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in turn must be limited by the size of the dyestuff particles or molecules. Anything which tends to diminish the spaces between the micelles should retard the entrance of dye particles, and, in confirmation, both Hall and Hathorne (4) have found that tension applied to the fiber during dyeing has a retarding influence on the dye-absorptive properties for many dyestuffs. This promises to explain some of the difficulties encountered in dyeing rayon as being due to uneven tensions applied to the yarns during fabric-manufacturing processes, particularly when the fabrics are dyed in such a manner that uneven tensions existing in the fabric are maintained throughout the dyeing operation. Another development from the x-ray picture of the structure of cellulose fibers has been in the correlation of the degree of orientation of the crystallites or micelle chains with some of the chemical and physical properties of these fibers, A method of estimating the degree to which the fiber units are aligned with respect to the fiber axis, based on the relative resistance to attack by enzymes and the resultant degradation of the cellulose, has shown that ordinary cotton, having the best resistance to enzyme action, has a very low degree of orientation, while those fibers which have been stretched in spinning, such as the various artificial silks, are more easily attacked the greater the stretching they have undergone, indicating a higher degree of orientation. Mercerization under tension (in the case of cotton) and stretching during the spinning of artificial silk cause the micelles to become more nearly parallel to the fiber axis. Hall (2) has shown that a high degree of orientation is accompanied by high luster and by high tensile strength, but low affinity for direct dyes. Preston (8), by studying the quantitative relations between the absorption spectra of dyed cellulose structures, h d s that the ratio of the absorption of light expressed as densities a t any given wave length, when the vibration of the light is parallel and perpendicular to the long axis of the fiber, is a constant; he deduces that this dichroic constant is a function of the degree of orientation of the cellulose. Thus, a theoretically perfect axial orientation, which is not found in any natural or regenerated cellulose fiber, would have 100 per cent orientation; that is, all the fiber units would be parallel to the axis. Ramie, the most perfectly oriented cellulose fiber known, was
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estimated to have 82 per cent orientation; Lilienfeld viscose, which is very highly stretched during spinning, 67 per cent; normal viscose, 41 to 62 per cent; Cellophane, 43 per cent. A theoretically perfectly isotropic structure-that is, one in which the fiber units are oriented equally in all three directions with respect to the fiber axis-would be 33 per cent on this scale. It will thus be evident that a great deal of attention is being paid to the interpretation of the fine structure of cellulose, as revealed by x-rays and other optical methods, in its application to the practical use of natural and artificial cellulose. This field is capable of yielding results of great value to the chemist and engineer. It is still apparent that adequate control methods in cellulose technology are lacking. There is a great need for research in methods for determining lignin, viscosity characteristics, alpha cellulose, and even in methods of analyzing waste liquors from pulp digestions. Many of the present methods are so unreliable that it is dangerous to relate determined values to a deliberate change in variables worked out in an experimental series. As a result, technological processes are still being operated mainly upon a basis of empirical data. Substantial improvements will depend on better control methods as well as on new fundamental data.
LITERATURE CITED Curran, C. E., Southern Lumberman, 144, 95-7 (Dec. 15, 1931). Hall, A. J., Textile Colorist, 53, 520-3 (1931). Hall, A. J., Am. Dyestug Reptr., 20, 809-12 (1931). Hathorne, B. L.,Ibid., 20, 679-80 (1931). Herty, C. H., Paper Trade J., 94,No. 10, 13 (March 10, 1932). Hess, K., “Die Chemie der Zellulose und ihrer Begleiter,” pp. 265-8, Akademisohen Verlagsgesellschaft, Leipzig, 1928. Hibbert, H., et al, J. IND.ENG. CHEM.,13, 256, 334 (1921); 15, 748 (1923); J . Am. Chem. SOC.,45, 176, 734, 2433 (1923); 53, 3907 (1931). Preston, J. M., J . SOC.Chem. Ind., 47, 312-19 (1931). Rose, R. E., A m . Dyestuf Reptr., 21, 52-9 (1932). Shepard, W., J . Forestry, 28, 1110-18 (1930); 29, 219-24, 384-90,505-15 (1931).
RECEIVED March 17, 1932. Presentad before the General Meeting at the 83rd Meeting of the American Chemical Society, New Orleans, La., March 28 to April 1, 1932.
American Chemical Mergers WILLIAMS HAYNES, Chemical Markets, 25 Spruce St., New York, N. Y.
