of redemption 
 as will make its market value equal its face value, and (2) com- 
 mon stock in proportion to the surplus earnings contributed by 
 each company over and above the requirements for the pre- 
 ferred. To find the amount of preferred and common to be is- 
 sued and assigned to the several owners, it is necessary ( i ) to 
 make an appraisal of the tangible assets of each of the companies, 
 keeping the results separate, and (2) to have an accounting for 
 the purpose of ascertaining the net earnings of each of the 
 several companies, extending over a period of years sufficiently 
 long to be representative of actual earning power. The com- 
 mon stock may be issued to any convenient amount, preferably 
 slightly exceeding the preferred, so that control of the corpo- 
 rate policy of the central corporation will be in the hands of 
 those holding the contingent interests. The important questions 
 connected with the common stock relate to its distribution. 
 To illustrate: it is proposed to consolidate two companies, 
 A and B, with assets and earnings as follows : 
 
 NET ASSETS NET EARNINGS RATE PER CENT 
 
 A $10,000 $1,500 15 
 
 B . 20,000 2,000 10 
 
 Company C is organized with $30,000 7 per cent cumulative 
 preferred stock and $40,000 common stock. Stockholders in 
 Company A are allotted $10,000 of the preferred stock and the 
 remaining $20,000 is assigned to the stockholders of Company 
 B. The promoter, it may be assumed, will retain $10,000 of 
 the common stock to pay the organization expenses and as 
 
 ^ Mr. Charles R. Flint used a modified scientific plan in the promotion of both 
 the United States Rubber Company and the Rubber Goods Manufacturing Company. 
 Report of Industrial Commission, xiii, pp. 38, 48; N. Y. Senate Report No. 40, 
 p. 452 ff. 
 
DISTRIBUTION OF SECURITIES 
 
 No. 2] 
 
 281 
 
 compensation for his services. The remaining $30,000 of 
 common stock will be divided as follows : 
 
 NET REQUIREMENTS EXCESS 
 
 EARNINGS FOR PREFERRED EARNINGS COMMON 
 
 A $1,500 $700;; $800 • $17,143/ ^ 
 
 B . . 2,000 1,400*^ 600 - 12,857^ 
 
 $30,000 
 
 Under this method of distributing securities, the owners of the 
 constituent companies will share in the earnings in case of con- 
 tinued operation in the same proportions as before the consoli- 
 dation took place, and, provided the promoter has been allotted 
 stock only for actual benefits conferred by his efforts, in the 
 same amounts. In case of dissolution, on the other hand, the 
 former owners will receive in the distribution of assets in pro- 
 portion to the value of the tangible assets contributed. In 
 either contingency, the relative economic positions of the par- 
 ties at interest will be maintained on a parity. 
 
 II 
 
 The relative merits of these three plans will appear more 
 clearly from an examination of the results which would flow 
 from their adoption in the formation of an actual consolidation. 
 The United States Steel Corporation affords an excellent 
 opportunity for such a comparison. 
 
 This corporation, a holding company, was formed in March, 
 1901, by the consolidation of the following corporations: the . 
 Carnegie Company of New Jersey /the Federal Steel Company/ 
 the American Steel and Wire C^ompaijy/the National Tube 
 Company, the National Steel Company, the American Tin Plate 
 Company, the American Steel Hoop Compan;^ and the Ameri- 
 can Sheet Steel Company/ Later in the same year the Steel 
 Corporation, by an exchange of stock, acquired control of three 
 other companies : the American Bridge Company, the Lake 
 Superior Consolidated Iron Mines, and the Shelby Tube Com- 
 pany. It also purchased outright a one-sixth interest in the 
 Oliver Mining Company and the Pittsburgh Steamship Com- - 
 pany, and the Bessemer Steamship Company. In addition to < 
 
282 
 
 POLITICAL SCIENCE QUARTERLY [Vol. XXX 
 
 the above companies, all of which became constituent parts of the 
 United States Steel Corporation in the spring of 1901, the steel 
 corporation acquired control of the Union Steel Company in 
 1902, the Clairton Steel Company in 1904, and the Tennessee 
 Coal, Iron and Railroad Company in 1907. 
 
 These companies belonged to two distinct groups: (i) those 
 producing crude and semi-finished steel for the trade and the 
 heavier finished steel products, and (2) those using the semi- 
 finished steel for the purpose of manufacturing articles for more 
 direct consumption. In the former group were the Federal 
 Steel Company, the National Steel Company, and the Carnegie 
 Company. In the latter group were the American Tin Plate 
 Company, the American Steel and Wire Company, the National 
 Tube Company, the American Steel Hoop Company, the 
 American Sheet Steel Company, the American Bridge Com- 
 pany, and the Shelby Tube Company. The remaining com- 
 panies, acquired in the spring of 1901 — the Lake Superior 
 Consolidated Iron Mines Company and the Bessemer Steam- 
 ship Company — were engaged in mining iron ore and transport- 
 ing it down the Great Lakes to the iron and steel mills of the 
 Pittsburgh and Chicago districts. 
 
 From the financial point of view the above-named companies 
 represented, before the consolidation, five distinct groups of 
 interests, as follows: (i) The Morgan group, including the 
 Federal Steel Company, the National Tube Company, and the 
 American Bridge Company; (2) the Moore group, including 
 the National Steel Company, the American Tin Plate Company, 
 the American Sheet Steel Company, and the American Steel 
 Hoop Company; (3) the Carnegie group, owning the Carnegie 
 Company and its subsidiary interests, including the Frick Coke 
 Company, the Bessemer and Lake Erie Railroad, and certain 
 steamship lines and docking facilities on the Great Lakes ; (4) 
 the Rockefeller group, owning the Lake Superior Consolidated 
 Iron Mines Company, with large holdings of iron mines in the 
 Lake Superior district and certain railway and steamship lines 
 built and acquired for the purpose of facilitating the transpor- 
 tation of the crude ore to the market; (5) the Gates group, 
 controlling the American Steel and Wire Company and its 
 affiliated interests. 
 
No. 2] 
 
 DISTRIBUTION OF SECURITIES 
 
 283 
 
 The consolidation movement in the iron and steel industry 
 began as early as 1889, when the Illinois Steel Company, later * 
 a constituent part of the Federal Steel Company, was formed 
 by the union of two companies, the North Chicago Rolling Mill 
 Company and the Union Steel Company, and soon after ac- 
 quired the property of a third, the Joliet Steel Company. This 
 merger was followed in 1891 by the consolidation of the Lack- 
 awanna Iron and Coal Company and the Scranton Steel Com- 
 pany into the Lackawanna Iron and Steel Company. At about 
 the same time Laughlin and Company, Ltd., and Jones and 
 Laughlin, Ltd., united to form the well-known Jones and Laughlin 
 Company. In 1892, two important steps in the consolidation 
 movement were effected : first, the organization of the Carnegie 
 Steel Company, Ltd., a partnership bringing into closer and 
 more efficient union the Carnegie and Frick properties and the 
 various affiliated companies which they had been acquiring 
 during the previous decade ; second, the formation of the Con- 
 solidated Steel and Wire Company, a union of three competing 
 companies, which later formed the center of the American 
 Steel and Wire Company when the latter company was pro- 
 moted in 1899. 
 
