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24. MARINE REVIEW AND MARINE RECORD. LAKE SUPERIOR CONSOLIDATED. Speyer & Co. will sell the Property to Establish their Interest in the Bonds--An Intelligent Analysis of the Causes which have led to the Shut-Down. It is absolutely impossible to determine the status of affairs at the Sault, so many conflicting stories are about. The only thing which is definitely scheduled is that Speyer & Co., who as managers of a syndicate have a mortgage of $5,050,000 upon the property, are to sell the entire concern today (Thursday) at pub- lic auction. The sale is to be in bulk, only one bid for the whoie of it to be entertained, and Speyer & Co. reserving the right to bid in the property. The sale is stated to be solely for the pur- pose of establishing Speyer & Co.'s title to the bonds, and that the bankers have no intention of indefinitely tying up the prop- erty or of interfering with negotiations for its revival. They are, however, intimately concerned in securing the money which they advanced. ny Meanwhile all sorts of rumors are afloat. The latest 1s a telegram from Mr. Francis H. Clergue that he has secured money to pay Speyer's loan and that he wants the works to resume on Oct. 10. No one has been able to make head or tail out of that message. It is known, however, that it was sent by Mr. Clergue from New York to Mr. Lewis, superintendent of the steel plant at Sault Ste Marie. Mr. Clergue has given out a statement in which he pleads for a. little more time. He urges the Canadian creditors especially, whose pressure he fears, to be lenient, say- ing that the property must eventually prove a desirable invest- ment to them. He adds that not three-tenths of the capital ex- penditure has yet come into productive form in operating the works although the entire plant is now completed and ready to start up to its full capacity. Yet the small fraction of the plant now in operation has earned in gross in the last four months over $1,300,000 and in net over $600,000. "This," says Mr. Clergue, "is at the rate of $1,800,000 net per annum, with less than one-third of our invested capital pro- ductive, and with our various nickel and steel works only now come into operation, having an earning capacity from orders practically on hand of $2,500,000 annually in addition, That under these circumstances our company has not. been able to provide for the Speyer loan must seem unaccountable. Although I am confident that the present shareholders will be saved their entire investment, yet should they be obliged to suffer some loss, the continued operation of the plant at Sault Ste Marie to the substantial profit of the operators is quite as certain as the con- tinued existence of the waterfalls at that point." Still another story is that the stockholders' protective com- mittee has formulated a plan of reorganization, entailing the for- mation of a new $40,000,000 company with an issue of $10,000,000 of bonds on the Algoma Central railway and an assessment of $3 per share on each class of stock. It would not appear, how- ever, that there is much. chance of reorganizing the company upon those lines in the present demoralized state of the market. Other stories are that the Canadian courts have appointed Mr. B. F. Frackenthal, Jr., president of the Thomas Iron Co. of Easton, Pa., as receiver for the subsidiary plants, though no for- mal admission or denial of this appointment can be obtained from Mr. Frackenthal. On the other hand Judge Platt in the United States district court at New Haven, Conn., appointed Mr. John G. Carruth of Philadelphia, president of the Interna- tional Title and Trust Co., as temporary receiver for the parent company. : Mr. James Bicknell, representing Speyer & Co., is now at Sault Ste Marie and he predicts the rehabilitation of the leading enterprises within a year's time on a much sounder basis than formerly. It is, of course, a mystery to the outsider as to why money should have been so abundantly furnished to build the industries and so parsimoniously doled out when working cap- ital became needed; and this is explained solely on the theory that the large shareholders in Philadelphia grew finally reluctant to "throw good money after bad." Of course an impelling con- tributary cause has been the extreme stringency of the money market, supplemented by the fact that when Speyer & Co. -re- fused to advance anything additional to their five millions other bankers became wary about taking a second mortgage. Distrust of the management has been a potent factor in the pres- ent financial . difficulties. It was understood by Speyer & Co. that a million and a half of their loan was to have been set apart for the satisfaction of creditors on interim accounts. When it was found that the money was expended on further experiments the banking interests became frightened. _. The duties of Mr. Bicknell will include that of examining into the condition and prospects of every. industry, and the ulti- mate disintegration of the consolidated concern into its original elements is probable. The negotiations with the Vickers-Maxim syndicate are with regard to the steel and iron mining proper- ties of the company. The pulp enterprises have never paid, but reorganization might put them on a better basis. The chemical 'enterprises and the patent in connection therewith are said to be very valuable, and the Algoma Central railway is likely to become an important link between Sault Ste Marie and the new Grand Trunk transcontinental railway. The outlook, therefore, is by no means hopeless for a prosperous industrial community at the Sault. So complicated are the affairs of the company, however, and so difficult the task of straightening them out, that it will be the work of months. The mechanics and laborers em- ployed in the purely manufacturing enterprises must, therefore, [Oct. 