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next few years about seventy corporations engaged in the
manufacture of explosives passed out of existence. The
object of this policy was to concentrate the explosive busi-
ness of the country. The property and assets of the dis-
solved companies were transferred to the larger companies
in the combination. It was intended, as soon as possible, to
discontinue some of the larger companies. The action of
the government perhaps prevented further concentration.

Likewise, the profits of the New Jersey holding company
are indicative of monopoly control and its abuse. 35 From
the time the company was organized in 1903 to the end of
1909, it had paid out in cash dividends about $11,000,000
and had a surplus of between $12,000,000 and $13,000,000. 36
The Delaware company of 1902, whose original investment
amounted to $3,000, owned much over half of the stock of the

81 Brief for the United States, V. 2, pp. 330-4.

"Ibid., p. 334.

33 Ibid., p. 334.

" Ibid.

86 Ibid., pp. 334-5.

"Ibid.



Decisions Since 1911 157

New Jersey company and received considerably more than
half of the profits. 37

In 1907 the Government filed dissolution proceedings
against the du Pont company of 1903 and in 1911 the Cir-
cuit Court held that fourteen corporations and fourteen in-
dividual defendants were maintaining an unlawful combina-
tion to restrain trade in the manufacture and sale of gun-
powder and other explosives. 38 An interlocutory decree
granted to both the petitioner and defendants a court hear-
ing at which a plan of dissolution would be agreed upon.
Either side could submit their own plan or plans, but any
such plans must not deprive the defendants of the oppor-
tunity to recreate a new condition in harmony with the law.
In June 1912 the court filed its final decree. It ordered the
dissolution of the combination consisting of twelve corpora-
tions and fifteen individual defendants. Of the latter, ten
were du Fonts by name.

The decree ordered the properties of the following com-
panies to be distributed among their stockholders : Hazard
Powder Company, Delaware Securities Company, Judson
Dynamite and Powder Company, Delaware Investment Com-
pany, California Investment Company, and, unless as later
provided for, Laflin and Rand Powder Company, and East-
ern Dynamite Company. All, or a majority of the stocks
of each of the above corporations was owned by the du Pont
Company of 1903. The du Pont Company of 1902 which
owned the stock of the du Pont Company of 1903 was ordered
to be dissolved, its property being distributed among its
stockholders.

The property and business still remaining with the du
Pont Company of 1903 were ordered to be shared with two
new corporations, with two alternatives. The Laflin and
Rand and the Eastern Dynamite companies might be reor-
ganized and utilized instead of the two new corporations,
or either of the former could be used for one of the latter. "
The defendants chose to organize two new corporations, the

37 Brief for the United States, V. 2, pp. 334-5.
"188 Fed. Rep. 156.



158 Tru#t Dissolution

Hercules and the Atlas powder companies. To the first
were assigned three plants for the manufacture of dynamite,
seven plants for the manufacture of blasting powder, and two
plants for the manufacture of black sporting powder. To
the second were allotted four plants for the manufacture of
dynamite and five plants for the manufacture of black blast-
ing powder. The distribution left the du Pont Company of
1903 eight plants producing dynamite, seven plants for the
manufacture of black blasting powder, two plants for the
manufacture of black sporting powder, and also two plants
for the manufacture of government smokeless powder. A
partial division of the smokeless sporting powder business
was made by requiring that a plant located at some eastern
point, with a capacity of 950,000 pounds per annum be
transferred or furnished to the first of the new corporations
organized. The du Pont company was left the sole con-
tractor for government smokeless powder as the court main-
tained that a division among several competing companies
would tend to destroy the practical and scientific co-opera-
tion between the Government and the defendant company,
and to impair the certainty and efficiency of the results thus
obtained. It may be noted that the Government by owner-
ship and operation of its own plants is enabled to control
the price it pays for powder.