 During the period from 1892 to 1898, the years of the panic 
 and those immediately succeeding it, there was almost no 
 change in the financial organization of the various steel and 
 iron companies. In the year 1896 an event of the profoundest 
 importance occurred — the execution of a contract between the 
 Carnegie Steel Company and the Lake Superior Consolidated 
 Iron Mines Company, by which the latter agreed to furnish at 
 a royalty of 25 cents per ton a considerable portion of the 
 former’s requirements. This partial union of the Carnegie 
 and Rockefeller interests was everywhere regarded as a formal 
 declaration on the part of the former that they were prepared 
 for any competition that might arise. 'The step just referred 
 to was followed by others of the same general nature, and in 
 the course of the next two years the Carnegie Company 
 secured control by lease of a large reserve iron-ore tonnage. 
 The Engineering and Mining Journal^^ in commenting on the 
 
 ^ January 2, 1897. 
 
POLITICAL SCIENCE QUARTERLY [Vol. XXX 
 
 ,284 
 
 situation, remarked that “ we have had pools and combinations 
 without number in the iron market in this country but never 
 before a position like this, in which a single company could 
 absolutely dominate the trade and make any combination which 
 can be formed simply the register of its own wishes.” The 
 Carnegie-Rockefeller contract was followed in 1898 by the for- 
 mation of the first of the great consolidations — the Federal 
 Steel Company — a company uniting the Illinois Steel Company 
 previously referred to, the Minnesota Iron Company, with large 
 holdings of iron ore and extensive transportation properties, the 
 Lorain Steel Company of Ohio, the Johnstown Steel Company 
 of Johnstown, Pa., and the Elgin, Joliet and Eastern Railway. 
 During the years 1899 and 1900, the Moore brothers, W. H. 
 . and J. H., formerly connected with the Diamond Match Com- 
 pany, entered the field as the promoters of four companies 
 known as the Moore group, which comprised the National Steel 
 Company, the American Tin Plate Company, the American 
 Steel Hoop Company, and the American Sheet Steel Company. 
 The first company manufactured crude steel and heavy steel 
 products; the other three were important consum.ers of the 
 above products. During the same period the remaining Mor- 
 gan companies were organized — the first, the National Tube 
 Company in June, 1899, the second, the American Bridge 
 Company in 1900, each being made up of a considerable num- 
 ber of formerly competing companies. As .to the two other 
 companies which entered the steel corporation, the Carnegie 
 Company, while not a consolidation in the ordinary sense, had 
 for many years been buying up competitors and integrating 
 many of the companies which it found convenient as furnishers 
 of raw materials, while the Shelby Tube Company was a fairly 
 complete consolidation of the leading manufacturers of seam- 
 less tubing. It was, however, dependent upon the manufac- 
 turers of crude steel for the material which formed the basis of 
 the drawn tubing. 
 
 The formation of the several steel companies above described 
 was, however, but a first step in the consolidation of the steel 
 industry. Almost immediately after the fundamental consoli- 
 , dations were effected, the natural effects of such a movement 
 
No. 2] 
 
 DISTRIBUTION OF SECURITIES 
 
 285 
 
 began to be felt. First, the National Tube Company began the 
 erection of blast furnaces, thus depriving the Carnegie Com- 
 pany of one important consumer of billets and other heavy raw 
 materials used in the manufacture of tubing. The Carnegie 
 Company had for some time been planning extensions, and as 
 a direct result of the action of the National Tube Company it 
 was decided to erect a modern plant at Conneaut Harbor, where 
 it was thought the cost of manufacturing would be reduced to a 
 minimum.^ Second, as a result of a long-standing controversy 
 between the Pennsylvania Railroad and the Carnegie Company 
 over rates, the latter had determined to build a new, low-grade, 
 short-line railroad from Pittsburgh to tidewater via the Western 
 Maryland Railroad. The plans as proposed called for the 
 construction of 156 miles of railroad connecting the Union 
 Railroad with the Western Maryland at Cumberland, thus free- 
 ing Pittsburgh from the monopoly of the Pennsylvania, and giv- 
 ing the district, as Mr. Carnegie said, “ competition of rail- 
 roads.” ^ Third, early in the fall of 1899, Mr. Charles M. 
 Schwab of the Carnegie Company spoke before a company of 
 distinguished business men in New York city on the advantages 
 of consolidation in the manufacture and marketing of steel.3 
 Morgan sat at his right and among the men present were 
 Harriman, Carnegie, Phipps and seventy or eighty others.^ 
 Fourth, Mr. Morgan, whose tube plant was threatened by the 
 plans of the Carnegie Company and whose interest in rail- 
 roads was a dominant factor in all his plans, began to give 
 the situation more serious attention. According to both Mr. 
 Gates and Mr. Schwab, Mr. Morgan discussed the situation 
 with the former and then, through the instrumentality of Mr. 
 Gates, sent for Mr. Schwab for the purpose of going over the 
 project in detail. A meeting was arranged and the matter was 
 discussed at considerable length and after a day or two Mr. 
 
 * Testiniony of Mr. Carnegie, Hearings before the House Committee on the in- 
 vestigation of the U. S. Steel Corporation, page 2445 ff. Hereafter referred to as 
 the Stanley Report; ibid, pp. 40, 1311 ff. 
 
 2 Gates, Stanley Report, p. 40. Carnegie, ibid, 2445 ff . Century Magazine, August, 
 1908. 
 
 ® Testimony of C. M. Schwab, Stanley Report, p. 1278. Ibid., p. 1278. 
 
286 
 
 POLITICAL SCIENCE QUARTERLY [Vol. XXX 
 
 Morgan, having been convinced of the desirability of the pro- 
 ject, requested Mr. Schwab to see Mr. Carnegie and to obtain 
 a price on the Carnegie properties. This was done within a 
 few weeks, the price set being $420,000,000, payment to be 
 made in cash or five per cent bonds. ^ Mr. Morgan then con- 
 sulted Mr. Gary."* After a full discussion of the plan, a confer- 
 ence was arranged with the principal directors in the Federal 
 Steel Company, including Ream, Rogers, Mills, Porter and 
 Field. Here again the desirability and practicability of the 
 proposed consolidation was carefully considered and after such 
 consideration, despite the opposition of Mr. Porter and others, 
 the project was affirmed and Mr. Morgan consented to act as 
 the manager of an underwriting syndicate to furnish the finan- 
 cial backing that was required.^ As a result the United States 
 Steel Corporation was formed under the New Jersey law on the 
 25th of February, 1901,^ and on the 26th ^ of the same month 
 the Morgan Syndicate was formally organized by a group of 
 financiers, including Mr. Morgan, the leading men connected 
 with the several steel companies which it was planned to unite, 
 and several others. The plan under which the steel industry 
 was consolidated was prepared within a comparatively few days 
 and on March i, 1901,^ was submitted to the directors of the 
 United States Steel Corporation at their second meeting and 
 duly approved. 7 
 
 The plan provided for the increase of the capital stock 
 of the steel corporation from $3000, the amount originally 
 authorized, to an aggregate issue of $424,998,500 of preferred 
 stock, the same amount of common stock, and $304,000,000 of 
 five per cent bonds of such form, tenor and security as J. P. 
 Morgan and Company should determine. The entire amount 
 of capitalization provided, including the bonds, was to be trans- 
 
 * Testimony of Mr. Carnegie, Ibid., pp. 2377 ff. , 2438 ff. 
 
