in exchange therefor our negotiable receipt. Such of the stockholders as elect to exchange their stock and desire to subscribe for the new common stock should also fill out the subscription agreement.

Unless at least 75 per cent in interest of the stockholders of the Missouri company have deposited their stock for exchange with us on or before December 2, 1912, we may, at our option, be relieved from all liability hereunder by returning to the depositing stockholders the stock deposited by them.

In case the plan is declared operative we shall upon receipt of the stock of the Maine corporation, be prepared to retire our receipts, issuing therefor such an amount of preferred shares and such an amount of common shares in the Maine corporation, plus balance due in cash, to respective depositing shareholders as receipts call for.

No charge will be made to depositors.

KIDDER, PEABODY & Co.

Accompanying and printed as a part of the above circular was the following

statement:

"We, the undersigned, directors of the Kansas City Stock Yards Co. of Missouri, having carefully considered the offer of Kidder, Peabody & Co., set out in their circular under date of October 31, 1912, and being unanimously of the opinion that it is for the best interests of our shareholders to accept the same, have agreed to deposit our shares (except qualifying shares) and have subscribed to such shares of the common stock of the Kansas City Stock Yards Co. of Maine as we are entitled to, and we recommend the same action on the part of all stockholders.

"CHARLES F. ADAMS.
"CHARLES F. MORSE.
"WALTER HUNNEWELL.

66 FRANCIS L. HIGGINSON.
"EUGENE V. R. THAYER.

Some of the stockholders of the Missouri company objected to relinquishing their proportion of control of the yards property. Below is a sample of Kidder, Peobody & Co.'s reply to such objectors:

JOHN A. CHAPMAN, Esq.,

NOVEMBER 29, 1912.

Agent, 1212 Chicago Stock Exchange Building, Chicago, Ill. DEAR SIR: Acknowledging your letter of November 27, and replying categorically to your questions, we are informed by interests identified with the board of directors.

1. The assets of the Maine corporation in the beginning will consist of the deposited stock of the Kansas City Stock Yards Co. of Missouri and some cash in bank derived from the sale of common stock. The stock of the Missouri corporation deposited in exchange for stock of the Maine corporation will, we understand, be transferred to the Maine corporation.

2. You are correct in stating that each seven shares of the old company is to have the right to subscribe to one share of the common stock of the new company, and that this provides for the issuance of slightly more than one-half of the proposed issue of common stock of the new company. The balance has been sold at $50 per share on the same terms to new interests, which the management firmly believe will stimulate the business and make it certain that the property will earn a sufficient amount to insure dividends on the new preferred and common shares equal at least to the rate of dividend you are receiving on your present holdings. They inform us at the present time that they have heretofore earned a 6 per cent dividend on the stock, except that for the six months ending June 30, 1912, the earnings were $30,000 less than the amount of dividend paid. Since that time the earnings have been showing a little better.

3. The only basis on which a depositing shareholder can subscribe to the new issue of common stock is that outlined in our circular, namely, one share of common for every seven shares of old stock deposited.

4. The cash proceeds of the common stock-$2,500,000 at $50 a share-amount to $1,250,000. The first charge of $10 a share to the present outstanding shares of the Kansas City Stock Yards Co. of Missouri amounts to some $880,000, the

second charge (an underwriting commission of 5 per cent to underwrite approximately one-half the common capital to be offered to the depositing shareholder, amounting to about $1,250,000 par value) amounts to $62,500. In addition to that our counsel fees, bankers' fees, and expenses incident to deposit of the stock, it is expected all of this is accomplished that approximately $250,000 would be paid into the treasury of the Maine corporation.

5. Regarding the position of a nondepositing stockholder, a stockholder in the old company is, of course, under no obligation to deposit his stock, but the management believe that under the proposed arrangement the old stock represented by the new preferred will be on an absolutely permanent 5 per cent basis, and the stockholders who avail themselves of the privilege of taking the new common stock to which they are entitled will eventually receive more than their present dividends on the old stock in dividends on both classes of the new stock and be able to dispose of their new shares (should they so desire) in a broader market than they have had for the old stock. Should these conditions materialize, there may be some question as to the future basis of exchange for the stock of the old company.

6. We are informed that the reasons for this proposed exchange are similar to those in respect to the Chicago Junction and Union Stock Yards Co., of Chicago, namely, to cement with the company large interests active in using the property and insuring their being domiciled at this particular point for the transaction of their business in the future as in the past.

Very truly, yours,

KIDDER, PEABODY & Co.

In accordance with Morris's plan the Kansas City Stock Yards Co. of Maine was incorporated on December 26, 1912. By April 5, 1913, through Kidder, Peabody & Co., the holders of $7,930,400 of the common stock of the Missouri company had exchanged their holdings for $7,930,400 of the preferred stock in the Maine company plus $793,304 in cash. In this exchange the holders of the Missouri company's stock could have bought $1,132.9090 (one-seventh of $7.930.400) of the common stock of the Maine company for $566,450 ($50 per share), but they actually bought only $1,055,900, for which they paid $527,950 ($50 per share). For its service in this matter Kidder, Peabody & Co. was paid $39,328.