The method of handling the securities of the new cor-
porations was much different than in the analogous case of
the American Tobacco Company. The new corporations
were required to pay for the properties, brands, good will
and business transferred to them by issues of bonds and
stocks. Fifty percent of the purchase price consisted of in-
come bonds bearing six percent interest that was payable if
earned by the company during the year, or to the extent
thereof earned but not otherwise. The bonds were to be
paid within ten years. The other half of the purchase price
was the total stock issue of the two new corporations. All
the stock and half of the bonds were ordered distributed
among the stockholders of the du Pont Company of 1903.
Such of the stocks as were due to any of the twenty-seven
defendants were ordered to be one-half voting and the other



Decisions Since 1911 . 159

half non-voting stock. Upon transfer by death or will to
some person not one of the defendants, non-voting stock
could be exchanged for voting stock. This privilege of ex-
change was extended to any purchaser of non-voting stock
provided that the purchaser was not a defendant or the
wife or child of one.

The decree ordered that as far as practicable a fair pro-
portion of the explosive business should be transferred to the
new corporations. The new corporations were granted for
a period of five years free access to the records of the Trade
Bureau of the trust, and also to such facilities as the du Pont
Company may possess in reference to the purchase of ma-
terials, experimentation, and scientific research.

The defendants and the new companies were enjoined
from : ( 1 ) uniting in any way the businesses of the new con-
cerns with their own or vice versa, or placing the stocks of
either in the hands of a voting trust; (8) making any agree-
ment or arrangement relative to prices or apportioning
trade by either customers or localities; (3) using local price
cutting to eliminate competition, except that prices may be
lowered to meet or compete with those of rival manufactur-
ers. (This was one of the leading weapons of the trust) ;
(4) retaining either the same clerical force or the same
office; (5) operating bogus independents, all subsidiary con-
cerns being required to place their names upon their prod-
ucts and to give a statement indicating their control. The
three corporations were further enjoined for a period of
five years from: (1) having an officer or director who also
holds such an office in either of the other corporations; (2)
having the same sales agent as another, though they may
sell through the same merchant or dealer; (3) acquiring the
stock, factories, plants, brands, or business of any other.

For three years, the individual defendants were forbid-
den to increase their stock or other interests in the new com-^
panics, although they could acquire the interests of other
defendants. A number of agreements entered into by the
defendants were ordered annulled. Six months were allowed
to put in force the terms of the decree ; that is, until Decem-
ber 15, 1911. The court retained its jurisdiction of the case



160 Trust Dissolution

and ordered that a report be made for its approval after
the plan had been carried out.

After a consideration of the history of the powder trust
and its dissolution, W. S. Stevens declares that the "effect
of the dissolution is difficult to predict. The distribution of
plants in order to insure competition promises well. In the
transfer of securities the theory has been apparently to di-
vide the strong stock control of the du Fonts by returning
half the purchase price of the plants transferred in an in-
come bond. The du Fonts' interest after this process is
again split in half by the distribution to the twenty-seven
defendants of half their stock in a non-voting issue. Regard-
ing this latter provision it is to be borne in mind that by
sale to other than the defendants or their wives and children
such non-voting stock becomes exchangeable for voting
stock. This clause is pregnant with suggestions of dummy
vandies. It is very questionable if the division into voting
and non-voting stock as it stands gives any real safeguard.
Had the court forbidden the exchange of the non-voting
stock for voting stock for a period of five years or more
this provision would have been more satisfactory. As in the
Tobacco dissolution which contains the same clause, the pro-
vision against the acquisition for a period of three years by
defendants of further interests in the new companies than
those assigned, is open to serious criticism. The result after
three years no one can foretell. It may be pointed out fur-
ther that the clause forbidding local price cutting contains
one exception that makes it of no value if by chance an in-
dependent manufacturer cuts the price first. As the clause
now stands that act would apparently justify a trade
war." 39

In conclusion it may be said that the injunctions laid
upon the defendants and the three corporations were very
similar to those of the tobacco dissolution and are to that
extent subject to nearly all of the objections raised against
that plan. 40 It was nearly two years after the combination

"Stevens, Quart. Jour, of Econ., V. 27, pp. 206-7.
40 See pp. 134-40.



Decisions Since 1911 161

was declared illegal before the dissolution was effected. 41
The practical effects of the dissolution cannot be analyzed,
for soon after it was completed an unprecedented demand for
powder and other explosives arose on the part of European
nations. The profits of the companies have been enormous
and their capacity and capitalization have been greatly in-
creased. Many new concerns have entered the industry and
no doubt depressed conditions due to an enlarged capacity
will attend the return of a normal demand.