 * Testimony of Mr. Gary. Ibid , p. 205 ff. 
 
 ® Testimony of E. H. Gary. Ibid., pp. 205-6. 
 
 ^ Ibid., p. 3749. 
 
 ^ Report of Bureau of Corporations on the Steel Industry, part i, p. 390. 
 
 ^ Ibid., p. 383. 7 Stanley Report, p. 3750. 
 
No. 2] DISTRIBUTION OF SECURITIES 287 
 
 ferred to the syndicate in exchange for the entire bond issue of 
 the Carnegie Company, all the shares of the capital stock of the 
 eight companies included in the consolidation, the statutory 
 fees and taxes connected with the issuance of the new securities, 
 and $25,000,000 in cash. The syndicate was allowed until 
 May 30, 1901, to complete the exchange and the entire agree- 
 ment was contingent upon the ability of the syndicate to deliver 
 at least fifty-one per cent of the common and preferred stock 
 of each of the companies. If the syndicate should fail to de- 
 liver all of the capital stock of each of the companies and all of 
 the bonds of the Carnegie Company, the following allowances 
 were to be made : 
 
 NAME OF COMPANY AND CLASS OF STOCK 
 
 AMOUNT OF STOCK TO BE DEDUCTED 
 IN PAR VALUE 
 
 
 PREFERRED STOCK 
 
 COMMON STOCK 
 
 Carnegie Company,^ common stock 
 
 $150.00 
 
 i 
 
 1 $150.00 
 
 Federal Steel Company: 
 
 
 1 
 
 Preferred stock 
 
 1 10.00 
 
 i 
 
 Common stock . . ... 
 
 4.00 
 
 1 10750 
 
 1 
 
 American Steel and Wire Company of New Jersey: 
 
 Preferred slock 
 
 117.50 
 
 
 Common stock 
 
 102.50 
 
 National Tube Company: 
 
 
 Preferred stock 
 
 125.00 
 
 
 Common stock ... 
 
 8.80 
 
 125.00 
 
 National Steel Company: 
 
 
 Preferred stock 
 
 125.00 
 
 
 Common stock 
 
 125.00 
 
 American Tin Plate Company: 
 
 
 Preferred stock 
 
 125.00 
 
 
 Common stock 
 
 20.00 
 
 125.00 
 
 American Steel Hoop Company : 
 
 
 Preferred stock 
 
 100.00 
 
 
 Common stock ... 
 
 
 100.00 
 
 American Sheet Steel Company: 
 
 
 
 Preferred stock 
 
 Common stock 
 
 100.00 
 
 1 
 
 100.00 
 
 In accordance with the terms of the underwriting agreement, 
 
 ^ For each $1000 par value of the bonds of the Carnegie Company as should not 
 be acquired the agreement provided that $1000 par value of the bonds of the Steel 
 Corporation should be abated and deducted. Report of the Commissioner of Cor- 
 porations on the Steel Industry, part i, p. 385. 
 
288 
 
 POLITICAL SCIENCE QUARTERLY [Vol. XXX 
 
 J. P. Morgan and Company, as syndicate managers, issued on 
 March 2, 1901, a circular letter^ addressed to the stockholders 
 of the eight companies, stating the conditions under which the 
 underwriting was to be carried out, calling attention to the ex- 
 pected advantages of the consolidation and offering to exchange 
 stock in the United States Steel Corporation for stock in the 
 several companies at the rate of exchange named in the under- 
 writing agreement. The circular letter appeared as an ad- 
 vertisement in the daily press as well as in the financial journals 
 and on March 21, 1901, public announcement was made by the 
 syndicate managers that a very large proportion of all the stocks 
 had been exchanged and that the projected consolidation was 
 consummated.^ 
 
 Even while the exchange of stock between the United States 
 Steel Corporation and the eight companies was being effected, 
 it was proposed by those connected with the active manage- 
 ment to extend the scope of the consolidation by acquiring con- 
 trol of six other companies. This proposition was presented 
 to the board of directors on March 30, 1901, duly approved, 
 and their action was confirmed by the stockholders of the 
 original $3000 United States Steel Corporation on April 1.3 
 Immediately thereafter a second underwriting agreement was 
 entered into between Morgan and Company and the United 
 States Steel Corporation by which it was agreed to increase the 
 capital stock of the corporation and to exchange the new shares 
 for the capital stock of the following companies on the terms 
 named in the table at the top of page 290. 
 
 The second part of the consolidation in accordance with the 
 above plan, with the exception of the Colorado Fuel and Iron 
 Company, was effected without apparent difficulty during the 
 month of April, 1901, the capital stock having been further in- 
 creased to $1,100,000,000, one-half preferred and one-half 
 
 * Report of the Commissioner of Corporations on the Steel Industry, part i, pp. 
 396-400. 
 
 ^Circular Letter, 72 Commercial and Financial Chronicle^ March 23, 1901. 
 
 ^ Stanley Report, p. 3750. 
 
 ^Underwriting agreement of April i, 1901. Appendix to Report of Commissioner 
 of Corporations on the Steel Industry, part i, p. 386. 
 
No. 2] 
 
 DISTRIBUTION OF SECURITIES 
 
 289 
 
 Comparison of Securities Issued by United States Steel Corporation in 1901 with 
 
 AMOUNTS OF SECURITIES OF CONSTITUENT CONCERNS AND CASH ACQUIRED THEREFOR ^ 
 
 COMPANY 
 
 SECURITIES 
 AND CASH 
 
 UNITED STATES 
 STEEL STOCK IS- 
 SUED FOR EACH 
 $100 OLD STOCK 
 
 AMOUNT UNITED STATES STEEL SECURITIES ISSUED 
 IN EXCHANGE 
 
 ACQUIRED 
 
 PRE- 
 
 FERRED 
 
 COM- 
 
 MON 
 
 BONDS 
 
 PREFERRED 
 
 STOCK 
 
 COMMON 
 
 STOCK 
 
 TOTAL 
 
 Carnegie Company : 
 
 $159,450,000 
 
 160,000,000 
 
 53,260,200 
 
 46,483,700 
 
 39 . 997 » 4 oo 
 
 
 
 $159,450,000 
 
 144,000,000 
 
 
 
 
 
 
 
 $98,277,120 
 
 58,586,220 
 
 1,859,348 
 
 49,996,750 
 
 7 . CIA /tOT 
 
 $90,279,040 
 
 $492,006,160 
 
 Federal Steel Company: 
 
 $110.00 
 
 
 
 
 $107.50 
 
 
 49,969,978 
 
 T 10,415,546 
 
 National Tube Company: 
 
 
 
 
 8,' 80 
 
 
 