Subsequent to April 5, 1913, there was an additional $61,100 of the common stock of the Missouri company exchanged for the same amount of preferred stock of the Maine company plus $6,110 cash. This made the outstanding preferred stock of the Maine company $7,991,500, and left $168,500 of the common stock of the Missouri company yet unacquired by the Maine company. This remaining $168,500 common stock of the Missouri company was bought for cash by the Maine company, for part of which it paid $125 per share.

Edward Morris and others bought $1,444,100 of the common stock of the Maine company for $722,050 ($50 per share), which, together with the $1,055,000 of stock given in exchange for stock in the old company, brought its outstanding, common stock up to $2,500,000. On May 1, 1916, the Kansas City Stock Yards Co. of Missouri was liquidated and its property was taken over by the Kansas City Stock Yards Co. of Maine. The bonds of the old company were assumed by the new company.

Thus the Morrises succeeded in gaining control of the Kansas City Stock Yards Co. It is known that Edward Morris personally bought $1.250.000 of the common stock of the new company (50 per cent of the total voting stock) at a net cost of $562,500—he paid $625,000 and received an underwriting fee of $62,500. Morris & Co. also received some of the common stock in the new company by exchanging its holdings in the old company. This gave the Morrises control of the new company.

The list of the holders of the common stock of the Kansas City Stock Yards Co. of Maine furnished the commission by the company as of June 30, 1917, disclosed very little direct holding of the stock by the Morrises. Practically all the Morris holdings stood on the books in the names of others, such as E. V. R. Thayer, of New York; R. A. Hitchings, of Boston; and Martin H. Foss, of Chicago. The commission was able to find only $1,065.800 (or 42.6 per cent of the total) of this stock accredited to the Morrises, so it is doubtful if all the Morris holdings were identified.

From the viewpoint of the yards company the reorganization increased the outstanding capital stock $2,331,500 from $8,160,000 to $10,491,500-and placed

less than $250,000 cash in the company. From the $1,250,000 which was paid for the common stock of the new company was deducted: The $799,414 paid to the holders of stock in the old company, who exchanged for preferred stock in the new company; the organization expenses of the new company as well as the Morris $62,500 underwriting commission; the $39,328 Kidder, Peabody & Co. fee; and the $185,000 or more paid for the stock in the old company, which was bought by the new company.

I want to say in that connection that I hope when the statement is made of the ownership of the stockyards here at our hearing there will be a statement put in showing the real ownership of the shares of those yards.

Mr. MARSH. May I read one statement bearing out the suggestions I made:

In October of that year its capital was increased to $4,040,000, of which $1,515,000 was a stock dividend, $505,000 was new subscriptions. In 1890 a stock dividend of $404,000 was paid. In 1892 Armour was given a stock bonus of $500,000, and the real estate of the yards company was appreciated that amount.

Mr. BORDERS. You do not think the Kansas City Stockyards are overcapitalized, do you?

Mr. MERCER. No; I would not say that.

Mr. MARSH. Mr. Mercer, how much in stock dividends do the farmers get?

Mr. MERCER. Nothing.

Mr. RAINEY. Mr. Mercer, you suggested with reference to agitation against legislation that the packers were responsible. Do you know of any advertisements that the packers have had in the newspapers with reference to opposition to legislation before this agitation was started by the producers and shippers for some legislation of this kind?

Mr. MERCER. No; I do not.

Mr. RAINEY. So that really the producers and shippers are responsible for the agitation for legislation?

Mr. MERCER. No; I say not, absolutely not. And if this committee wants me to tell them how that started I would be glad to do it, but it will take me about five minutes. But I say that the producer is not responsible, Mr. Rainey, for the move for this legislation. Mr. RAINEY. I understand that you recently passed a law in Kansas regulating the packers there?

Mr. MERCER. Yes.

Mr. RAINEY. And you have a State commission, that is appointed? Mr. MERCER. Yes; a live-stock bureau, it is called.

Mr. RAINEY. After that law in Kansas has been passed, and is now in force, you suggest National or Federal legislation. Suppose some legislation is enacted and a Federal commission appointed, and suppose such commission decides on sanitary regulations with reference to packing houses, and suppose that in your State your bureau has different regulations, then there is a conflict between the commission appointed by the Federal Government and the commission appointed by the State of Kansas, what would be your idea of the situation then?

Mr. MERCER. You ask what would be my idea?

Mr. RAINEY. Yes.

Mr. MERCER. Why, to settle it in the best way possible. And if there is a conflict between State and Federal regulations as to han

dling a matter of that kind of course I would say this: That it could hardly be possible that a State regulation could interfere with a Federal regulation as to interstate matters, if it were shown to be an interstate matter.