T
HOUGH springing from similar economic sources, the chemical consolidation movement in the United States has taken a different course to reach a different end than in Europe. This has been the natural result of two causes: the first, an economic opportunity which changed the purpose of combination; the second, a legal obstacle which prevented the amalgamation of direct competitors. The astounding growth of our manufacturing industries created a n American chemical demand that, even before the World War, exceeded the combined domestic chemical consumption of England,, Germany, and France.’ The size 1 According to the figures prepared by C. Ungewitter for the Chemical Economic Conference of the League of Nations (1927), in 1913-14 the United States produced 34 per cent of the world’s chemical output, and in 1923-24. 47 per cent. It should be noted that these estimatea are upon the basis of monetary value of national chemical production. On the bwia of tonnage, owing to our large output6 of sulfur, superphoaphates, alkalies. and pigments (all comparatively low-priced commodities) the percentages oredited to American ohemical makers would have to be written up materially.
and extent of our home market prompted the development of a number of important producers within each section of the chemical industry. Several of these enjoyed what, for practical commercial purposes, amounted to a virtual freight-rate monopoly within the territory adjacent to their plants; but, even where competition was not tempered in this way, the efficient companies waxed strong, feeding upon the fast-growing chemical markets. Accordingly, every considerable field of chemical production came to be occupied by a number of sturdy, independent, well-equipped companies. The World War did not change this situation. I n fact, it only further complicated the competition by adding several newcomers. Many of these proved to be weakling upstarts who were forced out during the drastic deflation of 1920. Others were taken over by stronger firms. But neither before the war nor during it, nor in the readjustment that followed the Armistice, did there arise in the United States any companies that dominated in alkalies, in heavy chemicals, in coal-tar products, or in fertilizers. Therefore, the consolida-
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tion of the American chemical industry into a single monopolistic trust, as was done in most countries abroad, by fusing together three or four great units, each predominant in its chosen chemical field, could not possibly have been effected. Along with the economic opportunity for the development of a number of strong companies, there existed a legal obstacle that barred the way to direct combination of these powerful competitors. The Sherman Law and the Clayton Act were designed specifically to thwart monopoly by preventing the amalgamation of competitors and forestalling any agreements of the cartel type. Accordingly, the earlier consolidations of our merger era were of companies scrupulously selected because they were noncompetitive and hence beyond the preview of the antitrust laws. Even after it was discovered how to circumvent this legal obstacle by the outright purchase of the tangible assets of a competitor, American chemical consolidations continued to be diversifications rather than concentrations of productive activity. Thus the first step in building up the nation-wide all-embracing chemical units of Europe was never taken in the United States. General Chemical, Grasselli, Kalbfleisch, and Merrimac did not, for example, merge into a single heavychemical trust controlling the output of the inorganic industrial products. But each of the four went into different diversified groups; General Chemical into the Allied Chemical and Dye Corporation; Grasselli to the du Ponts; Kalbfleisch to the American Cyanamid Company; and Merrimac to the Monsanto Chemical Works. I n this way the American chemical merger acquired or (it is more accurate to say) was forced to acquire a distinctive characteristic. I n place of the single national chemical trust, we have grouped together half a dozen gigantic chemical corporations, quite comparable in size and strength with the European combinations, all of them active in several branches of the industry, but none of them monopolizing any given chemical field.2 Although there was neither the necessity (caused by the comparatively restricted national markets of Europe ) nor the opportunity (shut tight by the American antitrust laws) for the establishment of chemical monopolies in the United States, nevertheless, our chemical merger movement, like its European counterpact, traces back to the closing years of the nineteenth century and arose from the pressure of similar economic forces. Since colonial times the whole history of our industries has been characterized by the constantly increasing size of the American business unit. At first the growth was painfully slow. The capital invested in the average American manufacturing enterprise did not pass $10,000 until 1879. Twenty years later it was still less than double this modest investment. I n another ten years, however, the average capitalization had jumped to $153,633, and since 1909 the increase recorded in the Census Reports has been extremely rapid. The reported 2 The degree of domination over their o a m national chemical production attained b y some of the foreign chemical trusts has been estimated by the Dresdner Bank (1930!as follows: I n Germany, the I. G. Farbenindustrie controls 100 per cent of the dye8 produced, 90 per cent of mineral acids. 85 per cent of synthetio nitrogen: in Great Britain, the Imperial Chemical Industries, Ltd., controls 95 per rent of heavy chemicals, 100 per cent of nitrogen, 40 per cent of dyes: in France, Kuhlmann and subsidiaries control 70 per cent each of superphosphates and mineral acids, 40 per cent of nitrogen, 80 per cent of dyes: in Belgium, Union Chimique Belge controls 100 per cent of sulfuric and nitric acids: and in Italy, Montecatini controls 70 per cent of superphosphate, 60 per cent each of nitrogen and sulfuric acid, and 80 per cent of pyrites. BY comparison, an example in the United states (conspicuoue as the exception to the rule) is t h e soda ash production of the Solvay operation of the Allied Chemical and Dye interests. I t is estimated that this concern produced in the 8ame year (1930) 60 per cent of the American total: but that, owing t o the !awe intracompany consumption, especially a t Hopewell, it did not ship more than 40 per cent of the total of this material supplied t o the open market.
