New York Meetings
Let us return to the meeting of Huntington and his associates at New York in the summer and fall of 1884, at which the details of the reorganization were worked out. The first business there considered was the purchase of the interest of one T. W. Pierce in the Galveston, Harrisburg and San Antonio Railway and the making of certain adjustments of interests of the associates in connection therewith. The next was the taking of an inventory of securities on hand in New York and those used as collateral for the payment of liabilities of Stanford, Huntington, Hopkins, and Crocker. On September 11 the question of the reorganization of the Southern Pacific system was taken up, and the following order of business was agreed upon: (1) consolidation of all the lines of the Southern Pacific system in one company; (2) separation of Central Pacific business from Southern Pacific business; (3) leasing of the Central Pacific system to the Southern Pacific system (new organization); (4) general consolidation of lines from San Francisco to Newport News.
The fourth item referred to a proposal that Stanford, Crocker, and the Hopkins estate enter with Huntington into the ownership of the Chesapeake and Ohio Railroad, opening the way for a transcontinental rail line from coast to coast. This offer was declined; no further reference need be made to it.[211]
On September 25, the associates came together again, and from that time until November 7, meetings were held almost daily. From the meager reports of the proceedings kept by their secretary, we glean that more than one plan of adjustment was considered. It was agreed at one time that the Southern and Central Pacific companies might terminate their leases, and that the Central might lease from the Southern that portion of the railroad between Goshen and Mojave. Then a running arrangement was to be made between the Central Pacific and the Southern Pacific Company (new organization) to cover the line from Mojave to San Francisco and other California points.[212]
This plan was not finally adopted. On October 1, Leland Stanford was appointed a committee of one to formulate his proposed method of leasing the several roads which should form the through line of the Southern Pacific Company. It was agreed that the stock of the Southern Pacific Company, which had been organized the previous year, should be raised to $100,000,000. During the following three weeks the discussion turned largely about the details of the Southern Pacific organization and the best methods of liquidating the Southern Development Company. On November 5, the question of leasing the Central Pacific system to the Southern Pacific came up. It was agreed to lease the property, and temporarily to fix the rental at fixed charges and a guarantee of 2 per cent upon the capital stock, plus all the earnings of the Central Pacific system over and above that percentage until the amount should reach 6 per cent. All profits beyond 6 per cent were to go to the Southern Pacific Company. The last meeting was held on November 7.
Reorganization of System
The result of these exhaustive discussions was a threefold operation. In the first place, the Southern Pacific Company of Kentucky, organized in 1884 with a charter granting power to do most things in the world provided it did not operate in Kentucky, issued $100,000,000 in capital stock, and acquired in exchange for its certificates the stock of the Southern Pacific Railroad Company and that of the subsidiary companies completing the through line to New Orleans.[213]
Secondly, the Southern Pacific Company leased the Southern Pacific Railroad and these same subsidiaries for ninety-nine years from the 10th of February, 1885, undertaking to keep the properties in repair, and to pay over 93½ per cent of the net profits to the lessors in specified proportions.
In the third place, the Southern Pacific Company leased the Central Pacific Railroad for ninety-nine years from the first of April, 1885, for a rental which might vary from $1,200,000 to $3,600,000 a year, according as the earnings of the Central Pacific and leased lines north of Goshen might be small or large. This substantially corresponded to the 2 per cent and the 6 per cent on the capital stock mentioned in the minutes of the associates. The Southern Pacific assumed all Central Pacific obligations except the payment of the principal of indebtedness incurred or guaranteed by that company, and various minor adjustments and assignments were made which it is not necessary to describe.[214]
Mr. Stanford has testified that in fixing the rental of $1,200,000 the business of the previous years and the prospects of competition in the future were taken into account.[215] The United States Pacific Railway Commission approved the terms of the lease two years later.