THE DISSOLUTION OF THE UNION PACIFIC RAILROAD
COMPANY

The main line of the Union Pacific Railroad Company
extends from Council Bluffs, Iowa, to Ogden, Utah. From
Ogden, the Union Pacific has a line extending in a north-
westerly direction to the coast at Portland through control
of the Oregon Short Line and the Oregon Railroad and Navi-
gation Company. At Portland it has steamboat connection
with San Francisco. This was a much longer route to the
coast than from Ogden directly to San Francisco over the
Central Pacific, a distance of 800 miles. The Central Pa-
cific was owned by a strong rival system, the Southern Pacific
Railroad, and much of the Union Pacific's through trade had
to be turned over to its competitor at Ogden.

The Union Pacific tried repeatedly to avoid its "bottled
up" position at Ogden by purchasing the Central Pacific
Railroad, but without success. Finally in 1901-2, the Union
Pacific secured control of the Central Pacific indirectly by
purchasing a controlling interest in the Southern Pacific
system, which consisted of about 3,500 miles of ocean and
river lines and over 8,000 miles of railroad lines, forming a
transportation system from New York and other Atlantic
ports to San Francisco and other Pacific ports, with various
branches and connections, besides several important steam-
ship lines. 42 The stock purchased, which was held by a pro-
prietary company of the Union Pacific, the Oregon Short






"Moody's Manual, 1916.
U. S. 93.



162 Truest Dissolution

Line, amounted to 46 percent of the total stock of the
Southern Pacific Railroad. While this was less than a ma-
jority of the stock, Mr. Harriman, who dominated the Union
Pacific, frankly admitted that it gave him control of the
Southern Pacific. 43 After the purchase Mr. Harriman be-
came President and Chairman of the Executive Committee
of the Southern Pacific Company with the same ample pow-
ers which he had in a like position in the Union Pacific.

The Government brought suit under the Sherman Act
against the Union Pacific, charging that the acquisition of
the Southern Pacific stock was illegal. The Circuit Court
dismissed the charge upon the ground that the Union Pa-
cific and Southern Pacific were connecting, and only inci-
dentally, competing lines. The case was appealed to the
Supreme Court which rendered a decision late in 1912. This
Court declared that the purchase of the stock of the South-
ern Pacific constituted an unlawful combination in restraint
of trade. It allowed the Government and defendants three
months to work out a plan of dissolution agreeable to the
Circuit Court. In the meanwhile, the Union Pacific was
enjoined from exercising control, voting, or paying dividends
on the stock while in its possession, or in the possession of
a subsidiary company, or held by a corporation or person
for the Union Pacific. 44

Soon after the decree was given, both the Government
and the defendants joined in asking the Supreme Court to
instruct the Circuit Court whether a pro rata sale or dis-
tribution of the Southern Pacific stocks to the shareholders
of the Union Pacific Railroad, as was done in the Northern
Securities and Standard Oil dissolutions, would meet the re-
quirements of the Supreme Court. 45 The appellees urged
that such a dissolution would end the consolidation, espe-
cially since the Union Pacific had outstanding $316,215,600
of stock and $37,000,000 of convertible bonds, and since
these securities were distributed among 22,150 stockhold-

"226 U.S. 95-6.

44 226 U. S. 96-7.

45 226 U. S. 470-7



Decisions Since 1911 163

ers 46 rpfa Supreme Court refused this proposed plan, main-
taining that it would not end the combination. The Court
declared that it would not be bound by the former precedents
saying that "each case under the Sherman Act must stand
upon its own facts, and we are unable to regard the decrees
in the Northern Securities Company case and the Standard
Oil Company case as precedents to be followed now, in view
of the different situation presented for consideration." 47
No credence was given to the alleged wide distribution of
stock ownership. While the Union Pacific had 22,150 stock-
holders, the Chief Justice pointed out the fact that 68 stock-
holders owned 44 percent of the stock, and 300 others owned
18.8 percent. 48 Thus, 368 persons controlled 62.8 percent
of all the stock of the company, so that consolidation might
easily be perpetuated through the activity of the large stock-
holders.