 AQ 021 7 CO 
 
 107 A 72 OAT 
 
 Am. Steel and Wire Co. : 
 
 39.998.500 
 49,901,900 
 
 26,992,200 
 
 31.969.800 
 
 18.325.000 
 
 27.995.000 
 
 13.997.500 
 
 18.995.000 
 
 24,497,700 
 
 24.498.800 
 
 31.348.000 
 30,946,400 
 
 on T 0 AAC 
 
 125 00 
 
 
 46,998,237 
 
 
 
 
 
 
 
 51,149,448 
 
 98,147,685 
 
 National Steel Company: 
 
 
 ID 2 50 
 
 
 77 7 AO 2 CO 
 
 
 
 
 
 
 39,962,250 
 
 77 . 702 . COO 
 
 American Tin Plate Co. : 
 
 
 
 
 T 75 ^0 
 
 
 22,906,250 
 
 C CAO 000 
 
 
 ^^ommon st^rV - - - ----- 
 
 ^20 00 
 
 
 
 7 A AA 7 7 CO 
 
 63,499,000 
 
 American Steel Hoop Co.: 
 
 
 
 
 125 00 
 
 
 T 7 AA^ CAA 
 
 
 r^nmmAn ctnrlr 
 
 100.00 
 
 100 00 
 
 
 
 18,995,000 
 
 72 002 COO 
 
 American Sheet Steel Co. : 
 
 
 
 
 
 
 2 A AOrr TOO 
 
 
 C * AinmAn ctAr*V 
 
 
 100.00 
 
 
 
 24,498,800 
 
 48,996,500 
 
 American BridgeCompany : 
 
 
 
 IIO.OO 
 
 
 34,482,800 
 
 r^niTimnn Qtnrlr . ^ . . - - - 
 
 
 105 00 
 
 
 72 AQ 7«720 
 
 66,976,520 
 
 70 AT 7 CA 2 
 
 Lake Superior Consolidated 
 Iron Mines Company: 
 
 Common stock 
 
 Oliver Iron Mining and 
 Pittsburg S. S. Co., one- 
 
 civth intprPQt * 
 
 T Q C OA 
 
 i^c 00 
 
 
 39,708,771 
 
 39,708,771 
 
 
 
 
 
 /yy^^ / yj^^ 
 
 18,500,000 
 
 Shelby Steel Tube Co.: 
 Preferred stock. . 
 
 
 
 4,776,100 
 
 8,018,200 
 
 ‘I'T CO 
 
 
 
 9,250,000 
 
 1,791,038 
 
 9,250,000 
 
 1 
 
 
 
 2 AAA CCA 
 
 3,795,588 
 
 
 1 
 
 25,00 
 
 
 
 
 Total securities by direct 
 
 881,224,405 
 174,000 ) 
 
 
 
 707 .ACO 000 
 
 AAC 20c A'TC 
 
 AA 7.227 OC 7 
 
 1,191,882,532 
 
 129,997,605 
 
 To syndicate for ^174,000 
 par value stocks, $25,000,- 
 000 in cash and services. 
 To incorporators for cash. . 
 
 
 
 
 64,998,837 
 
 64,998,837 
 
 T CAA 
 
 25,000,000 i 
 
 
 
 
 3,000 
 
 
 
 
 1,500 
 
 
 3,000 
 
 Total, securities and cash 
 Underlying bonds of con- 
 stituent companies...... 
 
 906,401,405 
 
 
 
 
 CTO 20c ' 7 A 7 
 
 508,227,394 
 
 1,321,883,137 
 
 59,091,657 
 
 21,872,023 
 
 ! 
 
 
 303,450,000 
 
 
 Mortgages and purchase 
 money obligations of con- 
 stitU6nt companies* • • • • • 
 
 
 i 
 
 1 
 
 
 
 
 
 
 
 
 
 
 
 
 Grand total securities is- 
 sued and assumed .... 
 
 906,401,405 1 
 
 
 303,450,000 
 
 510,205,743 
 
 508,227,394 
 
 1,402,846,817 
 
 no 
 
 t 0 ^ 
 
 [o'd 
 
 * 0-0 
 
 }o9 
 
 ^70 
 
 ^<foo 
 
 1 For details concerning securities outstanding, Carnegie bonds, purchase-money obligations, and securities 
 secured by other than direct exchange, see pp. 114 and 174 of the Report of the Bureau of Corporations. The 
 Steel Industry I, pp. 114 and 174. 
 
290 
 
 POLITICAL SCIENCE QUARTERLY [Vol. XXX 
 
 COMPANIES 
 
 FOR EACH SHARE PAR VALUE $IOO IN U. S. 
 STEEL SECURITIES 
 
 
 PREFERRED 
 
 COMMON STOCK 
 
 American Bridge Company : 
 
 Preferred 
 
 Common. 
 
 Shelby Steel Tube Company : 
 
 no 
 
 105 
 
 Preferred 
 
 Lake Superior Consolidated Iron Mines 
 Company: 
 
 37.5 
 
 25 
 
 Common 
 
 One-sixth interest in Oliver Iron Mining 
 Company and the Pittsburgh Steel Com- 
 
 135 
 
 135 
 
 pany 
 
 Bessemer Steamship Company 
 
 92,500 shares 
 $8,500,000 in cash ^ 
 
 92,500 shares 
 
 common, for the purpose of making the exchange of stock on 
 the terms proposed in the agreement. The results of the plan, 
 after all of the exchanges had been made, are shown in table 
 on page 289 : ^ 
 
 III 
 
 Neither at the time that the United States Steel Consolidation 
 was formed nor at any time since then, so far as the writer has 
 been able to discover, has an explanation been made of the 
 principle or principles upon which the exchange of securities 
 was based. In the case of the four Moore companies an ex- 
 ception to the above statement ought to be made, for while no 
 clue is given to the distribution of securities as between the 
 Moore Companies and all the others, it is stated in the official ' 
 announcement that the aggregate amount of stock to be offered 
 to the four companies was distributed among them in the per- 
 centages given in the public circular, in accordance with ar- 
 rangements made with the principal stockholders. 3 
 
 It is evident, however, even without a careful analysis, that 
 neither the Moore method nor the scientific plan described in 
 
 ^ Minutes of the Board of Directors, meetings held March 30 and April i, 1901. 
 Stanley Report, pp. 3750-1. 
 
 ^Bureau of Corporations; Report on the Steel Industry, part i., p. 113. 
 
 ^Circular of announcement, March 2, 1901. 
 
No. 2] 
 
 DISTRIBUTION OF SECURITIES 
 
 291 
 
 the preceding sections was followed. If the latter plan had 
 been adopted, not only would the various interests which were 
 combined into one single administrative business unit have been 
 placed upon a parity in the new company, but in addition the 
 capitalization of the United States Steel Corporation would have 
 been much less watered than was the case. 
 