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figures of $460,000 in 1919 and of $650,000 in 1923 show a growth of roughly 40 per cent in four short years. This is the most obvious statistical symptom of the American consolidation movement. The trend first became plain during the eighties and has continued in geometrical progression since. The checks of 1893 and 1907 served only to dam up the forces of centralization and each of the former panics has furnished but a further impetus to consolidations.
EARLYCONSOLIDATIONS Of the early days of this movement is our first important American chemical merger-the General Chemical Company, into which, in 1899, the late William H. Nichols gathered the interests and properties of twelve small heavy-chemical manufacturers. Just a t this time the consolidation idea was enjoying one of its periodic waves of great popularity in industrial circles. Moreover, this group of bitter competitors was threatened from the outside by what promised to be destructive competition in the sulfuric acid market by the recently perfected Badische contact process. Without doubt this foreign menace to their well-established lead-chamber operations helped Doctor Nichols in persuading them to make common cause. As in the organization of the United Alkali Company, which enabled the English Leblanc soda-makers to unite their forces against the newer Solvay process, so the General Chemical Company brought a band of warring competitors together. This amalgamation was consumated by the organization of a new company whose stock was issued pro rata against the agreed valuations of the assets of the participating concerns. I n distinction to modern merger-making, the means of effecting this early chemical consolidation and its financial set-up are highly interesting reading in the official record of the transaction as published in “The General Chemical Company After Twenty Years,” privately printed in 1919 and distributed as an anniversary souvenir: The twelve concerns in question were found after careful appraisement to have an aggrenate capital of $14,008,955, and it was believed, and as events Rave shown, correctly believed, that this aggregation would be large enough to realize most of those advantages of consolidation notwithstanding that the total capital of the country invested in chemicals was a t that time about $238,000,000 and in heavy chemicals alone, about $89,000,000.
On March 1, 1899, the various constituent concerns, after frequent conference and frank discussion, had settled upon a form of agreement providing for the transfer of all the properties t o the newly formed cor oration, full consideration to be paid to the sellers only after t t e values had been ascertained by careful appraisal. The basis of price was preferred stock to be issued for the tangible property and common stock for goodwill and intangibles, although in some special cases common stock was issued for tangible property also. The common stock for goodw i l l was to be issued on the basis of ten years’ purchase-that is, a sum equal to ten times the average annual earnings, as shown during the previous five and a half years. And this period included the panics of ’93 and ’96, so that those earnings were presumably fairly low. The earnings had to be ascertained and reported by chartered accountants, when the computation of the amount to be paid in common stock followed by simple arithmetic. I t is not too much to say that the most valuable asset turned over to the new company was this item of goodwill thus conservatively appraised. The ascertainment of the tangible values was left to an appraisal committee of skilled chemical men, and so careful was their task that their appraisal was only finally finished after nine months of more or less continuous work. This committee in turn delegated the land values, exclusive of improvements, to one of the leading real estate men in Xew York, who took charge for the entire field, and himself engaged local experts as reqmred. So conservative were these land appraisals that in most cases subsequently, where the company has had occasion to part with any of the land acquired, it has obtained higher prices than the appraisals.
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This official account of the consolidation adds almost boastfully that “no promoter or banking house had any part in it and no commissions were paid to ~ n y 0 n e . l ’ ~The whole consolidation was chemical, not financial, in its inception, and there was obviously no incentive to write up values against which stock was to be proportionally issued only to the combining companies. Moreover, there was no necessity to provide additional stock either for promotion expenses or for working capital. The new corporation, the General Chemical Company, completely absorbed within itself all the constituent companies. These literally ceased to exist. Their property and personnel were so completely merged that even within a single business generation the names of most of them have vanished from chemical memory. The companies which took part in this amalgamation were: Chappell Chemical Company, st. Louis and Chicago; Fairfield Chemical Works, Bridgeport Conn. ; Dundee Chemical Words, Dundee, N. J.; Jas. Irwin and Company, Pittsburgh; Lodi Chemical Company, Lodi, N. J. ;Martin Kalbfleisch Chemical Company, Buffalo and Bayonne, N. J.; Nichols Chemical Company, Syracuse and Troy, N. Y., and Laurel Hill, Long Island; James L. Morgan and Company, Shadyside, N. J., and Bridgeport; National Chemical Company, Cleveland; Passaic Chemical Company, Newark, N. J.; Phillips Chemical Company, Philadelphia; and Highland Chemical Company, Highlands,
