- T"i yrrTmrr rfi, V lJ
a
The Commoner.
VOLUME 8, NTTMBBR 4)
THE STEEL TRUST CONSOLIDATION
- t-twwjj -Tf"
Jolin Moody, editor o Moody's Magazine,
lias written for The Public, Louis F. Post's pa
per, tho following Interesting and timely article:
The underlying facts regarding the consoli
dation by tho steel trust of its only competitor,
tho Tonnesseo Coal and Iron company, which
President Roosevelt approved and for which ho
gave Piorpont Morgan immunity in advance,
have never been brought clearly to public
attention. Thjs ought to be done. In view of
the statement of President Roosevelt that the
consolidation was for the general good, it ought
cortainly to be done. Upon the real facts of
tho case Mr. Roosevelt's statement is manifestly
absurd.
Tho steel trust, which bears tho name of
tho steel corporation, acquired practically the
cntiro capital stock of the Tennessee Coal and
Iron company, by issuing $30,000,000 in par
value of its own five per cent bonds. They,
therefore, paid practically $30,000,000 for the
equity In the entire properties beyond the various
liabilities, such as bonded debt, etc. The latter
amounts approximately to $15,000,000; and,
therefore, considering both items, the entire
properties were acquired by the steel corpora
tion at an ultimate cost of $45,000,000.
At the time this purchase was made the
controlling interests In the Tennessee Coal and
Iron company wero undoubtedly in financial
stress. - Certain of the large banks and trust
companies in New York wero carrying large
lines of the stock of the Tennessee company on
margin, and tho controlling interests through
certain stock market movements had previously
sent tho price of the stock up to nearly double
its par value. The argument given in 1906,
and prior to that, in favor of high prices for
the stock, was that the company owned far
more valuable coal and ore deposits than any
other concern in the country, not excluding the
great steel corporation itself.
' No special mention was made of the great
value of these ore deposits by Wall Street peo
ple, or by the president at the time the deal,
was consummated; and in fact, the steel cor
poration in its annual report for 1907, in which
it explains tho merger, does not. give any figures
of real significance regarding the value of the
ore and coal properties and other mineral rights.
It simply states that there are 447,423 acres
of iron ore, coal, and limestone property in the
states of Alabama, Tennessee and Georgia, which .
are controlled by the' company. It does not
state- their value especially, but makes the fol
lowing general comments on the purchase:
"The parties owning or controlling a ma
jority of the Tennessee Coal company's stock
offered the same to the corporation on terms
which were satisfactory, both as to price and
manner of payment. The purchase of the prop
erty promises benefit to the corporation, and
also aided promptly and materially in relieving
the financial stress at the time existing. The
Tennessee property is very valuable. Its ma
terial resources are large. The location of the
Iron - ore and coal deposits in the immediate
proxmity of the manufacturing plants, enables
tho production of iron at reasonable cost."
The foregoing statement does not give the
slightest idea of the real value of the great
property, which last fall was handed over to
the steel corporation at an ultimate cost, free
of any liabilities, of $45,000,000.
This Tennessee coal and iron property em
braces not only about 450,000 acres of mineral
lands, but includes forty-one developed and ac
tive iron ore and coal mines; sixteen large blast
furnaces; tho ownership of several land com
panies holding extensive tracts of land adjoin
ing the several developed properties of the com
pany, and also the Birmingham Southern Rail
road company, a terminal property of great
value connecting tho various mines and plants
in tho Birmingham district with all the diverg
ing trunk lines.
The capacity of the company's blast fur
naces a year ago was about 850,000 tons per
annum, and that of the developed coal and ore
mines, about 20,000 tons per day. If wo com
pare this capacity with that of the actual pro
duction of all the other properties owned by
the steel corporation, outside of the Tennessee
Coal and Iron company for tho year 1907, wo
vill get tho following results: "Blast furnace
products, 10,819,968 tons. Ore and coal mined
and limestone quarried, 35,576,161 tons." In
' -other Vords the capacity of tho newjirppertiea
John Moody tells how J.
Pierpont Morgan was al
lowed to violate the law
acquired, according to the figures above, is about
fifteen per cent of the total production of min
ing products of the entire corporation for last
year, and about eight per cent of the blast fur
nace products.
Based on those figures alone, therefore, tho
purchase was an exceedingly advantageous one
for tho steel corporation, as tho purchase price
was only about three per cent of the entire pres
ent capitalization of the steel corporation; or, if
wo regard nil the common stock of the steel cor
poration as water, it was but four and one-half
per cent of the balance of capitalization.
But that would be only a superficial com
parison. The possibilities of tho Tennessee property
and the value of its raw materials are so gigan
tic, that even if it were producing nothing at
the present time It would have been the best
ba'rgain at $45,000,000 that the-steel corpora
tion or any other concern or individual ever
made in the purchase of a piece of property.
The steel corporation, fifteen months ago,
entered into a lease with the Great Northern
railway Interests, whereby it has the right to
mine at so much per ton the vast ore deposits
of tho Great Northern properties. The steel
corporation agreed to pay to the Great Northern
people $1.65 per ton for7 this ore, and transport
a portion of the ore' over the Great Northern
tracks at a specified rate. The Great Northern
ore bodies are estimated to contain about 500,
000,000 tons of good ore, which, if all mined
and taken by the steel corporation 'at $1.65
per ton, would make an ultimate cost to the
Bteel corporation of about $850,000,000, with
out considering cost of transportation, etc' As
stated In the steel corporation report for the
year 1906, this contract was" looked upon as a
good one from the standpoint of the steel cor
poration. The object in giving the foregoing details
Is to bring out a vivid comparison of this Great
Northern deal with that made last winter in
the acquisition of the Tennessee Coal and Iron
company. The Great Northern properties, con
taining probably 500,000,000 tons of ore, will
ultimately cost the steel corporation about $850,
000,000; but the Tennessee Coal and Iron prop
erties which are of far more value than the
Great Northern properties probably ever can be,
cost the steel corporation only $45,000,000.
