CHAPTER XI

THE ABSORPTION OF THE TENNESSEE COAL, IRON AND RAILROAD COMPANY

It is a matter of much regret that space does not permit the introduction of several exhibits on the absorption of the Tennessee Coal, Iron and Railroad Company by the United States Steel Corporation. A large mass of testimony upon that subject is available in the Stanley Investigation. Excerpts from the testimony of Messrs. Schley and Ledyard, Colonel Roosevelt and others would have added much to the book. It is hoped however that the narrative which follows will be sufficient to enable the reader to understand the transaction in its general outlines. It should be added that the other testimony does not corroborate Judge Gary in all points.-Ed.

EXHIBIT I

Mr. LITTLETON. I will call your attention to a statement made by Mr. John Moody, and ask you if you dissent from it or agree with it: The acquisition of this organization—

That is, the Tennessee Coal & Iron Co.

has added great potential value to the steel organization and has increased the tangible equity of its common-stock issue to a far greater extent than is commonly realized. The Tennessee Coal & Iron properties embrace, besides important manufacturing plants, nearly 450,000 acres of mineral lands in the Birmingham section of Alabama. As shown in the report of the Tennessee Co. in 1904, when an appraisal was made by outside parties, these lands contain approximately 400,000,000 tons of first-class low-grade ore and more than 1,200,000,000 tons of coal, of which about one-half is coking coal. This estimate indicates that the deposits embraced are even in excess of those of the great Lake Superior properties controlled by the corporation, including the Great Northern ore bodies. This entire property was acquired, as is well known, on very favorable terms.

That I do not ask you to assent to, but I wish to ask you about that. The description given there in that article is substantially correct?

1 Hearings before the Committee on Investigation of United States Steel Corporation, 62nd Cong., 2nd Sess., 1911-1912, pp. 124-143.

Mr. GARY. I do not agree with that at all; no.

Mr. LITTLETON. How much ore did it add to the possessions of the United States Steel Corporation?

Mr. GARY. There was an estimate, at the time we purchased, of 700,000,000 tons of ore, about 400,000 tons, as I remember, of which was usable, on top of the other-usable by their method. However, as you know, probably, it was an inferior grade of ore and not of very great value, in my opinion, for reasons which I will give if you desire. You could hardly consider that in connection with the Lake Superior ores, so called, or as adding to the Lake Superior

ores.

Mr. LITTLETON. I asked you the question so as to make it clear. Mr. GARY. Yes.

Mr. LITTLETON. What do you consider was the amount of ore you obtained by reason of procuring control of the Tennessee Coal & Iron Co.?

Mr. GARY. I believe we obtained five or six hundred million tons of ore, a portion of which, at least, was at present usable in that locality, provided there was a market for it-that is, a market for the iron or the steel which could be manufactured at that point. Mr. LITTLETON. How much coal did you acquire by the acquisition of the Tennessee Coal & Iron Co.?

Mr. GARY. We suppose a large body; perhaps more than 1,000,000,000 tons, and perhaps 1,000,200,000, as stated there. Mr. LITTLETON. Did you consider that a valuable acquisition? Mr. GARY. Why, it had value, of course; but there was plenty of coal like it which could be bought at a very low price, and there is a good deal yet. And there is plenty of ore property like that which could be bought, and can be at the present time, I think, by the acre, at, say $50 to $100 an acre. Some of you will know what that means.

Mr. LITTLETON. Was the Tennessee Coal & Iron ore a good grade for the making of ordinary pig iron?

Mr. GARY. That could be utilized in the manufacture of fairly good pig iron, at a certain cost.

of

Mr. LITTLETON. What did the property consist of in the way improvements for the purpose of mining and making steel; or, to be more specific, what was the output of the furnaces, per ton, per annum?

Mr. GARY. A full statement of the properties of that company, at that time, is found on pages 26 and 27 of the annual report of 1907.

Mr. LITTLETON. I am not going to follow the details of that so closely as to require consultation. All that I am going to do is to ask you the topical questions and then go to another point. It has been stated that the capacity of the blast furnaces of the company in 1907 was about 160,000 tons per annum—that is, I speak of the Tennessee Coal & Iron Co.?

Mr. GARY. That is probably right.

Mr. LITTLETON. And that of the developed coal and ore mines about 20,000 tons per day?

Mr. GARY. That may be right. I do not know. That is probably right. In the year 1907 there was produced about 1,500,000 tons of ore-that amount was mined; there were produced about 244,000 tons of limestone and dolomite; and coal, exclusive of coking coal, about 1,700,000 tons; and of coke, about 1,100,000 tons. There were 602,000 tons of pig iron, about; open-hearth steel, ingots, and castings, about 243,000 tons; rails, about 149,000 tons; billets, plates, and bars, about 38,000 tons.

Mr. LITTLETON. This article which I called your attention to, which I have consulted, continues with this statement:

If we compare this capacity with that of the actual production of all the other properties owned by the Steel Corporation, outside of the Tennessee Coal & Iron Co., for the year 1907, we will get the following results: Blastfurnace products, 10,819,968 tons; ore and coal mined and limestone quarried, 39,576,161 tons. In other words, the capacity of the new properties acquired, according to the figures above, is about 15 per cent of the total production of mining products of the entire corporation for last year and about 8 per cent of the blast-furnace products.