N. Y. During the twenty years of its independent operation, the General Chemical Company was singularly successful. It earned during this period a net total of $48,860,695; added $17,117,805 to its surplus; distributed $27,670,675 in preferred and common dividends, while increasing its invested capital from $15,121,600 to $47,446,680. So firm a foundation was laid that the company has continued, since its consolidation in the Allied Chemical and Dye Corporation, to be one of the most profitable units of the larger merger. It was during this same period that another of the Allied units-the Barrett Company-was also gradually enlarged under the guiding hand of William Hamlin Childs. Partly by amalgamation, but in part also by outright purchase, it absorbed the H. W. Jayne Chemical Company, and Micheal Ehret Company of Philadelphia; the S. E. Barrett Company, Chicago; the National Coal Tar Company, Boston; the New York Tar and Chemical Company; and others. Of this time and type also were the whole series of consolidations that brought into being the American Agricultural Chemical Company, the Virginia-Carolina Chemical Company, and the International Agricultural Chemical Company, a trio of giants destined to have far-reaching effectsupon the fertilizer industry. These earlier consolidations in the chemical industry represent a definite transition in the type of our industrial organization, They marked the beginning of the end of the familyowned corporation which, during the previous half-century, had gradually replaced the individual proprietor and the personal partnership. Up to the time of the World War, even if no longer strictly family affairs, these corporations continued to be very closely held. Both Barrett and General Chemical, although their stocks were traded in on the exchange, were controlled by the Nichols and the Childs families, respectively, up to the time of their combination with,the Solvay and National Aniline interests. It was during the war, and afterwards, that the decentralization of ownership was accomplished by public participation in stock issues. This transfer of private to public ownership characterized the
* This o5cial account does not speci6cally say that after the appraisals committee ha8 determined the tangible valuea, it wms agreed to discount their figures 10 per cant all around as an additional measura of safety; but Doctor Nichole, a year before his death, told me that this was done, and added the information that even most of the lawyers’ fees were paid in stock.
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preliminary stages of the post-war merger era. The Warner family interests were capitalized by William B. Thorn in the United Chemicals Corporation. The American Cyanamid Company took over the Kalbfleisch, the Selden, the Jeffcott (Calco Chemical Company), the King, and the Merz interests. The Grasselli, the A. Klipstein, and the Roessler and Hasslacher companies were consolidated with the du Ponts. ALLIEDCHEMICAL AND DYE CORPORATION The first of these modern mergers, however, was the Allied Chemical and Dye Corporation, organized in December, 1920, to consolidate the assets and operations of five companiesthe General Chemical Company, the Barrett Company, the Solvay Process Company, the Semet-Solvay Company, and the National Aniline and Chemical Company. The new corporation had an authorized capitalization of 373,264 shares of 7 per cent accumulative preferred stock of $100 par value with voting rights, and 2,143,455 shares of no-par common stock. Ten years later there were authorized and outstanding of these issues, 973,264 shares of preferred and 2,178,109 of common. The original ownership transfer was accomplished by exchange of the common stock: for each share of General Chemical common, 2.66863 shares of the new Allied; for Semet-Solvay, 2.73010; for Barrett, 2.34088; for National Aniline, 1.05454. Upon the execution of these provisions, the shareholdings of the various interests were as follows: General Chemical, 519,225 shares; Solvay Process, 679,755 shares; Semet-Solvay, 281,330 shares; Barrett, 359,330 shares: National Aniline, 304,007 shares. At the time, it was roughly estimated that the Solvay-Mond interests held some 700,000 shares of the common stock; the Nichols family, 300,000 shares; the Childs family, 150,000 shares; the Hazard family (through their Solvay holdings), some 100,000; and the banker Eugene Meyer, 100,000. Orlando F. Weber, who a t the time of the combination had been president of the National Aniline and who was named president of the Allied group, with William J. Matheson and William G. Beckers had been the chief holders of the National Aniline securities. Aggravated doubtless by the policy of strict secrecy which the company has always maintained, there has been much speculation about its inner workings, and many rumors about changes in the stock control and about various foreign and domestic alliances. The Childs family has not been represented on the Board of Directors since 1921. The late Lord Melchett of Imperical Chemical Industries served on the Board during 1926 and 1927. Armand Solvay was director until his death early in 1930, and Baron Emanuel Janssen of the Solvay interests has been one of the original directors who has regularly survived changes in the board. I n 1927 when Solvay interests organized the Solvay American Investment Corporation, its capitalization of $15,000,000 in notes and 300,000 shares of no-par common stock was backed by holdings of 466,488 shares of Allied common stock. This represents something more than a fifth interest, but less than the Belgian firm presumably received a t the time of the Allied organization. Out of such flimsy materials, large stocks of rumors have been manufactured while the company has continued to pursue a singularly independent course. There is no evidence of even a working agreement with either of those British and Belgian interests with whom certain commercial associations would appear to be irresistible, and the policy of aloofness in domestic chemical affairs is carried to the extreme of nonparticipation in trade and technical association activities. The published financial statements of the Allied Chemical and Dye Corporation reflect this same policy. They reveal nothing of sales receipts or operating costs and give no inkling
