![](/images/wp-content/uploads/2019/10/Blog-1208x720-49-1024x576.jpg)
United States Steel 1901-1920
Break ‘Em Up!
Although the United States encourages private enterprise as much as any other country, it also has a history of cutting large firms down to size. In the early part of the 1800s, the first Bank of the United States and the second Bank of the United States were as big as the rest of the banks in the country put together, but neither Bank of the United States had its charter renewed. The United States broke up AT&T in 1984, threatened to break up General Motors, IBM and Microsoft, and is now threatening to regulate Apple, Google, Amazon and Facebook in one way or another. ExxonMobil is one of the largest companies in the world, and back when it was known as Standard Oil, it was broken up by the Supreme Court when it ruled that Standard Oil was in violation of the Sherman Anti-Trust Act on May 15, 1911. On the same day, the Supreme Court also ordered the dissolution of the American Tobacco Co. Standard Oil was established as a partnership by John D. Rockefeller and others in Ohio in 1863, and incorporated in Ohio in 1870. Through a series of aggressive acquisitions, Standard Oil slowly took over the production of oil in the United States. By 1890, Standard Oil controlled 88% of the nation’s refined oil flows. The state of Ohio successfully sued the Standard Oil Trust in 1890 to compel its dissolution, but the Trust avoided full dissolution by separating Standard Oil of Ohio from the rest of the Trust. When New Jersey changed its incorporation laws to allow corporations to own companies incorporated in other states, Standard Oil reincorporated in New Jersey as a holding company with a controlling interest in over 40 companies. By 1904, Standard Oil controlled 91 percent of oil production and 85 percent of final sales in the United States. The United States government sued Standard Oil under the Sherman Anti-Trust Act on March 22, 1909. The government argued that Standard Oil had obtained its dominance of the market through unfair practices. The government identified four illegal patterns: (1) secret and semi-secret railroad rates, (2) discrimination in the open arrangement of rates, (3) discrimination in classification and rules of shipment, and (4) discriminations in the treatment of private tank cars to justify prosecution under the Sherman Antitrust law. On May 15, 1911, the Supreme Court upheld the lower court ruling that Standard Oil was an “unreasonable” monopoly and ordered it to be broken up into 34 different companies. Each shareholder was to receive a fraction of each company according to the number of shares of Standard Oil company stock that they owned. Shareholders received 1 share of Standard Oil Co. of New Jersey (Exxon), but 249995/983383 share of Standard Oil Co. of California (Chevron) and 149996/983383 share of Standard Oil Co. of New York (Mobil). Fractions were determined for each company based upon the number of shares outstanding of that company and Standard Oil of New Jersey.Standard Oil Prepares for the Break Up
One of the more interesting aspects of the dissolution was that even though Standard Oil was the biggest corporation in the world in 1911, its shares were not traded on the New York Stock Exchange. Shares only traded over the counter or on the New York Curb. The reason for this was that the New York Stock Exchange passed a rule in 1896 requiring that any company applying for membership had to provide financial statements to the NYSE and the public. Standard Oil was a tightly-owned company with John D. Rockefeller owning about one-fourth of the outstanding shares and was secretive about its operations, in part because of the government’s actions against the company. In 1911, Standard Oil had no need to raise capital and no need to list on the New York Stock Exchange. What is even more interesting is that between the time when the Supreme Court passed its ruling in May 1911 and Standard Oil was broken up in September 1912, not only did Standard Oil stock increase in value, but shares traded ex-subsidiaries (i.e. Standard Oil of New Jersey only) and with-subsidiaries (i.e. all 34 companies that would be distributed to shareholders). Although Standard Oil was secretive, and full and accurate accounts of all the subsidiaries were not available, investors still had to determine what the ultimate value of Standard Oil of New Jersey and all of its subsidiaries was. The Ex-subsidiaries shares began trading at 325 in September 1911 and when the stock was split up in September 1912, shares for Standard Oil of New Jersey were trading around 410, increasing in price by one-third during the intervening year. The impact on the subsidiary shares was even greater. These shares began trading at 275 in September 1911. Initially, the market thought the subsidiaries were worth less than Standard Oil of New Jersey, but as the date for the dissolution drew closer, the shares moved up in price sharply. When Standard Oil broke up in September 1912, the shares were trading at 675, and by the time the subsidiary shares stopped trading in February 1914, they were at 990. The steady increase in the price of stock in the subsidiaries is illustrated below.Standard Oil Subsidiaries 1911-1914