 It will be remembered that the scientific plan is based upon two 
 principles : first, preferred stock to be issued equal to the value of 
 the tangible assets ; and second, common stock of an equal or 
 larger amount but distributed among the several parties to the con- 
 solidation in proportion to the surplus earnings after the preferred 
 dividends have been provided for. Consequently in the formula- 
 tion of a scientific plan, two series of facts are necessary, (i) 
 the net tangible assets of the several companies, properly valued, 
 and (2) the net profits of each for a period of time sufficiently 
 long to be fairly representative of actual earning power. It is 
 evident that the promoters, at the time the steel consolidation 
 was in process of formation, were in possession of the requisite 
 data, although the records do not show to what extent the 
 printed reports of the several companies ^ were subjected to ex- 
 amination by the expert staff of appraisers and accountants 
 connected with the Morgan office. In presenting the plan of 
 consolidation to the directors of the United States Steel Cor- 
 poration, Mr. Steele stated in behalf of the Morgan Syndicate 
 that “ the principal officers of the Carnegie Company have sat- 
 isfied us that the net earnings of the properties which are now 
 included in the Carnegie Company for the year 1900 are up- 
 wards of $40,000,000,” and that the earnings of the American 
 Sheet Steel Company for ten months ending January 31, 1901, 
 were “ $850,000 after making a substantial allowance for de- 
 preciation and investments in improvements.” In addition he 
 submitted for the information of the directors the printed re- 
 ports of all the companies except the Carnegie Company."* 
 As a result of the investigations of the Bureau of Corporations 
 there is, however, fairly reliable information as to the respective 
 
 ^ Except the Carnegie Company. Stanley Report, p. 374. 
 
 Ibid., p. 3749. 
 
292 
 
 POLITICAL SCIENCE QUARTERLY [Vol. XXX 
 
 assets of the several companies at the time of the consolidation 
 and some data, though far from satisfactory, as to their respec- 
 tive earnings. The available information as to the assets at the 
 date of consolidation and the earnings of the several companies 
 for periods specified in the footnotes is given in the following 
 table : 
 
 Assets and Earnings of the Consolidated Companies 
 
 COMPANY 
 
 1 
 
 ESTIMATED 
 
 VALUE OF 
 TANGIBLE 
 ASSETS ^ 
 
 MARKET 
 VALUE OF 
 
 ASSETS 
 
 STATED OR 
 
 ESTIMATED 
 
 NET EARNINGS 
 
 Carnegie Company 
 
 ^197,563 
 
 $327,422 
 
 $40,000 ^ 
 
 P'ederal Steel Company 
 
 81,147 
 
 63,940 
 
 11,722 * 
 
 National Tube Company 
 
 67,485 
 
 57,168 
 
 13,878^1 
 
 National Steel Company 
 
 33>909 
 
 37,931 
 
 8,750® 
 
 American Tin Plate Company 
 
 24,503 
 
 25,370 
 
 5,850^ 
 
 American Sheet Steel Company 
 
 17,706 
 
 20,895 
 
 1,6808 
 
 American Steel Hoop Company 
 
 15,661 
 
 16,928 
 
 4,026 8 
 
 American Steel and Wire Company .... 
 
 53,162 
 
 59,884 
 
 12,362 
 
 American Bridge Company ...... 
 
 Lake Superior Consolidated Iron Mines 
 
 35,404 
 
 42,773 
 
 6,201 
 
 Company 
 
 3L495 
 
 22,060 
 
 6,668 
 
 Shelby Steel Tube Company . . ... 
 
 Oliver Iron Mining Company and Pittsburgh 
 
 2,791 
 
 3.571 
 
 222 
 
 Steel Company, one-sixth 
 
 Bankers’ Investment . 
 
 9,250 
 
 9,250 
 
 264 
 
 25.003 
 
 25,003 
 
 4,986 
 
 
 $595,079 
 
 $712,193 
 
 $116,578 
 
 6 . 7 - - 
 
 Three ciphers (000) omitted. 
 
 ^ Report on the Steel Industry, I, p. 167. 
 
 Ibid. ^ I, p. 170. 
 
 ^Stanley Report, p. 3749; Bridge, History of the Carnegie Steel Company, p. 
 363 ff. 
 
 ^ Report on the Steel Industry, I, p. 127. 
 
 ^ Ibid., I, p. 161. ^Ibid., I, p. 138. 
 
 ■^Annual Report — Chronicle, vol. 72, p. 134. 
 
 ® Report on the Steel Industry, I, p. 141, See also Mr. Steele’s statement, 
 Stanley Report, p. 3750. 
 
 ® Annual Report — Chronicle, vol. 70, p. 1093. 
 
 Ibid., Dec. 31, 1900, Report on the Steel Industry, I. p. 161. 
 
 Stephen Little’s report to Promoter. Stanley Report, p. 4170. 
 
 '^Average of earnings for 1901-1910. 
 
 Based upon the assumption that the cash contributed would earn the average 
 rate, that is, .1958 per cent upon tangible assets. 
 
No. 2] 
 
 DISTRIBUTION OF SECURITIES 
 
 293 
 
 The method of obtaining the estimated value of the tangible 
 assets of the several companies is explained at length in the re- 
 port of the Commissioner of Corporations on the Steel Industry." 
 As a rule, the valuation placed upon the tangible assets appears 
 to be fairly liberal. In most cases, much dependence was 
 placed upon the valuations determined upon in connection with 
 the primary consolidations which occurred during the years im- 
 mediately preceding 1901. Additions were made for cash con- 
 tributions to the working capital and deductions were allowed 
 wherever it appeared from an examination of the accounts or 
 tangible assets that there had been an over-valuation. The 
 market valuation was computed by taking the average market 
 price of the several securities as found by the commissioner of 
 corporations ^ and multiplying by the total amount of outstand- 
 ing securities, of each class separately, and combining the re- 
 sults for each company as a unit. Some of the securities were 
 distinctly of the stock-exchange variety and these were un- 
 doubtedly given a somewhat artificial valuation. The securities 
 of others, as for example the Carnegie Company and the Lake 
 Superior Consolidated Iron Mines Company, were closely held 
 and the market quotations were probably more conservative and 
 perhaps less representative. As a whole, however, the market 
 valuation is probably more nearly representative than the esti- 
 mated value placed upon the tangible assets. 
 
 In obtaining the approximate net earnings of the several 
 companies, various sources of information have been used and 
 in general the source in each case is indicated in the footnotes 
 to the table. It should be stated at the outset that the informa- 
 tion upon this subject is extremely meagre and always unsatis- 
 factory, if not unreliable. In some cases the earnings for 1899 
 were adopted, in others 1900, and in still others a combination 
 of parts of the two years. Where no information was obtain- 
 able, the companies have been arbitrarily assigned an earning 
 power equal to that which was shown in the ten years immedi- 
 ately following the consolidation. Since the earnings as well 
 
 ^ Part i, pp. 117-169. 
 
 -Report of Commissioner of Corporations on Steel Industry, I, p. 174. 
 
294 
 
 POLITICAL SCIENCE QUARTERLY .[Vol. XXX 
 
 as the value of the tangible assets are used in distributing the 
 securities in a consolidation formed upon equitable principles, 
 it is evident that the results of such application will be unsatis- 
 factory in proportion as the stated earnings fail to conform to 
 actual conditions. The results obtained by their use are, in 
 other words, vitiated by the probable errors in the hypothesis, 
 and are therefore submitted as indicative of certain tendencies 
 in promotions and illustrative of a proper plan of consolidation, 
 rather than as statements of facts. 
 