1, seek employment elsewhere this winter. This fortunately is not difficult as agents are now at Sault Ste. Marie offering work 'to. whoever will accept of it. E € INTELLIGENT ANALYSIS OF THE MIX-UP. About as intelligent an analysis of the affairs of the Con- solidate Lake Superior Co. as has yet been published, is one con- tributed by B. K, Sandwell as special commissioner for the To- ronto News, who has just paid a visit to the Sault. He has made a most enlightened inquiry into the causes which have led to the closing down of the works and his deductions will be read with great interest. Concerning it he says; "The Consolidated Lake Superior Co. has been. adjudged as if it were, or should have been, a going concern. It is nota going concern, and even had all gone smoothly during the past year, it would not in all probability have become one for two or three years more. It was formed and capitalized in expectation of enormous profits, and that expectation has been deferred again and again, but never disproved. Plants and railways worth about $25,000,000, but costing through initial errors at least $30,- 000,000, have been capitalized for a total of $117,000,qoo, Of this amount, $26,000,000 of paid-up preferred stock represents real money, and along with $5,000,000 or so of debentures is the entire genuine investment in the company. The preference stock is entitled to 7 per cent. non-cumulative--that is, the holders have no claim to back dividends, once the date for declaring them is past, and however great the profits thereafter, they must go to the common stockholders. The contingent profits above this annual 7.per cent. were capitalized at the enormous sum of $82,- 000,000 and common stock to the amount of $75,000,000 has been already issued. Of this $56,000,000 worth was for the acquisition of half that amount of common stock in the original companies that were absorbed by the existing Consolidated--the original Consolidated Lake Superior, and the Ontario Lake Superior; none of it represented value received, the entire amount in both these companies having been originally issued as premiums, with the preferred stock to represent contingent profits. Twenty-six millions went to the shareholders of the Algona Steel Co., whose plant of blast furnace, steel works and rail mill was in an ex- tremely incomplete condition. Of the thirty-five million of pre- ferred stock, nearly fourteen million went for the acquisition of the preferred stock of the before-mentioned companies, at what appears to have been a fair price for a real investment (the par value of the acquired stock was $12,000,000, and it was fully paid-up) ; twelve millions was issued for cash, and the rest is still in the treasury. "If this enormous quantity of fictitious common stock had remained in the hands of those who accepted it, as it were with a pound of tea, there would have been far less trouble. But it was unloaded. To what extent the insiders who held the prefer- ence stock parted with their common at a price which they cer- tainly knew had no present justification, we cannot for the mo- ment tell. At any rate, it was to an extent that made it extremely doubtful whether they retained control of the company. For it is the weakness of the modern American system of company finance that it gives enormous influence in the management of the company to a class of shareholders whose interests are those of speculation rather than investment and who have contributed their capital to a stock gamble and not to the development of the property. A series of unfortunate circumstances soon made. it clear to these secondary shareholders that the contingent profits they had invested in were much more remote than they at first imagined. They perceived that the common stock might come to its value in 1950, that indeed that possibility was the only ex- cuse for issuing it, but that as far as the earnings of its earliest days as a going concern were involved, Consolidated Lake Supe- rior was hugely over-capitalized. And just about the same time it became evident that it had on the other hand an immensely insufficient money capital. Since those discoveries there has been chaos among the shareholders of Consolidated Lake Superior and anything like consistent and enterprising management has been impossible. , : MR. CLERGUE'S GENIUS AS A PROMOTER. _ "Mr. Francis Clergue, an indomitable promoter, an ingrati- ating canvasser, a buoyant and slightly irresponsible manager, is the man in whose intellectual bias must be sought the reasons for the financial and commercial peculiarities of the Consolidated company. Mr. Clergue is in many ways an exception to the or- dinary rules regarding American company promoters and con- structors. Solidity has.ever been one of his chief aims, rapidity of profits never. In a country which boasts no. medieval. forti- fications, the Clergue works at the Sault, in their stupendous cas- tellated and turreted stonework, their monumental solidity, are a unique type of architecture. Fifty years hence their. construc- tion will stand for thousands of dollars a year in the profit-and- loss account by reason of their freedom from repairs. Today it is simply an extra drain upon the inadequate amount of capital which Mr. Clergue secured to carry them out. This stonework is undoubtedly in itself a small mania with the Sault promoter. He has erected a costly stone fence around one of the flimsiest and most ramshackle summer hotels that it was ever in the wit of man to devise. The 'blockhouse,' in which he and his brother transact their business and occasionally dwell, is a more reason- able exhibition of the same partiality for the solid and immov- able. Mr, Clergue 'thinks in centuries.' The result of his think- ing is a scale of initial expenditure not unjustifiable in itself but utterly appalling to the economical American mind, It is not