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ammonia, rayon, and Cellophane units, and this year the Grasselli and Krebs businesses were acquired upon a full ownership basis. As far back as 1912, the du Pont powder-making activities had reached a size and comprehensiveness that caused the Government to include the company in its famous trust-busting campaign. A decree was won under the Sherman Law, and as a result the present company, the Hercules Powder Company, and the Atlas Powder Company were all organized. Up to the time of the World War, the du Pont Company confined its operations chiefly to explosives-making, with paints as the principal sideline; but the enormous demands, especially for high-powered disruptants combined of such material as picric acid and trinitrotoluene, forced them willy-nilly into the production of coal-tar intermediates. Dyes lay but a step farther along in the manufacturing process, and a t that time there was a veritable dye famine, creating an eager demand a t fabulous prices. A management famous for its commercial acumen could hardly fail to take that short step. The du Ponts entered into dye-making with a determination and vigor that has given them the most complete line and the greatest tonnage of any dye manufacturer, excepting only the German I. G. Farbenindustrie. A similar chemical logic and the same commercial alertness has marked their excursions into other chemical fields. Familiarity with nitrocellulose technic, gained in the manufacture of smokeless powder, early interested them in plastics, photographic film, and artificial leather. The last product brought them into contact with the fast-growing automotive industry, and from Fabrikoid to Duco was another easy step. This was an extremely important move. These coatings and covers for automobiles undoubtedly incited the interest in the General Motors Corporation, an investment that came in a few years to represent nine-tenths of a share of General Motors stock for each share of du Pont. These holdings represent roughly a fifth interest in the General Motors Corporation, which during a number of years was the source of about half the du Pont income. Rayon and Cellophane are quite strictly in line with these developments, and tetraethyllead manufacture was the legitimate child of the alliance with General Motors research. E. I. DU PONTDE NEMOURS AND COMPANY Other excursions into new chemical fields have followed A similar position, but proceeding along quite distinct lines established du Pont lines. Pigments are an important and to a different group of major products, has been reached by essential raw material, both of the old paint department and of E. I. du Pont de Nemours and Company. Both in the the more recent lacquer division; and the familiar du Pont expansion of its chemical activities and in the centralization logic of chain operations naturally suggested the purchase of of its corporate control, the ways and means employed by the the important Krebs interests (1929) and led up to the du Ponts have been quite dissimilar to those employed by amalgamation of these activities with the Commercial Pigthe Allied interests. ments Company in alliance with the Commercial Solvents I n sharp distinction to the gathering together of five strong Company, producers of lacquer solvents. diversified chemical units, the du Pont expansion was internal, I n like manner the important du Pont ammonia operations initiated as a logical extension of explosives manufactured have sprung from the original stem of explosives. Long and stimulated by their own needs for certain raw materials before the World War the company had providently acquired and the necessity for an economic disposal of by-products. nitrate property in Chile in order to make certain of Once organized, the Allied group expanded from within. economical supplies of their nitric acid raw material, and a Their greatest new chemical project was the Hopewell watchful eye had been kept fixed upon the development of ammonia-nitrate plant, essentially a continuation of work processes for ammonia synthesis and oxidation to nitric acid. previously undertaken by General Chemical and Solvay. A subsidiary, the Du Pont Nitrate Company, carried on the Du Pont, on the other hand, once committed to a program of mining operations in Chile and imported not only for the chemical expansion, gathered in patents and plants acquired du Pont requirements, but also a surplus which was marketed by the purchase of a number of important chemical con- chiefly through brokers in the cotton-growing states for cerns. agricultural uses. I n 1927 the mining operations were Financially, too, different policies may be followed. From stopped and the property in Chile sold; but this enterprise the first Allied has owned 100 per cent of its units, and every was not abandoned until the Lazote synthetic ammonia subsidiary subsequently organized has been wholly owned by plant, near Charlestown, W. Va., had been in operation a year the parent organization. I n the early stages many du Pont and the American rights to the Casale process purchased. subsidiaries were only partly owned by the corporation. By This same year the production of synthetic methanol was 1929, however, it took over 100 per cent stock ownership of its begun. These operations, together with the aqua ammonia
of the state of business of any of the units or subsidiaries.