 With the above explanations in mind and subject to the lim- 
 itations imposed by the unsatisfactory data, it may prove illum- 
 inating to apply first the plan proposed in the preceding pages, 
 second, that adopted by the Moore Brothers in their several 
 promotions and known generally as the Moore method, to the 
 facts in hand. 
 
 Under the conditions as above stated, had the scientific 
 method been followed, the stock in the United States Steel 
 Corporation would have been issued in the quantities and to 
 the several parties in interest as in the table immediately fol- 
 lowing : 
 
 Scientific Method ^ 
 
 COMPANY 
 
 PREFERRED 
 
 STOCK 
 
 EARN- 
 
 INGS 
 
 DIVIDENDS 
 ijii ) ON 
 PREFERRED 
 
 SURPLUS 
 
 FOR 
 
 COMMON 
 
 COMMON 
 
 STOCK 
 
 Carnegie Company 
 
 $197,563 
 
 $40,000 
 
 $14,829 
 
 $25,171 
 
 $176,425,900 
 
 Federal Steel Company. . . . 
 
 81,147 
 
 11,722 
 
 5,680 
 
 6,042 
 
 42,348,950 
 
 National Tube Company . . 
 
 67,4^5 
 
 13,878 
 
 4,724 
 
 9,I'4 
 
 64,161,250 
 
 National Steel 
 
 33,909 
 
 8,750 
 
 2,374 
 
 6,376 
 
 44,689,980 
 
 Tin Plate 
 
 24,503 
 
 5,850 
 
 1,715 
 
 4,135 
 
 28,982,600 
 
 Sheet Steel .... 
 
 17,706 
 
 1,680 
 
 1,239 
 
 441 
 
 3,091,010 
 
 Steel Hoop 
 
 15,661 
 
 4,026 
 
 1,096 
 
 2,930 
 
 20,536,650 
 
 Steel and Wire 
 
 53,162 
 
 12,362 
 
 3,721 
 
 8,641 
 
 60,565,580 
 
 American Bridge Company, . 
 
 35,404 
 
 6,201 
 
 2,478 
 
 3,723 
 
 26,094,850 
 
 Lake Superior 
 
 31,495 
 
 6,668 
 
 2,205 
 
 4,463 
 
 31,281,580 
 
 Shelby Steel Tube 
 
 2,791 
 
 222 
 
 195 
 
 27 
 
 189,250 
 
 Oliver and Pittsburgh, one-sixth. 
 
 9,250 
 
 264 
 
 647 
 
 deficit 
 
 Bankers 
 
 28,003 
 
 4,896 
 
 1,750 
 
 3,146 
 
 22,050,610 
 
 Promoters ( 12.54636 per cent). 
 
 0 
 
 0 
 
 0 
 
 0 
 
 74,660,790 
 
 
 $595,079 
 
 116,518 
 
 $42,653 
 
 $74,249 
 
 ^595,079,000 
 
 ^ Three ciphers (ooo) omitted except in last column. 
 
No. 2] 
 
 DISTRIBUTION OF SECURITIES 
 
 295 
 
 It is of course questionable whether the promoter, either 
 from the economic or equitable point of view, is entitled to so 
 large a share of the common stock as here awarded, namely, 
 twelve per cent, more exactly 12.54636 per cent. That ques- 
 tion, however, is one between the promoter and the promoted 
 interests and does not necessarily affect the relative shares 
 allotted to the several companies involved. In this case the 
 twelve per cent rule was followed because the promoters thus 
 receive approximately the same proportion as they were 
 awarded in the Morgan plan. If thirty per cent had been 
 allotted to the promoter, as was the custom at that time, he 
 would have received $178,524,000 of the common stock in- 
 stead of the amount assigned, and the difference, somewhat 
 over $100,000,000, would have been subtracted from the other 
 interests in the same proportions as that already allotted. It 
 should further be noted that five per cent first collateral trust 
 gold bonds may be substituted for seven per cent preferred 
 stock either partially or as a general plan without disturbing 
 the established scheme or the method of distributing the com- 
 mon stock. 
 
 The Moore plan of distributing securities in forming a 
 consolidation was used in the promotion of the American Tin 
 Plate Company. Since for its application in the present case 
 the market value only of the assets of the several companies is 
 required, the results may claim to be fairly accurate. Here the 
 promoter is allotted 35.71 per cent of the common stock, that 
 being the relative amount that he received in the case of the 
 promotion of the American Tin Plate Company. This would 
 amount to $395,663,000 par value in common stock out of a total 
 of $1,107,858,000. This amount at $32.17 per share would 
 have yielded the sum of $127,291,950 in cash provided the 
 promoter had sold out at the time, on prevailing market condi- 
 tions. The plan worked out in detail is given in the table at 
 the top of page 296. 
 
 It is evident that the adoption of a particular plan determines 
 the relative share that each of the several companies is allotted 
 in the new consolidation. Before an accurate comparison can 
 be made, however, it is necessary to find a common unit of 
 
296 
 
 POLITICAL SCIENCE QUARTERLY [Vol. XXX 
 
 The Moore Method ^ 
 
 NAME 
 
 j 
 
 PREFERRED ! 
 
 PER 
 
 CENT 1 
 
 i 
 
 COMMON 
 
 PER 
 
 CENT 
 
 Carnegie Company 
 
 $327,422 
 
 46. 
 
 1 
 
 $327,422 
 
 j 
 
 29-55 
 
 Federal Steel 
 
 63,940 1 
 
 9. 
 
 63,940 
 
 7-77 
 
 National Tube 
 
 57,168 
 
 8. 
 
 57,168 
 
 5.16 
 
 National Steel 
 
 37,931 i 
 
 5-3 
 
 37,931 
 
 3-42 
 
 Tin Plate 
 
 25,370 
 
 3-6 
 
 25,370 
 
 2.28 
 
 Sheet Steel 
 
 20,895 
 
 2.9 
 
 20,895 
 
 1.88 
 
 Steel Hoop 
 
 16,928 
 
 2.4 
 
 i 6 ,q 28 
 
 1.52 
 
 Steel and Wire 
 
 59,884 
 
 8.4 
 
 59,884 
 
 5-40 
 
 American Bridge 
 
 42,773 
 
 6. 
 
 42,773 
 
 3.86 
 
 Lake Superior 
 
 22,060 
 
 3-1 
 
 22,060 
 
 1.99 
 
 Shelby Steel Tube 
 
 3 > 57 i 
 
 •5 
 
 3,571 
 
 •32 
 
 Oliver and Pittsburgh, one -sixth . . 
 
 9,250 
 
 1 ’^•3 
 
 9,250 
 
 .83 
 
 Bankers 
 
 25,003 
 
 ! 
 
 25,003 
 
 2.25 
 
 Promoter 
 
 
 ’ 
 
 395,663 
 
 35 71 
 
 j 
 
 $712,195 
 
 100. 
 
