Another form of financial company is that used by some of the large equipment companies. In most states the public utility commission laws provide that bond or note issues, maturing in less than one year, need not be sanctioned by the commission. The large suppliers of electrical equipment find themselves bur dened with one year notes, and to change these into usable funds is the problem they have solved by means of financial companies. The practice of the General Electric Company in this respect is described thus: Various finance and operating companies have been in corporated by the General Electric interests, which have general charge of the management of local companies, and the placing of their securities. Among the purely finance companies of this character are the Electrical Securities Cor poration and the Electric Bond and Share Company. If, for example, an independent engineer wishes to purchase electrical equipment for a hydro-electric plant in West Vir ginia, he might buy the machinery' from the General Electric Company, paying partially with the bonds and stocks of the projected enterprise. The Electrical Securities Corpora tion might then take over the securities, deposit them, to gether with others, with a trustee, and issue collateral trust bonds against them. These bonds would be readily sold to investors. In this way the parent company secures the busi ness upon which it realizes cash, while the managers of the local enterprises are not compelled to dispose of securities at a sacrifice. The details of the plan may be illustrated by taking a case in which the General Electric interests directly operate the local company. Suppose it is thought wise to entirely reorganize the small company that supplies light and power to Fort Worth, Texas. The enterprise may be financed by the Electric Bond and Share Company, which will undertake a general supervision of the work thru a subsidiary organization, the Southwest Utilities Company. The local company will have the benefit of superior engi neering skill and the most modern and efficient machinery. The local Fort Worth Company would pay the Electric Bond and Share Company for its cash advances in its own bonds, preferred and common stocks, and with this cash it would pay the local interests for the old plant, and the General Electric Company for the new machinery. The bonds placed upon the property would represent about seventy to eighty per cent of its cost. These bonds, bearing 5 per cent interest, could be sold to a bond dealer for about ninety-one per cent, who would distribute them to the public at about ninety-six per cent. Such bonds are often sold without the intervention of bond houses. The preferred stock would be issued for the remaining twenty or thirty per cent of the actual cost. This stock, bearing 7 per cent interest, could be sold for about 9434 to bankers wbo would distribute it in small lots to the public at about par. The common stock would go directly into the treasury of the Electric Bond and Share Company or its subsidiary, and would be held there in the interest of the parent corpora tion until it acquired substantial value thru the increased earning power of the local company. Sometimes, as in the
case of the American Power and Light Company, another affiliated corporation of the General Electric, these common stocks of local enterprises are used as collateral for the issue of high interest bearing, short term bonds.1 12. Management companies.—A distinct kind of holding company that has grown up within the last ten years is the so-called management company in the public utility field. A typical example is J. G. White and Company, Incorporated. Its subsidiaries are the following companies : The J. G. White Engineering Corporation, NeW York. The J. G. White Management Corporation, New York. Engineering Securities Corporation, New York. Investors Securities Corporation, New York.
J. G. White and Company, Limited, London.
Municipal and General Securities Company, Ltd., London.
The engineering and management corporations, until 1913, were departments of J. G. White and Company, Incorporated. In that year they acquired the good-will, business in hand, contracts, organiza tion, equipment and other assets of the engineering, construction and management departments respec tively of the parent company, which in turn, acquired the common stock of both subsidiaries. The parent company continued as an active financing and own ing company in the general field of engineering and public utility enterprise.
The work of the engineering and management cor porations was described by the company in an an nouncement of the incorporation of the two subsidiar ies as follows: gating in cost ovet$28,000,000, while appraisals and reports were made during the same period on properties and projects aggregating over $400,000,000 in value. Important engi neering services were rendered thruout thirty different states and Canada. They included the rehabilitation of several public service properties ; the construction and equip ment of two high-speed interurban electric railways; the drainage of 118,000 acres in Florida ; and a natural gas pipe line, 124 miles long, the first of its kind to be put down in California, notewor'thy for establishing a record of high est pressure ever employed.
The position of J. G. White and Company, Incorporated, as builders of American water powers was maintained with prestige by- work on hydro-electric developments aggregating ultimately- 426,000 horse-power.
13. Compleaity of intercorporate relations.—In large corporate enterprises, particularly those with a long and varied history, there is often an amazing complexity in the relations of parent and subsidiary companies. This is aptly illustrated in the accom panying chart of the Interboro Metropolitan sys tem in NeW York City. A study of the chart will show that in the earlier combinations which took place among street transportation companies, the usual form was the lease, but in the more recent combina tions the holding company has been chiefly used.