Random Reminiscences of Men and Events
sale of its works, good-will, and stock of oils and during same
when said company had offered to sell its entire stock for a gross
sum, to wit, the sum of one hundred and fifty thousand dollars
($150,000), which was to include cash on hand, accrued dividends,
accounts, etc., said Jennings requested said company to submit an
itemized proposition fixing values upon different articles proposed
to be sold, and that he, after full consideration with Mrs. Backus
and with her knowledge and consent, submitted the written
proposition attached to said Jennings's affidavit; that the same is
in his handwriting, and was copied at the office of the American
Lubricating Oil Company from the original by himself at the request
of said Jennings, and said original was submitted by affiant to
Mrs. Backus.
"That she was fully cognizant of all the details of said
negotiations and the items and values attached thereto in said
proposition, consulted with at every step thereof, none of which
were taken without her advice, as she was by far the largest
stockholder in said Backus Oil Company, owning about seven-tenths
(7/10) of said company's stock, and she fully approved of said
proposition, and accepted the offer of said Jennings to pay sixty
thousand dollars ($60,000) for the item works, good-will, and
successorship without any opposition, so far as affiant knows. And
affiant says that the amount realized from the assets of the Backus
Oil Company, including purchase price, has been about one hundred
and thirty-three thousand dollars ($133,000), and a part of its
assets have not yet been converted into money as affiant is
informed."
Mr. Marr, who was, it will be remembered, the widow's representative,
refers to the negotiations leading up to the purchase and says:
"But affiant says that nothing that was said by Mr. Jennings or
anybody else during their progress could be construed into a
threat, nor did anything that was said or done by said Jennings
hasten or push forward said trade."
He also says:
"Affiant says that the negotiations extended over a period of from
two to three weeks ... and during their pendency that Mrs. Backus
frequently urged affiant to bring the same to a conclusion as she
was anxious to dispose of said business and relieve herself from
further care and responsibility therewith. And when the said offer
of purchase by said Jennings upon the terms aforesaid was conveyed
to her by affiant, she expressed herself as entirely satisfied
therewith."
Mr. Maloney made an affidavit that he was superintendent of the Backus
Oil Company from the time of its organization, and also a stockholder
in the company, and had been associated in business with Mr. Backus
for many years previous to his death; that he took part in the
negotiations for the sale, representing Mrs. Backus in the matter.
After speaking of the negotiations, he says:
"Finally, after consultation, the proposition was made by her to
dispose of the works, good-will, and successorship for $71,000. A
few days after the proposal was made to her to pay the sum of
$60,000 for works and good-will, and to take the oil on hand at its
market price, which proposition she accepted, and the sale was
concluded.
"During these negotiations Mrs. Backus was anxious to sell, and was
entirely satisfied with the sale after it was concluded. I know of
the fact that about a year and a half previous she had offered to
sell out the stock of the Backus Oil Company at from 30 to 33 per
cent. less than she received in the sale referred to, and the value
of the works and property sold had not increased in the meantime. I
was well acquainted with the works of the Backus Oil Company and
their value. I could at the time of the sale have built the works
new for $25,000. There were no threats nor intimidations, nor
anything of the kind used to force the sale. The negotiations were
pleasant and fair, and the price paid in excess of the value, and
satisfactory to Mrs. Backus and all concerned for her."
So far as I can see, after more than 30 years have elapsed, there was
nothing but the most kindly and considerate treatment of Mrs. Backus
on the part of the Standard Oil Company. I regret that Mrs. Backus did
not take at least part of her pay in Standard certificates, as we
suggested she should do.
THE QUESTION OF REBATES
Of all the subjects which seem to have attracted the attention of the
public to the affairs of the Standard Oil Company, the matter of
rebates from railroads has perhaps been uppermost. The Standard Oil
Company of Ohio, of which I was president, did receive rebates from
the railroads prior to 1880, but received no advantages for which it
did not give full compensation. The reason for rebates was that such
was the railroads' method of business. A public rate was made and
collected by the railroad companies, but, so far as my knowledge
extends, was seldom retained in full; a portion of it was repaid to
the shippers as a rebate. By this method the real rate of freight
which any shipper paid was not known by his competitors nor by other
railroad companies, the amount being a matter of bargain with the
carrying company. Each shipper made the best bargain that he could,
but whether he was doing better than his competitor was only a matter
of conjecture. Much depended upon whether the shipper had the
advantage of competition of carriers.