 $1,107,858 
 
 1 
 
 i 100. 
 
 value for the several companies and by means of this unit re- 
 duce the securities to a common denominator and then com- 
 pare the results. It is of course quite impossible to do this 
 with scientific precision, but by the use of certain information 
 that is available it is practicable to reach an approximation of 
 some value for our purposes. It was the evident intention of 
 those responsible for preparing the plan actually adopted to 
 make the conditions of issue and the relative quantities of 
 securities provided for of such an amount that the bonds and 
 preferred stocks would each be worth par while the common 
 stocks were to be worth one-half of par.^ 
 
 As a matter of fact this assumption has been fairly well sus- 
 tained by the market, although at times both the preferred and 
 common have been far below the value set upon them by the 
 promoters. Applying this principle to the securities as dis- 
 tributed by the Morgan plan, that is, rating the bonds and pre- 
 ferred stock at par and the common at one-half of par, the re- 
 sults are as indicated in the first table on page 297. 
 
 ^ Three ciphers (000) omitted. 
 
 2 Circular of March 9, 1901, issued to the stockholders and bondholders of the 
 Carnegie Company, stating the terms of exchange of securities and the disposition of 
 fractional shares. Bridge’s History of the Carnegie Steel Company, p. 363. 
 
No. 2] 
 
 DISTRIBUTION OF SECURITIES 
 
 297 
 
 Adjusted Distribution — Morgan Method ^ 
 
 NAME 
 
 FACE VALUE 
 
 PREFERRED 
 AND BONDS 
 
 ONE-HALF 
 
 PAR VALUE 
 
 OF COMMON 
 
 TOTAL VALUE 
 
 AWARDED 
 
 PER 
 
 CENT 
 
 Carnegie Company 
 
 $402,277 
 
 $45,140 
 
 $447,416 
 
 41.87 
 
 Federal Steel 
 
 60,446 
 
 24,985 
 
 85,432 
 
 7-99 
 
 National Tube 
 
 53>52o 
 
 25,000 
 
 78,520 
 
 7.35 
 
 National Steel 
 
 33»75o 
 
 20,000 
 
 53,750 
 
 5-03 
 
 Tin Plate 
 
 28,506 
 
 17,500 
 
 46,006 
 
 4.30 
 
 Sheet Steel 
 
 24,500 
 
 12,250 
 
 36,750 
 
 3-44 
 
 Steel Hoop 
 
 14,000 
 
 9,500 
 
 23,500 
 
 2.20 
 
 Steel and Wire 
 
 47,000 
 
 25,625 
 
 72,625 
 
 6.80 
 
 American Bridge 
 
 34,511 
 
 16,249 
 
 50,760 
 
 4.75 
 
 Lake Superior . . . 
 
 39,723 
 
 19,862 
 
 59,585 
 
 5.58 
 
 Shelby Steel Tube 
 
 1,875 
 
 1,019 
 
 2,894 
 
 .27 
 
 Oliver and Pittsburgh, one-sixth. . 
 
 9,250 
 
 4,625 
 
 13,875 
 
 1.29 
 
 Bankers and promoters 
 
 65,000 
 
 32,500 
 
 97,500 
 
 9.12 
 
 Total 
 
 $814,358 
 
 $252,255 
 
 $1,068,613 
 
 100. 
 
 Adjusted Distribution — Moore Method ^ 
 
 NAME 
 
 1 
 
 j FACE OF 
 PREFERRED 
 
 32.17181 PER 
 CENT COMMON 
 
 TOTAL VALUE 
 
 AWARDED 
 
 PER 
 
 CENT 
 
 Carnegie Company 
 
 $327,422 
 
 $105,337-58 
 
 $432,759-58 
 
 1 
 
 40.49 
 
 Federal Steel 
 
 63,940 
 
 20,570.66 
 
 84,510.66 
 
 7.81 
 
 National Tube 
 
 57,168 
 
 18,391.98 
 
 75,559-98 
 
 7-07 
 
 National Steel 
 
 37,931 
 
 11,203.09 
 
 50,134.09 
 
 4-69 
 
 Tin Plate 
 
 25*370 
 
 8,161.99 
 
 33,531 99 
 
 3-15 
 
 Sheet Steel 
 
 20,895 
 
 6,722.31 
 
 27,617.31 
 
 2.58 
 
 Steel Hoop 
 
 16,928 
 
 5,446.04 
 
 22,374.04 
 
 2.09 
 
 Steel and Wire 
 
 59,884 
 
 19,265.77 
 
 79,149 77 
 
 7.41 
 
 American Bridge 
 
 42,773 
 
 13,760 85 
 
 56,53385 
 
 5-29 
 
 Lake Superior 
 
 22,060 
 
 7,097.11 
 
 29,157.11 
 
 2-74 
 
 Shelby Steel Tube 
 
 3,571 
 
 1,148.86 
 
 4,719.86 
 
 -44 
 
 Oliver and Pittsburgh, one-sixth . . 
 
 9,250 
 
 2,975.89 
 
 12,225.89 
 
 1. 14 
 
 Bankers 
 
 25,003 
 
 8,043.92 
 
 33,046.92 
 
 3-09 
 
 Promoter 
 
 • • 
 
 127,291.95 
 
 127,291.95 
 
 11.91 
 
 Total 
 
 $712,193 j 
 
 $356,418. 
 
 1,068,613. ! 
 
 100. 
 
 This plan thus places a total value of $1,008,613,000 upon the 
 consolidated company, and this fact must be borne in mind in 
 applying the general principle involved to the other cases. In 
 the Moore method, the total par value of the preferred stock 
 
 ^ Three ciphers (000) omitted. 
 
POLITICAL SCIENCE QUARTERLY [Vol. XXX 
 
 298 
 
 was fixed at $712,193,000. The common stock would then 
 represent a value of $356,418,000 or $32 plus, per share. 
 The details of this plan are presented in the second table on 
 page 297. 
 
 In the scientific plan proposed in a previous section of this 
 article the value of the tangible assets limits the face value of 
 the preferred stock to $595,079,000, and consequently the 
 common stock would be worth almost eighty dollars per share, 
 the combined value of the total issue of preferred and common 
 stocks being the same in each case. The following table shows 
 the distribution of values under the method described : 
 
 Adjusted Distribution— Scientific Method^ 
 
 COMPANY 
 
 1 FACE OF 
 
 1 PREFERRED 
 
 79.57489 PER 
 CENT COMMON 
 
 1 
 
 1 TOTAL 
 
 VALUE AWARDED 
 
 1 PER 
 CENT 
 
 1 
 
 Carnegie Company 
 
 $197,563 
 
 $140,391 
 
 $337,954 
 
 31-63 
 
 Federal Steel 
 
 81,147 
 
 33,699 
 
 114,846 
 
 10.75 
 
 National Tube . 
 
