Indianapolis Sold to the Public

Of all boom-inflated U. S. utility holding companies, the most preposterous was not Howard Hopson's Associated Gas & Electric (TIME, March 4) but a smaller pyramid in which Hoppy once had a large voting interest. This was the $400,000,000 fantasy called Utilities Power & Light Corp., put together by a Chicago Christian Scientist and Shakespeare devotee, Harley Lyman Clarke. Crueler than death has been the fate of ex-tycoon Clarke: by 1938 his own lawyer officially admitted he was too poor to be sued. Unlike Hopson (who built up good operating utilities on the theory that fat cows give richest milk) Shakespearean Clarke bought and overcapitalized nearly everything he saw.

After the Crash. By 1935, utility security pyramiding had stopped. U. P. & L.'s future rested on two main assets: 1) all the common stock of the then $80,000,000 Indianapolis Power & Light Co. which netted U. P. & L. well over $500,000 a year; 2) stock control of a group of British properties worth about $25,000,000 so long as the pound didn't fall. First claim on these assets was held by $50,000,000 of U. P. & L. debentures which that year sold in the market as low as 20-c- on the dollar.

One man to whom this low seemed inviting was Floyd B. Odlum. In 1935 he had his investment trust, Atlas Corp., put around $4,000,000 into U. P. & L. debentures, the next year sold the English assets over Clarke's opposition, won for Atlas a sweet paper profit, bought more bonds. In January 1937 U. P. & L. went into the courts under 77B, Clarke's and Hopson's common stock lost control, ended by being wiped out. Odlum, who went on buying, finally held 64% of the bonds outstanding (cost to Atlas: $18,000,000), was in the driver's seat for the reorganization. Calculating that he could-make the bonds pay 100-c- on the dollar (plus back interest), he turned his attention to liquidating U. P. & L. altogether by selling its operating properties.

Liquidation by Equities? In ten years since Depression I began, new capital issues of U. S. holding company securities, dubious and newly regulated, would not sell. For the most part, operating company common stocks, closely held by their holding-company parents, could not be bought. So the public was offered only bonds and preferred stocks of operating companies, mainly refunded at lower rates, rarely for new money. U. S. electric output has risen no less than 38% since 1929, but investors have had virtually no opportunity to buy a piece of equity in this operating-company expansion.

Odlum's liquidation program gave them a chance. Year ago he sold a small U. P. & L. property in Newport, R. I. It was the first time a holding company had ever sold 100% control of an operating company back to the public. But less than $2,000,000 was involved, none of it new money. During the past year, Odlum prepared to repeat the experiment: this time with the bigtime U. P. & L. property in Indianapolis.

Last December, an argument over utility equity financing was precipitated by SEC's mooted Consumers Power decision (TIME, Jan. 8), in which Wendell Willkie of Commonwealth & Southern (Consumers' parent) was told he could not raise $10,000,000 of new money by selling Consumer bonds, should sell stock instead. Willkie, who agrees that equity financing is desirable, argued that the public would not buy stocks at reasonable prices, while they are willing to take bonds at low rates. The issue over equity financing boiled down to a question: could common stocks be sold at reasonable prices?

Less Than Two Hours. For almost six months, Liquidator Odlum and underwriters (Lehman Bros., Goldman, Sachs and First Boston Corp.) played financial poker with one another over the price at which Indianapolis common could be sold. Indianapolis' 1939 earnings were $2.05 a common share, its dividend $1.60. Upshot of the haggling: the bankers bought 714,835 shares of Indianapolis for $22 a share, agreed to sell it to the public at a $2 markup, for $17,156,040 in all. To Atlas, the sale of U. P. & L.'s Indianapolis stock meant cashing in on around $10,000,000 that had been frozen in U. P. & L. To utilitarians, underwriters and SEC, the deal was a test case, whether the public would pay $24 a share for an operating stock yielding (on the basis of 1939 dividends) 6 2/3%.

Last week came the offering. Unlike a bond issue, the Indianapolis stock was out of the normal orbit of insurance and trust companies. Throughout the U. S., 473 dealers (plus the 90 underwriters) lined up to pass it out in small lots. Less than two hours after the books were opened, the dealers had oversubscribed more than two times. Significant item: one-eighth of the issue was sold in Indiana. Next day, the new common sold over the counter at more than the offering price. The ice has been broken.

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