A MARGARINE MERGER.

New Zealand Herald, Volume LXVI, Issue 20307, 15 July 1929, Page 7

A MARGARINE MERGER.

COMBINE IN EUROPE. CAPITAL OF £14,000,000. Mr. M. S. Foley, managing dirccto? of Foloy Brothers, Limited, on his arrival in Sydney recently, said that in recent years tlio whole maigarino industry of Central Europe and England had been merged in one huge combine. This combine controlled a capital ol over £14,000,000, with a reserve of nearly £5,000,000 to deal with any competitors who might appear on tho horizon. "Thorn is no uso blinking tlio fact," said Mr. Foley, "that margarino made from cocoannt oil now constitutes a very serious menace, not ordy to Australia, but to tho buttoi industry throughout tho world."

Tho story of tho foundafiotrof Margarino Union, Limited, said Mr. Foley, read like an industrial romance. From 1927 onwards there had been a gradual merging of Dutch, Central European and English interests, until to-day the combine was so powerful that tho few remaining competitors were seeking to ally themselves with the union Not only manufacturers of margarine had been drawn into tho combine, but also manufacturers of oil, soap and other products in Austria. Hungary, Poland, Germany, Switzerland, Yugoslavia and Rumania. Tho chief commodity, however, upon which the immense combine had concentrated its energies was margarine. During 1928 Margarino Union, Limited, spent £1,600,000 in advertising. Although the quality even of tho lowest grado margarine had been maintained, tho price had been kept at pre-war levelAfter allowing for ail expenses, including depreciation ana the closing of many factories for tho sako of greater efficiency, the combine declared a dividend of 10 per cent, on ordinary shares for 1928. "Canadian shippers do not want Australian butter," he said. "Tho dumping duty imposed by tho Canadian Minister offsets tho bounty paid under the Paterson scheme. The dumping duty has even been made retrospective. The result is that last year Canada bought only £6OOO worth of butter from Australia* and £1.250,000 worth from New Zealand. You see New Zealand was wise enough to arrange for a reciprocal tariff. Our Minister should lock into the matter promptly if the Australian butter industry is to flourish." COMPANY FINANCE. CAPITAL OF NEW CONCERNS. One of the most objectionable features of company promoting in recent years has been the absence of sound principles in regard to capitalisation, the City editor of the Times wrote recently. These principles were well recognised before tho war, and were fairly generally adopted, but they have been openly violated either in ignorance or in contempt of them by newcomers to the world of company finance. It is not uncommon nowadays to find a company capitalised as follows: £1,000,000 of debentures and £500,000 of share capital, or with £1,000,000 of preference shares and £250,000 of ordinary shares. A company with a share capital of £500,000 is not in a position to issue £1,000,000 of real debentures, • that is, a with a properly 'safe margin of security behind it. If the amounts wero reversed—that is to say, £500,000 of debentures and £1,000,000 of share capital behind them—tho debenture would have something moio than mere hope as its security. The samo argument applies to preference and ordinary shares. For preference shares to have a real preference, there must be a substantial amount of capital ranking behind (hem, otherwise their preferential position is more apparent than real. It is sheer audacity for company promoters to invito the public, as they not infrequently do, to subscribe for, say, £500,000 of preference shares in a new and untried company, with no record of profits behind it, with only one-tenth !of that amount in ordinary shares, this being the only margin of security. Obviously, preference shares in such a case have a preference over virtually nothing. They merely enjoy the doubtful pleasure of providing the bulk of the money, which may be lost if the venturo fails, while another party —the ordinary shareholder —stands to gain most if it succeeds. A company saddled with disproportionately heavy prior charges finds itself in difficulties almost at onco if it should strike a lean period. It requires a substantial margin in its trading profits to enable it to meet the interest on its debentures, and one lean year may bo sufficient to place it in default. Similarly, a disproportionate amount of preference shares in comparison with ordinary capital exposes a company to troubles hardly less difficult in bad times, for although the company may not have to seek a moratorium, as would be the case in the event of non-payment of debenture interest, or alternatively obtain temporary accommodation on onerous terms, it builds up arrears of dividend which compromise its credit and reduce its chances of recovery.