Much difficulty was experienced in arriving at an agree-
able plan of dissolution. Upon the refusal of the first plan,
a second one was tried. 49 It proposed : first, a sale of South-
ern Pacific stock, under privileged conditions, to all share-
holders both of the Union Pacific and Southern Pacific com-
panies, except the Union Pacific or the Oregon Short Line
companies ; and secondly, with the funds thus acquired, an
outright purchase by the Union Pacific from the Southern
Pacific of the Central Pacific link. This plan also failed.
Conflicting stipulations in the bond issue, and the almost
hopeless physical entanglement of the two properties hin-
dered the carrying out of the plan. But the chief objection
came from the aroused public sentiment of California, which
through its railroad commission insisted upon the continu-
ance of actual competition at all points. Thus the Union
Pacific lost the long coveted short line to the coast.

A third plan 50 proposed a pro rata distribution of the
Southern Pacific stock among the shareholders of the Union
Pacific, but such a disposition was to be coupled with dis-

48 226 U. S. 472, 476.

47 226 U. S. 474.

48 226 U. S. 476.

49 Ripley, Railroads, Finance and Organization, pp. 566-7.
60 Ibid., pp. 566-7.



164 Trust Dissolution

franchisement for all purposes of control, of all holders of
1,000 shares or over. A trustee was to issue certificates of
interest upon deposit of all Southern Pacific shares held by
the Union Pacific, which were to carry no voting rights while
so held, and which should be exchangeable for actual South-
ern Pacific shares only on affidavit that the applicant for
exchange held less than 1,000 shares. This plan would ex-
clude 368 private shareholders from further increasing their
holdings and in so doing was held to be of doubtful legality,
and hence was rejected.

The plan finally adopted required the Union Pacific to
dispose of its 46 percent of the Southern Pacific stock,
amounting to $126,650,000 par value. 51 Of this amount
$38,292,400 was exchanged with the Pennsylvania Railroad
for stocks of the Baltimore and Ohio Railroad, a competing
line of the former railroad. This was an attempt at a
double dissolution of two railroads, by substituting in each
case control or at least a dominant interest in a competing
line for the interest of merely a connecting line. The stocks
of the Baltimore and Ohio acquired by the Union Pacific
were distributed as a dividend among its shareholders. This
still left the Union Pacific with a balance of $88,357,600 of
Southern Pacific stock which was distributed among the other
general shareholders of the Union Pacific limiting the
amount received by any one shareholder to 27 percent of his
individual holdings. In restoring these stocks, the expedient
of issuance of certificates of interest by a trustee to be ex-
changed for actual stock upon affidavit that purchase was
made in good faith on his own behalf, independent of the
Union Pacific interests, was borrowed from the preceding
plan.

The plan of dissolution left the Central Pacific in the
possession of the Southern Pacific, a feature of the dissolu-
tion held to be essential by the Taft administration. The
Harriman interests always held the right to possession of
the Central Pacific under the Acts of Congress of 1862-64,
which aimed to encourage by liberal land grants and subsi-
dies the construction of the first transcontinental railroad,
81 Ripley, Railroads, Finance and Organization, pp. 566-7.



Decisions Since 1911 165

and which provided that "the whole line of said railroad
* * * shall be operated and used for all purposes of com-
munication * * so far as the public and Government are
concerned, as one connected continuous line." 52 A recon-
sideration of this claim led to the institution of another suit
in 1914 by the Department of Justice. This time it was to
compel the Southern Pacific to terminate its control of the
Central Pacific. 53 The Government contended that such a
change would promote the public interest, especially for
California and the Pacific slope, by giving a direct continu-
ous transcontinental line that could freely compete and
bind more closely the East and West. Certain California
shippers had opposed such an arrangement at the time of
dissolution.

The dissolution of the Union Pacific marked a decided
advance over the previous dissolutions. The corporation ad-
judged illegal was denied the privilege of retaining any stock
or ownership in the properties illegally joined. No control-
ling interest in the Southern Pacific was allowed among the
shareholders of the defendant corporation. The proportion
of Southern Pacific stock received by the latter shareholders
was distributed in proportion to their individual holdings
and then only upon affidavit of no intent to unite with the
Union Pacific interests. The adoption of such a policy had
been far more urgent in previous dissolutions. The Union
Pacific had a far better justification for its combination.
It had been charged with neither unfair methods nor the ex-
tortion of excessive prices, such as had usually character-
ized the corporations previously dissolved. Had such meas-
ures forbidding large stock ownership been adopted in the
Standard Oil and American Tobacco Company dissolutions,
better results would have followed.