Mr. GARY. I have given you the production, and I am prepared to give you the results in figures of operations before we secured the property, and since, after an expenditure of $15,000,000 or more by us, including the payment of $6,500,000 which the company owed when we took it over. These values hinted at are fictitious.

Mr. LITTLETON. What was the capitalization of the Tennessee Coal & Iron Co. at the time you took it over?

Mr. GARY. I gave that.

Mr. LITTLETON. $32,000,000, was it not?

Mr. GARY. There was $29,950,000 of common stock and $124,000 and over of preferred stock. The bonded indebtedness was $14,4 19,ooo, and purchase-money notes, $826,000. It owed current liabilities, floating debt, $4,168,102, considerable of which was past due.

Mr. LITTLETON. Did you or your company solicit the purchase of the Tennessee Coal & Iron Co., or was it offered to you by those who had the authority to sell it?

Mr. GARY. It was offered, one way or another; offered many times, at about the time we acquired it. It was offered by Lewis Cass Ledyard, who was the attorney for Col. Oliver Payne, and who had been interviewed by Mr. Schley, of Moore & Schley; and I would like to suggest, if I may, that I think Mr. Lewis Cass Ledyard ought to be subpoenaed to state the exact facts which led up to his coming to J. P. Morgan to beg him to suggest to the United States Steel Corporation the propriety and the necessity for the purchase of those properties.

Mr. LITTLETON. You understand it to be a fact that he will be subpoenaed, Judge Gary, if he can shed any light on this question. Mr. GARY. I am very sure his testimony will settle the question whether we desired to purchase the property, or whether the owners desired to sell the property.

Mr. LITTLETON. Your understanding is that Mr. Ledyard came to Mr. Morgan as the initial step in the transaction?

Mr. GARY. No doubt about it; and I would be very glad to give you the history of it, so far as I know it, if you desire.

Mr. LITTLETON. I wish you would.

Mr. GARY. Very well. In one way or another the stock of the Tennessee Coal & Iron Co. had been offered to the United States Steel Corporation, I will not say authoritatively or by the owners exactly, but by people who assumed to be acting between, or acting for the Tennessee people. Our people had been opposed to the purchase of the property at any price or on any basis, and had distinctly said so. Finally, I think sometime in the early part of 1907not intending to be accurate as to dates-Mr. Morgan sent for me and said that Mr. George Kessler who, as you know, was a wine merchant, but who had purchased some of this stock outside of the Schley syndicate, as I will call it, had approached him, Mr. Morgan, with the statement that the stock of the Tennessee Coal & Iron Co. could be purchased at about 130, and asked me my opinion. I told Mr. Morgan I did not think that it was worth half of that; I did not think we could afford to take it at any such price; that I would like to bring Mr. Frick over to the bank and get his opinion. He came over to the bank, and Mr. Frick expressed about the same opinion. The matter was then dropped. I believe Mr. Morgan told me that afterwards he found out that Mr. Kessler represented

only himself, and did not represent the other people, as Mr. Morgan had supposed.

Along about the 23d day of October, 1907, Mr. Morgan requested me to come over to the bank, and said Mr. Schley was very much in need of money, or securities which he could use at the bank. I think I saw Mr. Schley at the bank at that time; if not, I did later; but the business finally resulted in my accommodating Mr. Schley by loaning him $1,200,000 par value of our second bonds, and taking from him an agreement to return those bonds; and I received from him, as security for the fulfillment of his agreement, $2,000,000, par value, of the stock of the Tennessee Coal & Iron Co.

The agreement provided, as I remember, that if the $1,200,000 par value of bonds were not returned by April 23, 1908, the ownership of the $2,000,000 par value of the stock of the Tennessee Coal & Iron Co. should be and remain in the United States Steel Corporation. That was done as an accommodation to Mr. Schley at his very urgent request and because he stated it was absolutely necessary to protect him from financial trouble. That, you see, would be taking the Tennessee Coal & Iron Co. stock as security on the basis of 60.

Mr. LITTLETON. Pardon me, do you know how much Mr. Schley had of the Tennessee Coal & Iron Co. stock at that time?

Mr. GARY. No; I do not. I did not know anything about it at that time, except so far as appeared by this transaction. I have here the written agreement between the United States Steel Corporation, signed by myself as chairman, and Moore & Schley and the members of the firm of Moore & Schley, and under the circumstances and in view of the fact that he has heretofore appeared before a committee and exposed the facts in regard to this I feel justified in giving all the facts, and I will furnish the committee a copy of this agreement.

Mr. LITTLETON. Yes.

Mr. GARY. I will exhibit it now to the committee, and I would like to retain this, of course, but will be glad to furnish you with a copy.

Mr. LITTLETON. We will be very glad to have a copy.

Mr. GARY. The next thing that occurred in relation to this purchase was about the 2d day of November, 1907. We were then in the midst of what I have termed a financial cyclone. There were runs on many banks throughout the city of New York, including