Sea Change

The corridors of the Cannon Street Hotel in London are not accustomed to the mixed contents which one day last week filled them to overflowing. There were gentlemen in morning coats, grim-eyed widows and doddering old men. All of them displayed a pressing desire to get into a certain large room where Britain's right financially reverend Sir Josiah Charles Stamp sat at a table. All or nearly all had a right to enter, being preference shareholders of the White Star Line. At length Sir Josiah called the packed room to order and presented to the shareholders Sir William McLintock, an expert accountant who was to tell them about the condition of their company.

The comfortless information which he gave them was of this nature:

That their company, which had a book value of some $67,000,000, was really worth only $41,000,000 and its liabilities offset more than half that figure.

That their equity in the company, supposedly amounting to over $24,000,000, really amounted to only $19,000,000, the entire equity of the common shares having been wiped out.

That the dividend which fell due to them on Jan. 1 could not be paid and that they were entitled to demand that it be paid by the Royal Mail Steam Packet Co. which as holder of all the common shares had guaranteed the principal and interest of the preference shares.

That it would be inadvisable to insist on the fulfillment of the guarantee because the Royal Mail Co. was in still worse condition than White Star.

That Royal Mail, book-valued at $112,000,000, was estimated to be really worth only $68,000,000.

That Royal Mail's profits and generous dividends from 1926 to 1928 had in reality been taken from internal reserves and the company in spite of the impression given by its Chairman Lord Kylsant had actually been losing money during those years.

Said Accountant Sir William: "If the companies are not continued as going concerns, the assets will realize very considerably less than the estimated values."

The wild-eyed White Star preference shareholders exclaimed and ejaculated, said ugly things about Lord Kylsant, chairman of their own company as well as of Royal Mail. Lord Kylsant did not hear them. He was far away on the sunny Island of Madeira taking a vacation for the sake of "his wife's health," a leave of absence which was pointedly suggested to him more than a year before by London financial interests.

Then the irate White Star shareholders voted 4,506 to 89 not to press their claim against Royal Mail until June, thereby saving that company from immediate failure.

The Impresario. The story of this business tragedy is the story of Sir Owen Cosby Philipps, Baron Kylsant of Carmarthen. It is a great story for it begins when Maximus was Emperor of Rome and King of Britain and ends with a Welshman, six feet seven inches tall, 67 years of age and wintering in Madeira. In the time of Maximus a certain family took its origin. One member of the line went to Palestine with Richard Coeur de Lion. In 1863 a later member, Rev. Canon Sir James Erasmus Philipps, Prebendary of Salisbury Cathedral, 12th baronet was overjoyed by a blessed event, the birth of his third son. This was Owen Cosby Philipps, the Lord Kylsant here in question. He and his brothers made their mark in Britain. At one time three of them, the 13th baronet, the present Lord Kylsant and a younger brother, the present Viscount St. Davids, all M. P.'s, made a sensation by walking through the doorway of the House of Commons, together--three giants each well over six feet in height.

Besides politics, Owen Cosby Philipps had a career in snipping. Nineteen hundred two was a year that made history in the shipping industry. In that year the White Star Line passed out of British hands, being bought by the House of Morgan for International Mercantile Marine. In the same year the Royal Mail Steam Packet Co., founded by Queen Victoria in 1839, welcomed a new chairman to its board in the person of the third son of the Prebendary of Salisbury Cathedral. The son of Wales and of old Sarum looked across the world in his 40th year of age and saw its seven seas peopled by his steamships. First he bought the Pacific Navigation Co. for -L-1,500,000, then the Glen Line and Shire Line in the far East. He built new ships for the China trade. In 1912 he purchased Lamport and Holt, rivals with Royal Mail in South America; then the Farwood Line (Mediterranean); Shaw, Savill & Albion Line (subsidiary of White Star). He outbid Morgan (after running up the price of shares to nearly triple) to control of the Union Castle Line (South Africa); got the Elder Dempster Line (West Africa).