THE ANTHRACITE COAL COMBINATION

A study of the anthracite coal combination and of the
efforts made to break its power brings an added realization

M Ripley, Railroad Finance and Organization, p. 569.
"Ibid.



166 Trust Dissolution

of the complexity of the trust problem which presses upon
the courts and law-making assemblies for solution. An ex-
tended study of this combination, both as to its history and
present legal position, has recently been made by Dr. Eliot
Jones in "The Anthracite Coal Combination in the United
States." 54 This work furnished much of the data for the
following pages.

The geographical location of the anthracite coal industry
of the United States is such as to invite concerted action and
make easy of accomplishment any attempt to dominate the
supply of coal and the control of prices of this commodity.
Control would give a monopoly of a natural resource whose
annual production is about 75,000,000 tons. The monopoly
position would be further fortified by the fact that there is
practically no foreign competition. The hard coal deposits
of our country are localized to a remarkable degree. Five
adjoining counties in the northeastern part of the State of
Pennsylvania produced 96 percent of the total output of the
country. 55 The 484 square miles of workable beds lie in a
broken and mountainous region one hundred and fifty to two
hundred and fifty miles from tide water. The commercial
value of the coal is dependent to a large degree upon quick
and cheap transportation to the tide-water points, whence
it is shipped to the consuming markets.

From early days, the State of Pennsylvania attempted
to help the anthracite coal industry to overcome its trans-
portation difficulties. Railroads were given power to acquire
coal lands and engage in the business of mining and selling
coal and to assist coal companies by purchasing their stocks
and bonds. 56 These* opportunities were rapidly seized and
by 1875 most of the coal lands were in the hands of the rail-
roads. The bad results arising from the union of transpor-
tation and mining privileges led in 1874 to the passage of a
state constitutional amendment which forbade common car-

64 Harvard Economic Studies, V. XI, 1914, hereafter referred to as
Jones. Other sources are: 164 Fed. Rep. 217-54; 183 Fed. Rep. 427-497;
213 U. S. 366-419; 226 U. S. 324-373; 213 Fed. Rep. 240; 238 U. S. 516;
226 Fed. Rep. 229.

66 Jones, p. 5.

M 226 U. S. 339; Jones, p. 27.



Decisions Since 1911 167

riers to mine or manufacture, directly or indirectly, articles
or commodities for transportation over their own lines, but
the law was too late to save the independence of the coal in-
dustry.

The large annual interest charges resulting from the pur-
chase of the coal lands and from the seasonal demand for
hard coal, which is used almost exclusively for domestic pur-
poses, gave the railroads a strong incentive to seek pooling
devices to prevent cutting of prices. Between 1873 and
1898 the railroads entered into various combinations to con-
trol through restrictive policies the production and price of
coal. 57 These agreements were usually of short duration,
being followed by periods of keen competition and increased
production. The large indebtedness of the railroads made
them eager to exceed their annual allotments agreed to by
the combination. When pooling was made illegal in 1887
reliance was placed largely upon the leasing of competing
railroads. The leased roads were guaranteed an interest
rate plus a division of the profits earned above this rate. The
operation of the leasing arrangement through the Reading
Company, which in 1892 had 70 percent of the anthracite
shipments under its control, was secured through inter-
locking directorates among the roads and through seven
year contracts with independent mine operators. The latter
agreed to accept for their production of coal 60 percent of
the tide-water price. None of these arrangements were suc-
cessful for more than a short period, partly because of the
changing financial conditions of the country.

With the period of rising prices beginning about 1897,
more effective methods of restraining competition in the an-
thracite industry were secured through extensive consolida-
tion. The first step in this direction was made by the con-
solidation of railroads competing in anthracite transporta-
tion. 58 In 1898, the Erie Railroad purchased a complete


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