Mr. RAINEY. Well, suppose it would.

Mr. MERCER. Then the State ought to stop and let it alone. I think the Federal Government is bigger than any State.

Mr. RAINEY. That is all.

Mr. BORDERS. I would like to ask Mr. Mercer one question: I understand your position is that from the standpoint of human nature the people who buy should not generally do the weighing. Is that your theory of it, that the packers should not be interested in the stockyards?

Mr. MERCER. You misunderstood me if you thought I said the packer should not be interested. He should be interested. But he ought not to have the management or control over the matter. It is a market for him to go to and buy his products.

Mr. BORDERS. Do you think that ought to be managed by the producers?

Mr. MERCER. It ought to be managed by the producers under regulation.

Mr. BORDERS. All right. Now, let me ask you, and this is only one more question that I do want to ask: Do you think that the producers will come forward and avail themselves of the opportunity to buy the yards, the interests of the packers in those yards?

Mr. MERCER. Well, Mr. Borders, I would answer that question by saying no.

Mr. BORDERS. You think they will not do so?

Mr. MERCER. I do not believe it is possible to finance the purchase of the stockyards of this country through the farmers. Therefore I am very much opposed to the arrangement made by the packers and the Attorney General in decreeing that the packers should be divorced from them.

Mr. BORDERS. You do not favor such a law. This Anderson bill and practically every other bill we have had has proposed to require the packers to be divorced from the ownership of the stockyards. Mr. MERCER. How was that?

Mr. BORDERS. To be divorced from ownership in the stockyards. Mr. MERCER. I have tried to make myself plain and clear, at the beginning of my statement, that I did not consider that that made any difference.

Mr. BORDERS. You do not favor that?

Mr. MERCER. No; I do not favor legislation divorcing the packer from having any holding or any right to buy stock of or any part in a stockyard; but I do advocate a law that will prohibit him from managing and controlling stockyards. If he wants to invest his money in stockyards all right. I have the right to invest my money in them now if I wish to do so.

Mr. BORDERS. Certainly.

Mr. MERCER. I suppose it would be impossible to make it so that anyone could not buy stock in anything of that kind, any shipper or other person.

Mr. BORDERS. I just wanted to know your position on that matter.

Mr. ANDERSON. As to the question of scales: Do the stockyards own the scales now?

Mr. MERCER. Oh, yes.

Mr. ANDERSON. They are not owned by the packers, the stockyard scales?

Mr. MERCER. Yes, sir; or the stockyards own them. You get me in deep water when you ask me who owns them. I told you that we do not know who does own them.

Mr. ANDERSON. I am trying to get at the real ownership. The stockyard company owns and controls the scales?

Mr. MERCER. I say they do.

Mr. ANDERSON. And, of course, the packers own the stockyards, and to that extent they own the scales?

Mr. MERCER. To make myself clear, I say, and I think I can prove it, that the Morris packing interests control the Kansas City stockyards and that the Cudahy packing interests control our Wichita stockyards and that the Swift interests control our St. Joe stockyards. If I am wrong in my statement I will stand corrected, but I make this as a positive statement.

Mr. ANDERSON. Your idea, I take it, is that the weighing of stock ought to be done by an agency which is disinterested as between the seller and the buyer?

Mr. MERCER. Yes, sir; I do.

Mr. ANDERSON. We had a very similar situation in Minnesota at one time in the buying and selling of grain at terminal elevators. The weighing there now is all done under State supervision, and I think that State supervision is satisfactory to everyone concerned.

Mr. HEINEMANN. May I say right there that the State of Minnesota has a State weighmaster in stockyards now?

Mr. ANDERSON. Yes, sir; I understand that that is under a new law passed at the last session of the State legislature.

The CHAIRMAN. Does it apply to all yards?

Mr. HEINEMANN. Yes, sir; in Minnesota.

The CHAIRMAN. How about Chicago?

Mr. MERCER. There is no such law in Illinois.

The CHAIRMAN. How about Missouri?

Mr. MERCER. There is no law of that kind in that State.

The CHAIRMAN. Who manages the weighing in those States?

Mr. MERCER. The stockyard employees do that.

The CHAIRMAN. Then, if the yards are controlled by the packers they furnish their own weighmasters to do their own weighing. Mr. MERCER. Yes, sir; they do.

The CHAIRMAN. Should that not be corrected?

Mr. MERCER. I say that it should be.

The CHAIRMAN. But is it not up to the States to do that?

Mr. MERCER. Well, it will take a long while to get all the States to do those things. It ought to be a uniform proposition; it is such a uniform business all over the country that it should be handled by a commission a good deal like the Interstate Commerce Commission, or some commission of that kind. They do not have much difficulty with State authorities in working out their problems.

The CHAIRMAN. After all, there is a line of demarcation. Some things are for the States to do and some for the Federal Government?