The Standard Oil Company of Ohio, being situated at Cleveland, had the
advantage of different carrying lines, as well as of water
transportation in the summer; taking advantage of those facilities, it
made the best bargains possible for its freights. Other companies
sought to do the same. The Standard gave advantages to the railroads
for the purpose of reducing the cost of transportation of freight. It
offered freights in large quantity, car-loads and train-loads. It
furnished loading facilities and discharging facilities at great cost.
It provided regular traffic, so that a railroad could conduct its
transportation to the best advantage and use its equipment to the full
extent of its hauling capacity without waiting for the refiner's
convenience. It exempted railroads from liability for fire and carried
its own insurance. It provided at its own expense terminal facilities
which permitted economies in handling. For these services it obtained
contracts for special allowances on freights.
But notwithstanding these special allowances, this traffic from the
Standard Oil Company was far more profitable to the railroad companies
than the smaller and irregular traffic, which might have paid a higher
rate.
To understand the situation which affected the giving and taking of
rebates it must be remembered that the railroads were all eager to
enlarge their freight traffic. They were competing with the facilities
and rates offered by the boats on lake and canal and by the
pipe-lines. All these means of transporting oil cut into the business
of the railroads, and they were desperately anxious to successfully
meet this competition. As I have stated we provided means for loading
and unloading cars expeditiously, agreed to furnish a regular fixed
number of car-loads to transport each day, and arranged with them for
all the other things that I have mentioned, the final result being to
reduce the cost of transportation for both the railroads and
ourselves. All this was following in the natural laws of trade.
PIPE-LINES VS. RAILROADS
The building of the pipe-lines introduced another formidable
competitor to the railroads, but as oil could be transported by
pumping through pipes at a much less cost than by hauling in tank-cars
in a railroad train the development of the pipe-line was inevitable.
The question was simply whether the oil traffic was sufficient in
volume to make the investment profitable. When pipe-lines had been
built to oil fields where the wells had ceased to yield, as often
happened, they were about the most useless property imaginable.
An interesting feature developed through the relations which grew up
between the railroads and the pipe-lines. In many cases it was
necessary to combine the facilities of both, because the pipes reached
only part of the way, and from the place where they ended the railroad
carried the oil to its final destination. In some instances a railroad
had formerly carried the oil the entire distance upon an agreed rate,
but now that this oil was partly pumped by pipe-lines and partly
carried by rail, the freight payment was divided between the two. But,
as a through rate had been provided, the owners of the pipe-line
agreed to remit a part of its charges to the railroad, so we had cases
where the Standard paid a rebate to the railroad instead of the
reverse--but I do not remember having heard any complaint of this
coming from the students of these complicated subjects.
The profits of the Standard Oil Company did not come from advantages
given by railroads. The railroads, rather, were the ones who profited
by the traffic of the Standard Oil Company, and whatever advantage it
received in its constant efforts to reduce rates of freight was only
one of the many elements of lessening cost to the consumer which
enabled us to increase our volume of business the world over because
we could reduce the selling price.
How general was the complicated bargaining for rates can hardly be
imagined; everyone got the best rate that he could. After the passage
of the Interstate Commerce Act, it was learned that many small
companies which shipped limited quantities had received lower rates
than we had been able to secure, notwithstanding the fact that we had
made large investments to provide for terminal facilities, regular
shipments, and other economies. I well remember a bright man from
Boston who had much to say about rebates and drawbacks. He was an old
and experienced merchant, and looked after his affairs with a cautious
and watchful eye. He feared that some of his competitors were doing
better than he in bargaining for rates, and he delivered himself of
this conviction:
"I am opposed on principle to the whole system of rebates and
drawbacks--unless I am in it."
CHAPTER V
OTHER BUSINESS EXPERIENCES AND BUSINESS PRINCIPLES
Going into the iron-ore fields was one of those experiences in which
one finds oneself rather against the will, for it was not a deliberate
plan of mine to extend my cares and responsibilities. My connection
with iron ores came about through some unfortunate investments in the
Northwest country.
These interests had included a good many different industries, mines,
steel mills, paper mills, a nail factory, railroads, lumber fields,
smelting properties, and other investments about which I have now
forgotten. I was a minority stockholder in all these enterprises, and
had no part in their management. Not all of them were profitable. As a
matter of fact, for a period of years just preceding the panic of
1893, values were more or less inflated, and many people who thought
they were wealthy found that the actual facts were quite different
from what they had imagined when the hard experiences of that panic
forced upon them the unpalatable truth.
Most of these properties I had not even seen, having relied upon the
investigation of others respecting their worth; indeed, it has never
been my custom to rely alone upon my own knowledge of the value of
such plants. I have found other people who knew much better than I how
to investigate such enterprises.