As for the common stock of the Central Pacific Railroad, this was exchanged, dollar for dollar, for stock of the Central Pacific Railway Company (new corporation). Such an exchange was the best that stockholders could hope for. At the same time the Southern Pacific, here too, became a factor in the operation, by offering to issue its own stock, dollar for dollar, in exchange for the new stock of the Central Pacific Railway and to add thereto a bonus in the shape of Southern Pacific 4 per cent bonds to the extent of 25 per cent of the new stock issue.
Examination of the elaborate arrangements between the Central Pacific, the government, and the Southern Pacific in 1899 shows that the last-named company participated in the reorganization plan which has been described to the following extent:
| It became guarantor in respect of a bond issue(new 4 per cent first mortgage) of | $100,000,000 |
| It became guarantor in respect of a bond issue(new 3½ per cent second mortgage) of | 25,000,000 |
| It issued its own bonds for the purchase of$12,000,000 of the preferred stock of the newcompany, in the amount of | 12,000,000 |
| It agreed as and when required to purchase theremaining $8,000,000 of the preferred stockof the new company with bonds in theamount of | 8,000,000 |
| It agreed to issue its bonds as part payment inthe purchase of $67,275,500 of the commonstock of the new Central Pacific Railway inthe amount of | 16,819,000 |
| It issued its own stock in partial payment for$67,275,500 of the common stock of the newCentral Pacific Railway Company in theamount of | 67,275,500 |
| —————— | |
| Making a total of assumed liabilities of | $229,094,500 |
This was a very substantial contribution for any third party to make to the success of a Central Pacific reorganization plan. True, the Southern Pacific received Central Pacific stock for its cash advance, but the value of this stock at the time was slight. The real consideration which counted with the Southern Pacific was the control of the Central Pacific system.
Execution of Agreement
In carrying out the proposed plan the commission named in the Act of July 7, 1897, reported to Congress under date of February 15, 1899, that an agreement had been reached, and that the subsidy bonds were to be refunded into twenty notes of $2,940,635.78 each. On March 3, 1899, Congress authorized the Secretary of the Treasury to sell the first four notes in order that the agreement with Speyer and Company might be carried out.[590] These notes were already in the Secretary’s hands. They were duly purchased by the bankers named on March 10 of the same year. During the summer of 1899, the Central Pacific Railway was incorporated to succeed the former railroad company, and the various issues called for by the reorganization plan were put forth. On February 1, 1909, the last of the refunding notes matured and was duly paid. The divorce of the Central and Western Pacific companies from the government was complete.
To anyone who has followed the long drawn-out discussions between the Central Pacific and the government, the speed with which the final settlement was made and the favorable terms which the government secured come as a distinct surprise. Not once during the twenty years following the passage of the Thurman Act had it been suggested that the Central Pacific could meet principal and interest of the government loan on condition only that it be granted an average extension of five years on its indebtedness with interest at 3 per cent on delayed payments. The result was properly regarded as a triumph for the administration.
In a measure, also, the settlement justifies in a general way the entire policy of the administration with respect to the issue of subsidy bonds to the Central and Western Pacific Railroad companies. These subsidy bonds were issued originally for a well-considered purpose. The purpose was accomplished, and repayment of the loan was secured without important delay. From a business point of view the operation was therefore a distinct success. Doubtless there were disadvantages connected with the policy. Such were the many disputes between railroad and government, which hampered the railroad in its later development, and occupied the time and energy of public men. Such, also, was the apparent consent which the government yielded to the permanent consolidation of the Central and Southern Pacific companies by its acceptance of the reorganization of 1899. The final price paid by the public was larger than is sometimes appreciated. But the final gain was also very large.