The actual chemical operations are further obscured by the heavy holdings of marketable securities, amounting just before the Wall Street crash of 1929 to over $100,000,000 or a t that time close to a quarter of the total assets. This ultramodern aspect of the Allied business has been separately incorporated in Aldco, a subsidiary organized for this specific purpose, with $30,000,000 in preferred stock and 200,090 shares of no-par common, all held by the parent company. Allied stock holdings have been reported to include substantial blocks of the Texas Gulf Sulphur Company and of the United States Steel Corporation (a logical investment in view of Barrett’s interest in coal-tar crudes and sulfate of ammonia). As in the case of the company’s foreign stockholders, there is no direct evidence (assuming such stocks are held) that any important influence has been exerted in the management or policies of these two corporations. The Allied management is extremely conservative in handling reserves and depreciation. Obviously, true earnings have never been shown. During the first five years of its operations (1925-30) over $55,000,000were ploughed back into the property account, chiefly in the nitrate plant a t Hopewell. Current quick assets (cash and United States Government bonds or notes) have been maintained a t an average ratio of nearly ten to one of all current liabilities. The notable strength of this cash position and the reputation of the management for conspicuous skill in financial affairs have naturally attracted the attention of Wall Street. I n its chemical operations the Allied group is a thoroughgoing vertical combination. Operations begin with coal, salt, limestone, and pyrites. Finished products include a very complete line of heavy industrial chemicals; alkalies; ammonia and synthetic nitrates; insecticides; the whole gamut of coal-tar products from crudes, through intermediates, on to dyes; and some aromatics and medicinals, with a full assortment of c. P. chemicals for laboratory use. Excepting solvents, dry colors, cellulose products, and superphosphates, there is no branch of chemical industry in which Allied does not occupy a prominent and, in several instances, a dominant position.
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business of the old National Ammonia Company, were subsequently all brought into a single unit, the Du Pont Ammonia Company. The du Ponts entered the field of heavy inorganic chemicals during the war by the purchase of the historic Harrison works in Philadelphia with the purpose of furnishing their own pressing requirements for acids. This enterprise materially expanded the paint operations, and gave a rather complete line of paint-mixing raw materials. I n 1928 the Grasselli Chemical Company was acquired in exchange for 149,392 shares of du Pont common stock, or a t the rate of one for five shares of Grasselli. The powder section of the Grasselli business was immediately welded into the du Pont explosives department. However, the du Pont heavy-chemical operations, centered in Newark, N. J., and Philadelphia, were transferred bodily to the wider Grasselli operations and under the Grasselli name. Full advantage was thus taken of the goodwill of the Grasselli trade-mark and of the experienced personnel which continued under the active management of Thomas s. and Eugene Grasselli, brothers of the third generation of this distinguished chemical dynasty. This amalgamation rounded out the standard line of industrial chemicals with a chain of producing plants a t strategic industrial points throughout the Eastern and Midwestern States; the Grasselli operations and sales offices in Canada, combined with the subsidiary, Canadian Industries, Ltd., markedly multiplied the number of products and enhanced the du Pont prestige in the Dominion. I n 1930 the Roessler and Hasslacher Chemical Company was purchased outright for 241,130 shares of du Pont common stock, adding to the lengthening list of du Pont chemicals a number of interesting and profitable industrial specialties. The cyanides and other flotation reagents fit in neatly with the sale of explosives in the mining fields; bleaching specialties are pleasant companions of the dyestuffs; the rubber accelerators and plating materials both find many customers among the allied automotive industries. With the outright purchase in 1931 of the eastern alcohol plant which was built a t Deepwater in collaboration with the Kentucky Alcohol Company, and the full ownership of the American Glycerin Company, the du Ponts had extended their chemical operations in the first dozen years following the war to embrace all of the important branches of the industry except alkalies, fertilizers, and pharmaceuticals. Their particular strongholds are explosives, paints and lacquers, dyes and the various plastic materials, specialties which have carried their sales efforts closer to the ultimate consumer than any other of the large American chemical makers have penetrated. Sporting powders, Pyralin toilet articles, agricultural insecticides and seed disinfectants, paints and the lacquer Duco are all sold direct through retail trade channels by sales and advertising departments handling with notable success a type of merchandising which other chemical companies have rather scrupulously avoided. With but a few exceptions-antifreeze alcohol, Union Carbide’s acetylene, Barrett’s roofing and road-building materials, calcium chloride sold as a dust-layer by Solvay and DOW,and the general lines of fertilizers and insecticidesthe products of the American chemical industry have been sold and shipped in bulk. Manufacturers have been quite content to deliver even such products as disodium phosphate, bicarbonate of soda, and carbon tetrachloride to repackers who have made a business of packaging chemicals into retail containers and merchandising them to the public. The du Ponts, however, have gone direct to the consumer, partly, it is true, because forced to do so by the peculiar character of some of their products. This sales policy may be very significant and have a great bearing upon the future, for, if the logic
