Two thirds of all preferred stock outstand ing of the Norfolk & Western Railway must consent to any increase in preferred or any new mortgage. (Reorganization.) If the Wisconsin Central Railway should fail for two successive years to pay 4 per cent dividends on its preferred, the preferred shareholders would have a right to elect a ma jority of directors. This is another example of special control vested in the preferred further to safeguard the lessened risk.
Control vested in preferred stock may have a limitation in that the corporation, on the vote of the common stock, may have the right to redeem the preferred under stipu lated conditions at a stipulated price. In that event the stock is called "redeemable." Such a limitation takes away much of the value of the stock for purposes of control of the cor poration, but does not affect the power of the preferred shareholders to protect their in terest while the stock remains outstanding. Common shareholders exercised their right to redeem the preferred in a most dramatic way in the course of the conflict in 1901 be tween E. H. Harriman and J. J. Hill for rail road ownership in the Northwest. A group of men known as the "Harriman-Kuhn, Loeb Syndicate" endeavored to get control of the Northern Pacific Railroad. The road had outstanding $80,000,000 common stock and $75,000,000 preferred. J. J.. Hill and J. P. Morgan owned common stock amounting to $26,000,000. Harriman and his backers bought into Northern Pacific until they had $37,000,000 common and $42,000,000 pre ferred, — a clear majority of $1,500,000 of all the stock of the road. The Hill interests bought further into the road until they had $42,000,000 common, — a clear majority of $2,000,000 of the common. Then the Harri man people discovered their weakness. The preferred possessed equal voting power with the common, but was subject to redemption at par up to January, 1917. The Hill in terests, having a majority of the common, announced their intention of redeeming the preferred! They did redeem it. All the Harriman people got out of their contest was one representative on the Northern Pacific board.
The Southern Pacific Company had an issue of nearly $75,000,000 ($74,866,463) 7 per cent preferred stock, redeemable at the option of the company at 115 at any time be tween July, 1905, and July, 1910. The com pany redeemed the stock in July, 1909. This
stock, by the way, was convertible; holders had the right after July, 1905, to convert into common at par. When the company called the stock for redemption, it gave holders the choice of taking the redemption price of 115, of converting into common under the con vertible right, or of taking 41 per cent bonds par for par plus $20 in cash for each share.
Whether one large preferred stock issue, that of the Southern Railway, is redeemable or not, is perhaps open to question and has not been officially decided.
The May Department Stores Company, operating department stores in St. Louis and other cities, put out a preferred issue, for the retirement of which they created a sinking fund. The issue amounted to $5,000,000. The company must set aside $150,000 yearly be fore any dividends are paid on the common, in order to retire preferred at not over 125, at which the stock is callable. For the first three years the company may add the sink ing-fund to the general surplus. It could not, however, declare a dividend on the common till it had $250,000 in the special surplus, nor more than 4 per cent in any year till the special surplus account amounted to $1,000,000.
Examples of issues of redeemable preferred stock are: — Erie first preferred, redeemable at par; Erie second preferred, redeemable at par; St. Louis & San Francisco first preferred, redeemable at par; St. Louis & San Francisco second preferred, redeemable at par; Domin ion Coal, redeemable at 115; American Smelt ers Securities Company, subject to call on any interest date after 1930. National Lead Company, redeemable at par beginning 1910; The Mackay Companies, redeemable at any time at 106; American Cotton Oil Company, subject to call at 105; Borden's Condensed Milk Company, subject to call at 110.
Instead of having extra control the pre ferred may have less control vested in it than the common. The American Tobacco Com pany preferred shareholders had no right to vote at any meetings except those convened for increasing or decreasing the capital stock, dissolving the corporation, "or passing upon other matters with respect to which the statute expressly gives the power to preferred stockholders to vote." The American Smelt ers Securities Company gives its preferred shareholders no voting power unless divi dends for one year remain unpaid.