Without Benefit of Bankers

William Randolph Hearst, a rich man's son who grew up with a purpose in life, last week chartered a new company, Hearst Corporation, under the laws of benevolent Delaware ''to deal in all forms of securities." The company has an authorized capital of $100,000,000. It is the second organization of staggering size engineered by Publisher Hearst in the last 14 months.

Business men were puzzled as to why Mr. Hearst should require another financial structure of such size. First guess was that it might have been conceived to create a market for the stock of Hearst Consolidated Publications Inc., the $100,000,000 company which Mr. Hearst formed last year to take over eleven of his most profitable publishing enterprises. Others, pondering the scope of Mr. Hearst's interests, believed he was planning to go into the security business.

The Hearst offices in New York issued the following statement: "The new corporation is purely a private affair of Mr. Hearst's. Every share of stock will be owned by Mr. Hearst personally and none will be offered for sale at this time or at any time in the future. The corporation is designed merely for the purpose of facilitating the handling of Mr. Hearst's private interests by bringing under one corporate management a number of operations now separately handled."

Many younger men with less diversified interests than 68-year-old Mr. Hearst have found private holding companies useful. Certain tax matters can be simplified, accounting made clearer, securities grouped under one corporate ownership which makes their distribution easy when desired. Publishing represents by no means all of the vast Hearst fortune. There is much valuable Hearst real estate in New York, California and Mexico. The San Simeon ranch near Los Angeles containing more than 400 square miles has been assessed at $1,323,000 for taxation, but this figure is dwarfed by the value of the art treasures Mr. Hearst has piled upon the land. Mr. Hearst is sole owner of over 100 corporations.

When Hearst Consolidated Publications, Inc. strode onto the financial pages in July 1930, it caused a sensation both by its purpose and its method. Mr. Hearst was not only selling the public a share in some of his publications but was selling it direct, without benefit of bankers. Two million shares of non-voting 7% "A" stock ($25 par) were placed on sale at Hearst publication offices. A few banks handled the stock, but only as agents, not underwriters. Of these 2,000,000 shares, only some 775,000 or $19,395,000 worth had been sold by May 20, 1931, a fact which made many an investment banker glad he did not underwrite the whole $50,000,000 issue in 1930.

Important seemed the fact that the average holdings of those who bought Hearst Consolidated Publications stock were slightly over 40 shares apiece, or $1,000 in principal amount, an exceptionally large figure for stock sold through newspaper offices on the installment plan ($5 down and $2 per month). A natural deduction from this was that one person or few persons must own many times 40 shares to bring the average up. When the stock was offered a promise was made in the offering circular to apply to list the stock on the New York Curb. Chicago, Los Angeles and San Francisco Exchanges. So far no such applications have been made, leaving the only market for the stock the secretary of the company's office in San Francisco. A commission of $1 per share (4% of the purchase price) is charged for arranging a sale.

Recent circulars of the company have stated that application for listing will be made "after distribution is accomplished," admitted the financing is incomplete. The sales drive continues at high pressure in the Hearst press. A full-page advertisement in Harper's Bazaar and Cosmopolitan for September pictured a happy wife, husband & child, "typical of more than 20,000 investing families who have taken advantage of the Hearst customer-ownership plan." with ten potent reasons why readers should buy. A provision of the deal is that, should dividends fail in any four successive quarter-years, the preferred stockholders could elect a majority of the directorate, which is otherwise controlled by Mr. Hearst, holder of all the common stock. Chance of this development seems remote. Though distribution of the preferred stock has been slow, Hearst Consolidated Publications Inc. has this year (to July 12) earned $2.64 per share for all 2,000,000 shares, or better than three times the 7% dividend requirement for the period.

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