In 1918 Mr. Owen Philipps had been knighted for the greatness of his vast achievements. Nothing staggered him; after the War he purchased 77 vessels from the British Government for three times their pre-War value. In 1923, at 60, he was made Baron Kylsant of Carmarthen (he was Master of the Carmarthenshire Fox Hounds). Still his feats of valor had not ended. The House of Morgan had long since wearied of the profitless struggle for world shipping supremacy and presently Lord Kylsant was enabled to bring back to England the White Star Line, buying it from the International Mercantile Marine for -L-7,000,000 (one third of which still remains unpaid).

The hour when he set his K upon that contract was probably the peak of his career. Then he controlled some 34 shipping companies, some 2,770,000 tons of shipping, virtually as much as his three rivals (International Mercantile Marine. Cunard, and Peninsular & Oriental) combined. He was the greatest merchant sovereign of the seven seas. From that hour, as last week's accounting showed, his power declined. Reason: overexpansion, or more technically, too much financing by sales of fixed interest bearing securities.

Troubles began; profits dwindled. The sinking of the Vestris (a Lamport and Holt ship) did not mend matters. There began to be grumblings that Lord K. held the finances of his companies too much like a poker hand--folded up and hidden in his palm. World shipping was a poker game but those who were putting up the chips with which he bet felt they should have been allowed a peek.

Ugly rumors spread about the City. One rumor was that his remuneration from his enterprises was percentage of the gross receipts, which if true, must have been considerable whether or not his companies enjoyed fair sailing.* Could it be that he, Lord of the Manor of Llanstephen, master of Amroth Castle, onetime president of the Federation of Chambers of Commerce of the British Empire, would let down Britain's greatest shipping enterprise?

The first break was a family matter. Lord Kylsant decided in the summer of 1929 to issue another -L-2,000,000 of debenture shares. His younger brother, Lord St. Davids, trustee for the debenture stockholders, was not consulted. When Lord St. Davids asked the company auditor about certain matters he was dissatisfied with the answer he received. Promptly he issued a pamphlet to the debenture holders airing his grievances. Royal Mail shares slumped badly.

Lord K. countered with the solemn declaration that "the purpose of this personal attack by a relative is quite unknown to me. . . . For the first six months of this year the results obtained are better than for 1928." The stock bounded upward. Six months later Royal Mail passed both common and preference dividends. "Royal Mail Bombshell," headlined the London Evening News.

Last year Royal Mail Shares had fallen so low that Lord K. named a committee of three financial experts to set its house in order. At the same time Walter Runciman, coming from an old shipping family, a prominent Liberal M. P., was boosted to the Royal Mail directorate on the urgent demands of London financial interests. The ensuing stockholders meeting was embarrassing to Lord K. His once loyal shareholders shouted, jeered and booed. When he spoke they called:

"We all know that."

"He's down."

"Shut up."

"Rot!"

"Rubbish!"

"You know I never have been pessimistic about British shipping . . ." the old Baron concluded weakly. It was his valedictory. His leave of absence, by request, followed soon afterward.

The Reconstruction Era. The chairman of Royal Mail is still Lord Kylsant, the old man sojourning in Madeira. The active head is Walter Runciman, denominated deputy chairman.

In January last when White Star could not meet its preference dividend and called on Royal Mail to fulfill its guarantee, it looked for a moment as if all was lost. As the month of grace expired several blocks of Royal Mail common were sold on the London Exchange at "nil,"; that is, shareholders gave them away and paid the transfer charges to boot in order to be rid of any liability should the Company fail. Philip Albright Small Franklin, president of International Mercantile Marine,* rushed to London with his lawyer to protect his company's claim for $11,000,000 still unpaid on the White Star purchase price.

Because of Sir William McLintock's presentation of the situation White Star shareholders agreed to grant a few more months of grace. Immediately afterwards Royal Mail debenture holders voted to let this company borrow another $1,250,000 to provide working capital during their company's reconstitution. Walter Runciman has until next June to save Lord Kylsant's great Armada from foundering forever in the deep sea of liquidation.

*Now it is stated that he and all directors of his companies ''normally are paid in accordance with net earnings and dividends." They have waived all fees at the present time.

* Control of I.M.M. passed recently to the Roosevelt Lines; Kermit Roosevelt and two associates became vice presidents (TIME, Jan. 19).

This file is automatically generated by a robot program, so reader's discretion is required.