WAR IN RUBBER COMPANY

The New York Times
April 22, 1900

Shareholders of Consolidated Tire Concern Threaten Legal Action

CHARGES AGAINST PROMOTERS

Unreasonable Prices for Patent Rights Alleged—Inkling of the Fight—President Rice's Statement.

Trouble is reported to be brewing in the affairs of the Consolidated Rubber Tire Company, and it is now declared that certain dissatisfied stockholders will carry their grievances into court.  This statement is made by a stockholder, who says that the legal recourse is the only one which these dissatisfied owners think feasible as a means of restoring the company's securities to a proper basis.

An inkling of the fight, which goes back to the organization of the company, when Isaac L. Rice, now its President; Emerson McMillin, S. W. Ehrich, Stephen Peabody, Martin Maloney, and young Mr. Elkins, (son of W. L. Elkins, the Philadelphia capitalist,) were instrumental in promoting it, cropped out a few days ago in an advertisement in which George R. Sheldon, A. R. Pick, and Frank Tilford announced that they were a committee to protect the interests of shareholders of the company, and requested all holders of stock who cared to take steps for the helping of the company's securities to deposit their holdings in the City Trust Company, subject to the control of an aforesaid committee.

This committee, it was learned yesterday, has in mind, provided it can get sufficient cooperation from stockholders, the bringing of a legal action to compel the repayment of funds which fell into the lot of the promoters when the company was organized in April, 1899.  These funds, the committee alleges, were larger than the company's promoters had a just right to expect for their services.

THE PROMOTERS ACCUSED.

When the company was organized, taking in the principal hard rubber tire factories of the country, (the chief one being at Springfield, Ohio,) the promoters controlled the chief patents for making hard tires.  Many of the companies which were absorbed had had to shut up shop because the courts had just decided that they were infringing these patents.  By controlling them the promoters were in a position to make an effective, working consolidation, and they accordingly organized the Consolidated Rubber Tire Company, with $4,000,000 of common stock and $4,000,000 of 6 per cent. preferred stock, and this corporation swallowed up the minor ones.

The patent rights were "turned in" to the new company by the promoters at a value of over a million dollars.  As they are alleged to have cost them only $60,000 in actual cash, many of the stockholders have since been grumbling.  The promoters took the view that they had a right to make their own terms in organizing the company.  The dissatisfied shareholders contended that the promoters had acted in a fiduciary capacity in securing the patents and perfecting the organization, and that therefore they had no right to charge the company any more for the patents than they cost them.

The stock was distributed among well-known interests.  The Seligmans took a good-sized block of it, Edward Sweet took $100,000 worth, Talbot J. Taylor & Co. took $50,000 or $100,000 worth, and Lee, Higginson & Co. took $500,000 worth.  These are, of course, only a few of the stockholders.  The disagreement with the original promoters fomented, as reported, much ill-feeling, particularly as both the common and preferred stock (although the original subscriptions for them were quoted at a premium) began to fall in value.  In the outside securities market the common stock is worth about $6 or $7 a share and the preferred $34 or $35 a share, although the company has regularly paid its dividends on the preferred and earned enough to have paid something on the common.

THE PRESIDENT'S STATEMENT.

"Dissatisfied shareholders increased the decline in the stock's market value by denouncing it as a fake," said President Rice yesterday.  "As a matter of fact, it is an excellent property.  My common stock cost me about $20 a share.

All of the promoters were at length besieged by shareholders to surrender to the company the profits they had made in turning in the patent rights.  The former refused to admit that they did not have a perfect legal right to retain such profits, exorbitant as they might seem, as reported, but finally all but one agreed, in order not to have the matter fought out in the courts, to pay back what they had made out of the patents.

The one who held out was Mr. Elkins.  He stoutly refused to give up a cent, and said that if they thought they could beat him in the courts they were welcome to try.  It is now asserted that the Protective Committee will try.

President Rice has declared the company's finances sound, and says that the Protective Committee in its campaign against the stock is unwittingly playing into the hands of another corporation, which wants to hammer down the price of Consolidated Rubber Tire stock so as to buy it on cheap.

Mr. Rice refused yesterday to mention the corporation alluded to, but it was learned elsewhere that it was the Rubber Goods Manufacturing Company, a corporation which pays large attention to pneumatic tires, by makes hard rubber tires in a proportionately small amount.  The Consolidated Rubber Tire Company claims to make 90 per cent. of the hard rubber tires manufactured in this country.

The Rubber Goods Manufacturing Company some time ago proposed to the Consolidated Rubber Tire Company a plan for uniting the two concerns into a $10,000,000 corporation, each of the merging companies to own $5,000,000 of the stock.  The $4,000,000 preferred stock of the Consolidated was to be exchanged for $4,000,000 of stock in the proposed new concern and its $4,000,000 common stock for $1,000,000 of the new stock, and it was to be guaranteed 3 per cent. on its $5,000,000 of stock in the proposed new company before the other constituent company got a cent.  What was left of the earnings after this 3 per cent. payment was to be divided equally between the two constituent concerns.

THE POSSIBLE EARNINGS.

It was calculated that the proposed new company would earn $900,000 yearly.  Three per cent. on $5,000,000 would be $150,000 to go to the Consolidated Rubber Tire interests first of all.  This would leave $750,000, enough to give each concern a 7½ per cent. yearly dividend.  Thus, according to the scheme, the $5,000,000 of stock owned by Consolidated interests would pay 10½ per cent. yearly, (adding in the extra 3 per cent.,) and the Rubber Goods people would get 7 per cent. yearly.  The Consolidated Rubber Tire Company refused to go into the project.