 67,485 
 
 51,056 
 
 118,541 
 
 11.09 
 
 National Steel 
 
 33,909 
 
 35,562 
 
 69,471 
 
 6.50 
 
 Tin Plate 
 
 24,503 
 
 23,063 
 
 47,566 
 
 4-45 
 
 Sheet Steel 
 
 1 7, 706 
 
 2,460 
 
 20,166 
 
 1.89 
 
 Steel Hoop 
 
 15,661 
 
 16,342 
 
 32,003 
 
 2.99 
 
 Steel and Wire 
 
 53,162 
 
 48,196 
 
 101,358 
 
 9.49 
 
 American Bridge ^ 
 
 35,404 
 
 20,765 
 
 56,169 
 
 5.26 
 
 Lake Superior | 
 
 31,495 
 
 24,892 
 
 56,387 
 
 5.28 
 
 Shelby Steel Tube | 
 
 2,791 
 
 I5I 
 
 2,942 
 
 .28 
 
 Oliver and Pittsburgh, one-sixth. . 
 
 9,250 
 
 
 9,250 
 
 .87 
 
 Bankers j 
 
 25,003 
 
 17,546 
 
 ^42,549 
 
 3-97 
 
 Promoter 
 
 1 
 
 
 59,411 
 
 59,411 
 
 5-55 
 
 ! 
 
 1 
 
 $595,079 
 
 $473,534 
 
 i 
 
 $1,068,613 I 
 
 100. 
 
 In the above tables the values have been given in totals. It 
 may now be worth while to reduce the individual assets and 
 earnings to percentages of the total assets and earnings and 
 compare these percentages with the relative share of securities 
 obtained by each of the companies in the actual allotment of 
 securities as well as in the hypothetical distributions above pre- 
 sented. The relative shares in percentages are as follows : 
 
 ^ Three ciphers (000) omitted. 
 
No. 2] 
 
 DISTRIBUTION OF SECURITIES 
 
 299 
 
 Share Contributed and Share Allotted 
 
 COMPANY 
 
 Carnegie Company 
 
 Federal Steel 
 
 National Tube 
 
 National Steel 
 
 Tin Plate 
 
 Sheet Steel 
 
 Steel Hoop 
 
 Steel and Wire 
 
 American Bridge 
 
 Lake Superior 
 
 Shelby Steel Tube 
 
 Oliver and Pittsburgh, one-sixth 
 
 Bankers 
 
 Promoter 
 
 PERCENTAGE CONTRIBUTED BY 
 
 PERCENTAGE ALLOTTED EACH 
 
 TANGIBLE 
 
 MARKET 
 
 1 
 
 EARN- 
 
 
 
 SCIEN- 
 
 ASSETS 
 
 VALUES 
 
 INGS 
 
 MORGAN 
 
 MOORE 
 
 TIFIC 
 
 33-20 
 
 46.10 
 
 34-33 
 
 41.87 
 
 40.49 
 
 31.63 
 
 13.64 
 
 9.101 
 
 10.05 
 
 7.99 
 
 7.91 
 
 10.75 
 
 11.34 
 
 8.10 
 
 II. 91 
 
 7.35 
 
 7.07 
 
 11.09 
 
 5-70 
 
 5 - 4 o| 
 
 7.51 
 
 5.03 
 
 4.69 
 
 6.50 
 
 4.12 
 
 3.70, 
 
 5.02 
 
 4.30 
 
 3 -iSi 
 
 4-45 
 
 2.97 
 
 2.9O; 
 
 1.44 
 
 3.44 
 
 2.581 
 
 1.89 
 
 2.63 
 
 2.501 
 
 3-46 
 
 2.20 
 
 2.09I 
 
 2.99 
 
 8.93 
 
 8.50 
 
 10.61 
 
 6.80 
 
 7.41! 
 
 9.49 
 
 5-95 
 
 6.10 
 
 S.32 
 
 4.75 
 
 5.29 
 
 5.26 
 
 5.29 
 
 3 -iO| 
 
 5.72 
 
 5.58 
 
 2 . 74 j 
 
 5.28 
 
 •47 
 
 •50! 
 
 .20 
 
 1 
 
 .27 
 
 •44 
 
 .28 
 
 1.56 
 
 1 - 30 ! 
 
 •231 
 
 1.29 
 
 1. 14 
 
 .87 
 
 4.20 
 
 3.60 
 
 4.20 
 
 \0i2l 
 
 3.09 
 
 3-97 
 
 .00 
 
 .00 
 
 .00 
 
 | 9 .I 2 j 
 
 II. 91 
 
 5.55 
 
 100. 
 
 lOO. 
 
 100. 
 
 100. I 
 
 100. 
 
 100. 
 
 It is thus evident that under the Morgan plan the securities 
 were distributed to the various interests, neither on the basis of 
 assets, nor of earnings nor on a combination of the two factors. 
 There is indeed a marked similarity between the market value 
 of each company and the assumed value of the securities as 
 above presented. The scientific plan on the other hand would 
 have distributed the securities much more nearly in proportion 
 to the respective earning power of the twelve companies. 
 
 IV 
 
 Any investigation of the methods actually employed by the 
 promoters and bankers in effecting the consolidations of the 
 period beginning in 1898 and ending abruptly in 1901 ought, 
 it must be admitted, to embrace a study of all of the more im- 
 portant ones and, in addition, all of the various types. Such 
 an investigation is at the present time obviously impossible, 
 because of the fact that the details of these consolidations have 
 thus far been kept secret. Indeed, without the efficient work 
 of the Bureau of Corporations in its study of the steel industry, 
 such a study as that presented in this article could not have 
 been made. 
 
300 
 
 POLITICAL SCIENCE QUARTERLY 
 
 In the case of the other great consolidations, the requisite 
 information, even after an extensive government investigation, 
 is as yet concealed in the records of the corporations involved, 
 or those of the promoters and bankers, or such information 
 has been destroyed. 
 
 Since consolidation is likely to continue as a prominent feat- 
 ure of our complex economic organization, it is of the utmost , 
 importance that the principles involved as well as the methods 
 employed should be thoroughly understood by the owners of 
 securities in the constituent corporations. In this study atten- 
 tion has been called to both principles and methods, and it has 
 been shown even with the meager and unsatisfactory information 
 available that almost no attempt has been made in the past to 
 establish and apply principles that conform to generally accepted 
 standards of either economics or ethics. Rather the “ bargain 
 method ” has been in almost universal use. Under such circum- 
 stances, the stronger interests are able to make the better bargain 
 and the weaker interests have the choice of taking what they can 
 get in the exchange of securities or staying out at their peril. 
 Quite generally weaker interests have accepted the terms offered 
 rather than remain independent and subject themselves to the 
 dangers involved in such a course. 
 
 So long as the state and national governments pursue their 
 present policy of discouraging or absolutely prohibiting con- 
 solidations, such conditions must of necessity continue. When 
 once freedom of consolidation, within prescribed limits, shall be 
 recognized to be one of the conditions necessary for the main- 
 tenance of fair competition, the government may well expend in 
 some other way a part of the energy it is now using in pro- 
 hibiting entirely certain classes of consolidations and in pun- 
 ishing consolidations it has permitted to be formed in the past. 
 It is to be hoped it will take such action as may be found neces- 
 sary to ensure that the several parties entering into a legitimate 
 consolidation are allotted in the distribution of securities the 
 equivalent of the share which they have severally contributed 
 to its corporation assets and earning power. 
 
 Maurice H. Robinson. 
 
 University of Illinois. 
 
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