Ways of Living

Alexandra Herald and Central Otago Gazette, Issue 428, 21 July 1904, Page 7

Ways of Living

COMPANY PROMOTING . iSISpHE promotion of public companies S2§n| °f & years attracted an in&&y» creasing amount of interest, owing: partly to the popular notion that therein lies one of the shortest ways to wealth; while its development has been so great that few there are who directly or indirectly are not concerned, The individual proprietor is fast giving way to the board of directors, with its army of officials i the personal alement in business is on the decline, and as a conseqience employers and employed now meet together under the passionless supervision of the Board of Trade- But it is the object rather of this article to poaderover . and to expound a few aspects of company promotion—the rights and the wroags of it, the opportunities and the jaatinoations for it, and the pitfalls and the snares surrounding it. The promotion of public companies has furnished a conspionous object lesson on the proverb 'A fool and his money are Boon parted/ and has shown up in a far from pleasant light the avarice that underlies the nature of bo many of us; while the enormous growth of negotiable security, the direct result of limited liability, has afforded an opportunity for the greatest legalised gamble the world has ever seen. On the other hand, the public company has produced the Director, than whom, when he is what he should be —and he often is—there is no'finer example cf the public servant; it has occasioned the publication of profits, information invaluable to the consumer, that traders with glass poekets so desired by England's greatest prophet; it has brought about in many instances the anion of interests of buyer and seller; it fcas checked hoarding, the gold p'eoes which formerly rusted in the stocking having paid the wages of the artisan, and stimulated the brains of the paienteeto yet further marvellous achievement; in ahort, the public company has enriched industry a hundredfold, and has infused into property that invaluable quality, negotiability, enabling land and buildings, plant and machinery, stocks and goodwills to pass in the smallest quantities from one end of the country to the other, from one owner's pocket to another, with the ease and facility of sovereigns themselves. Many and great is the fioanoia difficulty, and even r tin, which might with truth be ascribed to this very lack of negotiability; while limited liability has again and again smoothed the thorny path of the executor, and extricated him from the many prolonged and ruinous family quarrels which it seams so often hiß lot to contend with. Is addition to all this, the public company has vastly extended the interest in la a nation of shopkeepers, the retired tradesman baa been in effect recalled to his counter; and from Land's End to John o' Groat's there ia neither village nor hamlet but has a stale in some industrial undertaking, whose fortunes are watched with a keenness and interest (sufficient in hemselves to provide a liberal comruercia 'eduoatiom .."

With such an extended And extendiag scope of it-is matter of congratulation to find that the public are gradually jet sat sly gaining experience in company flotation; but they still apparently have ranch to learn. They should understand that the notation of a company is a s&le ciiffaring but very little from aa auction sale: the property is offered in attractively small lots to unit all comers, while the usual spontaneous eloquence of the atfuiioneer finds vent, in the glowing descriptions to be found in the prospectus.

. To follow the analogy yet further, the interest and character of an aw at ion sale is largely determined by the name of the vendor, for it often satisfactorily disposes •jof the pertinent question, Why is the property cffarad P Similarly, when a public company is launched, Who are the vendors P and why is the property offered? are two points which should not be overlooked. It may be that an established business is to be acquired and extended, or that an amalgamation is to ba effected; it may be patent sights or concessions are to be obtained, a scheme of exploration and development undertaken, or contracts to inaugnrate a business taken over. Each class of flotation must therefore be criticised from a different point of view. Some are speculations others investments; amd while the intending investor ought to be safeguarded at every point, the speculator is entitled to no sympathy. In the case of the flotation of the established business, there is little difficulty in judging the capitalisation and the purchase consideration: the good-will must not exceei three years' profits, and the tangible assets must, bear a proper proportion to the paper or good-will asset; and the working capital must be sufficient. Bat in ' tbis class of flotation the public need to [know particularly why the property is offered and what the guarantees are for . successful management in the f atme. la amalgamation schemes, to a great extent the same criticism holds good; but here there is a ohance for the promoter to obscure tha present actual earnings of the individual businesses, and to effectually exclude from view any weak reasons for. disposal, by dangling before the eyes of the investor the enormous prospective profits to accrue from the amalgamationIn the first case, however, the occupation of the oompany promoter is nearly gone. A disjernißg public has gqueezad him out, and hia only chance is either to fiud a vendor who will sell his business for a sum far below its actual worth—a type of vendor, needless to say, almost as extinct as the dodo —or he must manipulate the figures or so dazsle the public with tha glitter of this directorate as to turn their heads; but fortunately his opportunities in this respeet diminish daily. There are times and seasons, however, when the public throws rational criticism to the wind as in the ie«ent cycle boom; then the promoter reaohes down the bad stock from the top shelf, looks out trie stale parcafs and sails thsm by marking them np at double the usual price. In such tim<:S the public subscribes its millions in the feverish hope that the morrow may bring into the market a yet more thoughtless plunger; repentance only oomes when the bank sends a polite note that the overdraft has considerably exoaeded the ! limit, while at the same time the door of the safe oan be with difficulty closed owing to the accumulation of scrip. The established "business, in short, must now be floated direct from the owners to the public, for the latter naturally require that the owners shall be willing to take the risk and pay the oosfc of the flotation; and tkese is new Be rata for a prometarti