began to be felt. First, the National Tube Company began the erection of blast furnaces, thus depriving the Carnegie Company of one important consumer of billets and other heavy raw materials used in the manufacture of tubing. The Carnegie Company had for some time been planning extensions, and as a direct result of the action of the National Tube Company it was decided to erect a modern plant at Conneaut Harbor, where it was thought the cost of manufacturing would be reduced to a minimum. Second, as a result of a long-standing controversy between the Pennsylvania Railroad and the Carnegie Company over rates, the latter had determined to build a new, low-grade, short-line railroad from Pittsburgh to tidewater via the Western Maryland Railroad. The plans as proposed called for the construction of 156 miles of railroad connecting the Union Railroad with the Western Maryland at Cumberland, thus freeing Pittsburgh from the monopoly of the Pennsylvania, and giving the district, as Mr. Carnegie said, "competition of railroads." Third, early in the fall of 1899, Mr. Charles M. Schwab of the Carnegie Company spoke before a company of distinguished business men in New York city on the advantages of consolidation in the manufacture and marketing of steel.3 Morgan sat at his right and among the men present were Harriman, Carnegie, Phipps and seventy or eighty others.* Fourth, Mr. Morgan, whose tube plant was threatened by the plans of the Carnegie Company and whose interest in railroads was a dominant factor in all his plans, began to give the situation more serious attention. According to both Mr. Gates and Mr. Schwab, Mr. Morgan discussed the situation with the former and then, through the instrumentality of Mr. Gates, sent for Mr. Schwab for the purpose of going over the project in detail. A meeting was arranged and the matter was discussed at considerable length and after a day or two Mr.

Testimony of Mr. Carnegie. Hearings before the House Committee on the investigation of the U. S. Steel Corporation, page 2445 ff. Hereafter referred to as the Stanley Report; ibid, pp. 40, 1311 ff.

1Gates, Stanley Report, p. 40. Carnegie, ibid, 2445 ff. Century Magazine, August, 1908.

Testimony of C. M. Schwab, Stanley Report, p. 1278.

• Ibid., p. 1278.

Morgan, having been convinced of the desirability of the project, requested Mr. Schwab to see Mr. Carnegie and to obtain a price on the Carnegie properties. This was done within a few weeks, the price set being $420,000,000, payment to be made in cash or five per cent bonds. Mr. Morgan then consulted Mr. Gary. After a full discussion of the plan, a conference was arranged with the principal directors in the Federal Steel Company, including Ream, Rogers, Mills, Porter and Field. Here again the desirability and practicability of the proposed consolidation was carefully considered and after such consideration, despite the opposition of Mr. Porter and others, the project was affirmed and Mr. Morgan consented to act as the manager of an underwriting syndicate to furnish the financial backing that was required.3 As a result the United States Steel Corporation was formed under the New Jersey law on the 25th of February, 1901, and on the 26th 5 of the same month the Morgan Syndicate was formally organized by a group of financiers, including Mr. Morgan, the leading men connected with the several steel companies which it was planned to unite, and several others. The plan under which the steel industry was consolidated was prepared within a comparatively few days and on March 1, 1901, was submitted to the directors of the United States Steel Corporation at their second meeting and duly approved."

The plan provided for the increase of the capital stock of the steel corporation from $3000, the amount originally authorized, to an aggregate issue of $424,998,500 of preferred stock, the same amount of common stock, and $304,000,000 of five per cent bonds of such form, tenor and security as J. P. Morgan and Company should determine. The entire amount of capitalization provided, including the bonds, was to be trans

1

1 Testimony of Mr. Carnegie. Ibid., pp. 2377 ff., 2438 ff.

2 Testimony of Mr. Gary. Ibid., p. 205 ff.

3 Testimony of E. H. Gary. Ibid., pp. 205-6.

Ibid., p. 3749.

5

Report of Bureau of Corporations on the Steel Industry, part i, p. 390. • Ibid., p. 383.

7

Stanley Report, p. 3750.

ferred to the syndicate in exchange for the entire bond issue of the Carnegie Company, all the shares of the capital stock of the eight companies included in the consolidation, the statutory fees and taxes connected with the issuance of the new securities, and $25,000,000 in cash. The syndicate was allowed until May 30, 1901, to complete the exchange and the entire agreement was contingent upon the ability of the syndicate to deliver at least fifty-one per cent of the common and preferred stock of each of the companies. If the syndicate should fail to deliver all of the capital stock of each of the companies and all of the bonds of the Carnegie Company, the following allowances were to be made:

In accordance with the terms of the underwriting agreement,

1 For each $1000 par value of the bonds of the Carnegie Company as should not be acquired the agreement provided that $1000 par value of the bonds of the Steel Corporation should be abated and deducted. Report of the Commissioner of Corporations on the Steel Industry, part i, p. 385.

I

J. P. Morgan and Company, as syndicate managers, issued on March 2, 1901, a circular letter addressed to the stockholders of the eight companies, stating the conditions under which the underwriting was to be carried out, calling attention to the expected advantages of the consolidation and offering to exchange stock in the United States Steel Corporation for stock in the several companies at the rate of exchange named in the underwriting agreement. The circular letter appeared as an advertisement in the daily press as well as in the financial journals and on March 21, 1901, public announcement was made by the syndicate managers that a very large proportion of all the stocks had been exchanged and that the projected consolidation was consummated.2

Even while the exchange of stock between the United States Steel Corporation and the eight companies was being effected, it was proposed by those connected with the active management to extend the scope of the consolidation by acquiring control of six other companies. This proposition was presented to the board of directors on March 30, 1901, duly approved, and their action was confirmed by the stockholders of the original $3000 United States Steel Corporation on April 1.3 Immediately thereafter a second underwriting agreement was entered into between Morgan and Company and the United States Steel Corporation by which it was agreed to increase the capital stock of the corporation and to exchange the new shares for the capital stock of the following companies on the terms named in the table at the top of page 290.

4

The second part of the consolidation in accordance with the above plan, with the exception of the Colorado Fuel and Iron Company, was effected without apparent difficulty during the month of April, 1901, the capital stock having been further increased to $1,100,000,000, one-half preferred and one-half

'Report of the Commissioner of Corporations on the Steel Industry, part i, pp. 396-400.

2 Circular Letter, 72 Commercial and Financial Chronicle, March 23, 1901. 3 Stanley Report, p. 3750.

4 Underwriting agreement of April 1, 1901. Appendix to Report of Commissioner of Corporations on the Steel Industry, part i, p. 386.

COMPARISON OF SECURITIES ISSUED BY UNITED STATES STEEL CORPORATION IN 1901 WITH AMOUNTS OF SECURities of ConsSTITUENT Concerns and Cash ACQUIRED THEREFOR1

1For details concerning securities outstanding, Carnegie bonds, purchase-money obligations, and securities secured by other than direct exchange, see pp. 114 and 174 of the Report of the Bureau of Corporations. The Steel Industry I, pp. 114 and 174.