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of the vertical combination is to be carried to its ultimate conclusion, the maker of the chemical raw material will become the manufacturer of the chemical consumer goods. UNION CARBIDEAND CARBONCORPORATION AND AMERICAN CYANAMID COMPANY Allied and du Pont have two chemical rivals comparable in size. The Union Carbide and Carbon Corporation grew very rapidly during the 1920-30 decade and, like the Allied, chiefly by internal expansion. I n the same manner and by the same means employed by the du Ponts-i. e., the exchange of stockthe American Cyanamid Company widely extended their field of operations and multiplied their products. It is unwise to press.the parallelism of these methods of merger too closely, since the motives of expansion were markedly different in the two groups. In the new chemical era after the war, both Union Carbide and Cyanamid found themselves face to face with technological improvements which seriously threatened their principal products-acetylene for lighting and cyanamide for fertilizer-and both managements wisely took steps to meet a diminishing market by diversifying their products. MOTIVESOF COXSOLIDATIONS This diversification motive distinguished much of the postwar consolidation movement in the United States. The earlier combinations in chemical industry, as in other American industries, united direct competitors in order to alleviate the pains of excessive competition. This obvious objective was the inspiration of the larger fertilizer companies and of the original consolidation of the Barrett and the General Chemical companies. Since the war, however, monopolistic control over the sales markets (explicitly forbidden by the antitrust laws) has not been the primary purpose sought in mergers. The need of a more favorable position in respect to raw materials has inspired the vertical combination. Horizontal organizations have been prompted by a desire to broaden the sales opportunity through diversification. Both motives are especially compelling in chemical manufacturing operations where finished product or by-products of one step are the starting point of the manufacture of other products. Thus a straight chain of products may be woven horizontally into a linked web of chemical production. While control of raw materials and spread of the sales market are the chief objects of merger, nevertheless consolidations have themselves by-products with advantages which have been summarized by J. George Frederick in his friendly study “Modern Industrial Consolidation :’, 1. Immediate or ultimate reduction of sellin price. 2. Higher grade management and specid tecfmical ability.
3. Most efficient plants, only, used in dull times and run to capacity whenever possible. 4. S ecialization of plant operations.
5. CPomparative tests. 6. Large capital for commercial experiment and scientific research. 7 . Full use of patents and of best methods. 8. Utilization of wastes and of by-products. 9. Duplication of high-salaried executives eliminated. 10. Savings in cross freights. 11. Economy in advertising and salesmen. 12. Better credit and better discounts. 13. Less credit extended and fewer bad debts. 14. Middlemen regulated. 15. Steady prices through better adjustment of supply to demand. 16. Strength for export business. 17. Cheaper raw materials (bought in largest quantities from nearest sources).
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INDUSTRIAL AND ENGINEERING CHEMISTRY
Each and every one of these economies or efficiencies has doubtless upon occasion furnished arguments in favor of consolidation, but the chief purpose in American chemical mergers has undoubtedly been diversification. Contrasted with concentration, and its accompanying large-scale production, diversification brings lowered overhead cost rather than reduced cost of manufacturing. Of the two, the expenses of administration and distribution in chemical manufacture are, under American conditions, the more serious and the more controllable. The financial advantages of consolidation, however, are quite apt to outweigh any of these motives of economy.
FIKANCING MODERNMERGERS The transition from private to public ownership of our chemical corporations has been accompanied by a radical departure from the old theories of capitalization. Formerly it was the common practice, as we have seen in the financial set-up of the General Chemical Company, to issue common stock against the property owned by the corporation. Under the old dgirne, preferred stocks were often sold in anticipation of future profits to be earned from expansions financed out of the capital so raised. Modern practice is the reverse. Preferred securities commonly represent the tangible assets, while the common stock covers the increased earning power, the goodwill, and the patent rights. Each basis of capitalization has its peculiar advantages and is subject to its own forms of abuse. Under the older scheme, “water” was pumped into a corporation by treating such intangibles as goodwill and patent rights as physical property and by overvaluing notorious ill repute, and today it is not unusual to find these items credited on the balance sheet a t the nominal sum of one dollar. Capitalization of earning capacity, on the other hand, lends itself to great and less easily detected overcapitalization. I n the first place, it conceals the true state of the business, and, so long as profits are earned, makes the statements appear deceptively favorable. Furthermore (and this is certainly the reason for much recent overcapitalization), the basis of earnings is marketable a t a higher rate, and fluctuations in the security values are greater, thus affording a better opportunity for speculation. McVey in “Modern Industrialism” says: If the blame for this condition of affairs is to bc laid at anyone’s door, it erhaps may fall with greatest justice upon the promoter and unxerwriter. These representatives of modern financing stimulate overcapitalization by their zeal in or anizing new corporations and b their methods of work. The Erst step made by a promoter in tge creation of a new combination is to secure an option upon the plants that are t o form the or anisation. Having done this, the corporation is organized; t%e stock issued t o the owners of the plants who are willing t o take stock in the new enterprise; and, in order t o pay those who sold for cash, he finds it necessary to secure the money from some source. It is at this point that the underwriter comes in. A bargain is made between the promoter and the underwriter, the latter agreeing t o take so many shares of stock and to advance the money for them. With the cash received from the underwriter, the promoter pays his cash liabilities, uses part of it as working capital, and retains part as his pay. Large inducements are held out to the purchaser of shares, a bonus of common stock being given with each share of preferred bought. The underwriter assumes a considerable risk in advancing the money, for he practically agrees to buy the securities; consequently his pay is large. With the stock bonuses to shareholders, large pay to the promoter and underwriter, the modern corporation issues from its organization period highly overcapitalized.