Standard Oil of New Jersey 1890-1920
The Race to $1 Billion Begins Again
In 1912, several companies were similar in size to Standard Oil of New Jersey. Penn Central and American Telephone and Telegraph were both worth around $500 million. Canadian Pacific was the largest non-US company in the world at $530 million and the Suez Canal was the largest European company valued at around $450 million. It took Standard Oil of New Jersey until 1925 to regain a $1 billion market cap, in part because Standard Oil had issued $100 million in preferred stock when it finally listed on the NYSE on March 1, 1920. U.S. Steel reached $1 billion in 1916, but half of its valuation was preferred stock. American Telephone and Telegraph reached the $1 billion mark in 1924, General Motors reached it in 1926, and by 1929 ten companies in the United States had a market cap over $1 billion. General Motors became the first company to be worth $10 billion in 1955, and General Electric became the first company to be worth $100 billion in 1995. By 2017, 75 companies world-wide had a market cap over $100 billion.Are the FANG Stocks Next?
The only survivors of the 34 companies that were born of the dissolution of Standard Oil are ExxonMobil (Standard Oil of New Jersey) and Chevron (Standard Oil of California). Every other subsidiary has been absorbed by another company at one point in time as illustrated by the fact that Exxon changed its name to ExxonMobil when it absorbed Mobil Oil (Standard Oil of New York) in 1999. Amoco (Standard Oil of Indiana) and Atlantic Richfield were acquired by British Petroleum in 1998 and 2000 respectively. Today, only six U.S. companies are larger than ExxonMobil: Apple, Alphabet, Microsoft, Amazon.com, Berkshire Hathaway and Facebook. History has shown that the government has broken up or tried to break up large companies in the past for better or for worse. Which of these will the government go after next? We shall see.![](/images/wp-content/uploads/2019/10/Blog-1208x720-51-1024x576.jpg)
![](/images/wp-content/uploads/2019/10/Blog-1208x720-52-1024x576.jpg)
![](/images/wp-content/uploads/2019/10/Blog-1208x720-53-1024x576.jpg)
The Birth of the Automobile
What was it like in the beginning? What type of companies were born when automobiles were introduced over 100 years ago? When we looked back at the first automobile companies that issued stock in the United States, we found an unexpected surprise, all of the first automobile companies that issued stock in the 1800s were electric automobile companies! Gasoline-powered cars didn’t appear until the 1900s. Tesla is bringing back an old tradition, not introducing a revolutionary change. The first automobile companies to issue stock raised their money at the end of the 1800s. The General Electric Automobile Co. issued stock in 1898, the Electric Vehicle Co., the New England Electric Vehicle Transportation Co. and the Pennsylvania Electric Vehicle Co. issued stock in 1899. In fact, electric autos outsold steam and gasoline-powered cars in 1899 and in 1900. Although we may not realize it, electric automobiles were the preferred means of transportation in the first decade of automobiles. Not only were electric ca
It wasn’t for a lack of ambition that the electric car failed. The New England Electric Vehicle Transportation Co. not only produced electric automobiles but provided a taxi service in Boston; however, the company only lasted from 1899 to 1901. The American Electric Vehicle Co. started out in Chicago, produced eleven different automobiles (see the ad above), and moved to New Jersey to be closer to wealthy customers, but failed in 1902.
It wasn’t for a lack of ambition. The Electric Vehicle Co. was founded in 1897 and as other electric vehicle manufacturers went bankrupt, it took over their factories. The company took control of the Motor Vehicle Co. of Elizabeth, NJ, the Pope Manufacturing Co., the Columbia Automobile Co. and the Columbia Electric Vehicle Co. of Hartford, NJ, but went into receivership on December 10, 1907. The company issued over $10 million in common stock, over $8 million in preferred and paid 8% in dividends on the common and preferred in 1899, but as profits failed to materialize, the stock price collapsed.