To demonstrate the foregoing statements,
let reference be had to the following from the
annual report of the Tennessee Coal and Iron
company, for the year ending December 31, 1904.
In that report, Mr. Bacon, the chairman of the
board, said:
"Early in tlje summer of 1904 a commit
tee of appraisers was appointed, representing
the Sloss-Sheffield Steel and Iron company, the
Republic Iron and Steel company, and this com
pany, to estimate the amount and quality of
the coal and iron ore owned by each company.
An examination covering several months was
conducted, as tho result of which a report
signed by every member of the committee was
submitted, showing that this company owns in
fee over 395,000,000 tons of red ore, of which
381,000,000 tons are graded as first class 10
177,000 tons of brown ore, and over 1,623'000'
000 tons of coal, of which S09,112,000 tons are
coking coal. In tho coking coal is included 300 -000,000
tons of Cahaba coal, which is unex
celled in the south for steam and domestic pur
poses, and commands the highest market price
of any grade of coal in tho district. The men
in charge of our iron mines estimate the hold
ings of Iron ore of the company to be still
ISf? eJL llz" of fir-st class red ore over 450
SXX'XS! ns; of second class red ore, over 95 -tons.''
f brWn re' i6,000
From the above it will bo seen, figuring tho
first class ore at as low an amount as $f per
ton, that the valuation for that alone laVq?
000,000, If we disregard- aiWjfef
mate of coal, and simply take the estimate for
coking coal at as low a figure as fifty cents per
ton, we get a valuation of $400,000,000 more.
A very conservative estimate of the values of
the ore and coal deposits of the Tennessee Coal
and Iron company at the present time is hardly
less, in all probability, than $1,000,000,000.
Now, as far back as 1901, Mr. Schwab made
the statement that the coking coal deposits of
the steel corporation were of vast value, be
cause of the fact that coking coal of the kind
needed for blast furnaces was rapidly growing
scarce, and that in a few years there would
probably be no more. He disregarded the Ten
nessee properties, undoubtedly, but by this great
acquisition the steel corporation has been put In
a position where it need have no concern for
the future as far as coking coal is concerned.
In fact, the acquisition of the Tennessee CoaJ
and Iron company, aside from being a business
stroke of enormous direct profit, has had the
effect of rounding out and completing the con
trol, by the corporation, of the ore and coking
supplies of the' country.
That acquisition Is of more value to the
steel trust, and will be in the future in many
ways, than its, holdings of Lake Superior ores,
both because of location and because of general
character and quality of the deposits.
It is well known that the Tennessee Iron
ore deposits are the best in the world for making
pig iron; and the cost of production and manu
facture of iron products in that section is con
siderably less than is the case in the Great
Northern ore bodies. Therefore, it can be easily
demonstrated that the acquisition of this prop
erty for $45,000,000, added an almost unheard
of value to the equity back of the steel corpora
tion stocks.
Many people have wondered and are still
wondering why, in the face of temporarily poor
earnings', and in the face of tariff agitation, the
steel corporation stocks; both common and pre
ferred, have been steadily rising since last De
cember,' "and are now almost at tho highest fig
ures of their history. The foregoing demonstra
tion certainly accounts for it.
If it were not for the danger involved in
tariff agitatiph, the steel corporation common
stock would probably be Celling today at nearly
double its present value. Tn other words, in
stead of having a market price of $45 per share,
a total market value of about $220,000,000, it
would be selling in the neighborhood of $90 per
share, with a total market value of $450,000,r
000. It could easily reach this point in spite of
the fact that the corporation may not pay any
larger dividends for several years to come.
.The appraised value in 1904 of the Tennes
see company's properties, as quoted above, was
that of a thoroughly impartial and unanimous
board. This appraisal must have been known
to Mr. -Morgan and the rest of his party when
the property was taken over by the steel trust
at the absurdly low price they paid. Tf they
checked the panic by this transaction, they did
it by taking a few dollars out of one pocket and
putting millions into another.
President Roosevelt also must have under
stood the situation. If he did not, he should
have learned it, as he easily might, before con
senting to the consolidation.
JOHN MOODY.
But even with tho additional light thrown
on tho transaction by recent open correspon
dence, it does not appear by what authority tho
prosident "permitted" tho steel trust to place
additional restraints on trade. Indianapolis
News.
"Tf anybody tells yon that there will be a
panic if the democrats win, you tell them thnfc
there is only one class of people who would bo
in a panic that there will bo a panic among
those who have their hands in other people's
pockets." W. J. Bryan.
Tho American citizen who buys an Ameri
can made watch pays forty per cent mora for it
than tho Englishman has to pay for tho samo
watch in Great Britain. This, however, enables
uio watcn trust to pay such liigh wages that tm
trust magnates go to tho seashore in summer
and the south in winter while the employes re
main at
can bo.
expense
le south in winter while the employes re
t homo and wonder how the week's wago
j made to stretch. so as to meet tho week'
fc amttrctajO y juw awA- &&& A W
..'' f- A- i JftJft vfc
li!ifrftggjj)!
IfltaUfltt