233 F. 49 | 8th Cir. | 1916
This is an appeal by holders of 3179 shares of preferred stock of the Missouri-Edison Electric Company from a decree of relief from an inequitabje consolidation of their company with the Union Electric Light & Power Company effected by an abuse of power by majority stockholders who had control of both companies. For brevity the constituent companies have been called the “Edison Company” and tire “Union Company No. 1,” and the consolidated company, the “Union Company No. 2.” We shall adopt those designations. The history of the litigation will be found in Jones v. Missouri-Edison Electric Co. (C. C.) 135 Fed. 153; 75 C. C. A. 631, 144 Fed. 765; 117 C. C. A. 442, 199 Fed. 64; 122 C. C. A. 247, 203 Fed. 945 — and need not be repeated here.
“with instructions to ascertain the value of the property of Union Company No. 2 immediately after its consolidation, to assign 43 per cent, of that value to the Edison Company, to find the value of the stock of the appellants on that basis, and to enter a decree to rehabilitate the Edison Company, or that the appellants have a lien upon the property of Union Company No. 2 for the value of their stock and interest thereon. from the date of the consolidation, and the costs of this suit, and that that lien be foreclosed, or for such other permissible relief in equity as to the court below shall seem meet and effective to satisfy the claim of the appellants, unless within a short day, named by the court, the defendants shall pay to the appellants the said value of their stock, and interest thereon from the date of the consolidation, and the costs of this suit.”
The decree now before us was rendered upon a confirmation of the report of a master to whom the matters were referred. It was conceded that the rehabilitation of the Edison Company was practically impossible. All that remained was to give appellants a money decree with means for enforcing it, also incidentally to ascertain and make
The value of the property of Union .Company No. 2 on December 31, 1903, was found in this way: The net income of the company for 1907, after deducting all operating expenses, fixed charges, $176,780.-77 for depreciation, taxes, and interest, amounted to $469,951.92. The net income was then capitalized on a 7 per cent, basis, and the result, $6,713,598.37, was taken as the value December 31, 1907, of the equity in the incumbered consolidated properties. This amount was discounted back four years to December 31", 1903, at the same rate, 7 per cent., with annual rests. The result was $5,121,772.23, of which, as already noted, 43 per cent, was assigned to the Edison Company. The net income for 1907 was taken to start with, because, as believed, more likely to reflect intangible and potential values of the consolidation and the Ashley street plant, and also because the financial results of later years were complicated by the acquisition of other properties and further additions to capital.
The report of the master is an excellent one, but we think he erred in selecting a single method in ascertaining value, to the exclusion of a great mass of other evidence upon the subject. Moreover, the method selected was not altogether correctly applied. It is true that the first dividend upon the stock of Union Company No. 2 was not declared until 1907, but the discounting of the capitalized net income of that year back to 1903 implied an absence of net income for the years 1904, 1905, and 1906. The books of the company for those three years showed net income passed to surplus aggregating $642,112.54 after all deductions including $300,000 for depreciation were charged out. That dividends are not paid during the early years of a venture is frequently a choice of financial policies, without much, certainly without controlling, significance as to the value of the stock or of the property it represents-; and during the formative or adjusting period stock is often recognized as having substantial value, even without net earnings
The decree below is reversed, and the cause is remanded, with directions to enter a decree, in accordance with the foregoing opinion, for a recovery by appellants from the consolidated Union Electric Light & Power Company of September 9, 1903, of amounts determined by the number of their shares of stock in the Missouri-Edison Electric Company at $107.50 per share, with interest thereon from September 9, 1903, at the rate of 6 per cent, per annum, and costs, excepting those incurred in the matter of appellants’ counsel fees and expenses, adjudging the recovery, with interest and costs, to be a lien upon the property of the said consolidated company, fixing some short time for payment, and providing that upon default the property be sold to satisfy the decree; also to find the amounts of appellants’ counsel fees and expenses, and to provide in the decree for the payment thereof and of the costs incurred in that matter from the gross recovery; and for the distribution of the balance among the appellants in proportion to their respective stockholdings upon surrender of their certificates of stock for the use of the consolidated company.
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