This brief summary indicates the ways and means of financing the modern merger. These are, of course, subject to an infinite variety of terms and conditions. I n practice,
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a going corporation, bent upon expansion, increases its capitalization and, by the sale of a portion of its new shares, provides itself with additional working capital to acquire the properties of other companies it wishes to merge with itself. Often much of this additional capital is provided by its own stockholders to whom the company issues “rights” to buy additional shares a t a price comfortably below the current stock market quotation. This practice has been found to be the most economical way of raising capital. For a company earning good dividends, it serves as a preventative, therefore, of those excessive “financial expenses” which are the wellspring of much excessive capitalization. It is unfair to infer from these financial generalities that the merger era in our chemical industry has seen any such orgy of stock-watering as was indulged in during the trust-building decade of the “gay nineties.” The disastrous after-effects of an unsound capital structure are today very thoroughly understood. Many of the present mergers have been built up about a company that was in an exceptionally strong cash position. Many of the merged companies have behind them long records of ‘dividend-earning ability. The habit in effecting these combinations of conserving cash by the use of as much stock as possible in the purchase terms is, provided the negotiations are skilfully carried through, a useful check upon overcapitalization. For, in mergers accomplished through the exchange of securities, the open establishment of stock prices on the various stock exchanges has provided a useful yardstick of comparative values. Such valuations are obviously more disinterested, and, in the main, more accurate than when reached in a bargain struck by two boards of directors. Certainly, during the period of wild stock speculation that ended abruptly in the market crash of October, 1929, some very exaggerated notions were widely entertained about the stock value of future earnings. It is equally true that during this period it was dangerously easy to raise capital by the sale of common stocks to the public. Nevertheless, public ownership and open market trading in chemical company securities did somewhat dampen the heyday of the merger movement, while the protracted period of restricted industrial activity which followed the stock market collapse checked it suddenly and definitely. The danger lurking in the American method of merging is plainly the old weakness of overcapitalization which proved so disastrous to many of the large consolidations of the nineties. When it is easy to raise money by the sale of stock to the public for the purchase of going chemical firms to add to the merger, there is a grievous temptation not to drive too close a bargain for the purchase price of those assets. Trouble comes later when it is necessary to pay dividends out of earnings upon the basis of the easy-going valuation. I n this wise i t is perfectly possible to build up an industrial machine that represents too great an investment for the production it can turn out and market. I n such a case the merger is in the uncomfortable position of having erected a coke oven in which to roast peanuts. The check of 1930 was, therefore, a well-disguised blessing. It dried up the sources of easy money for almost any sort of merger operation. It thus stopped further expansion and gave a needed opportunity for the internal consolidation of the various working parts of the merged companies. The sharp curtailment of chemical demand and the subsequent decline in prices forced economy upon management, making necessary the consolidation of operating units and centralization of administration, and injecting a needed caution into plans for manufacturing and sales expansions. Furthermore, curtailed production and lowered prices (reflected in the balance sheets) were translated into sharp declines in the stock market quotations of many chemical securities. This was a novel experience for the major executives of some of our greatest
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INDUSTRIAL AND ENGINEERING CHEMISTRY
chemical companies. For the first time they felt sharply the direct, tangible, unfavorable influence of the stockholders. Nothing else could have so emphasized all that it means for a great industry to pass from the stage of the privately owned
Vol. 24, No. 6
company t o the publicly owned corporation. The depression of 1930 has very definitely marked this great transition in American chemical industry. REcarvEDFebrusry 24, 1932.
BOOK REVIEWS COLLOID ASPECTS O F FOOD CHEMISTRY AND TECHNOLOGY. B William Clayton. 571 ages, 64 illustrations. P. Blakiston’s o!n & Co., 1012 Walnut Philadelphia, 1932. Price, $8.00.
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As THE author states, this is not a treatise on food technology, but rather a summarization of a voluminous and scattered literature (including atents) to serve as an introductory guide to the food chemist wto has not specialized in colloid chemistry and physics. It is not a textbook; colloid aspects are treated if, when, and as they appear in a perfect1 natural way. But the book goes far beyond what the title migzt suggest to some. Colloid chemistry is so closely interwoven with the topics treated, and the author has been so broad and judicious in his treatment that no one can read the book without bein exposed to a substantial grounding in colloid chemistry. T i e various sides of contentious points are included, and in many cases the author gives his own authoritative opinion. Valuable tables and graphs are reproduced or assembled from international sources, the original journals or other sources often being inaccessible to most readers. Much lurks below the surface of the chapter headings. Thus, under Emulsions, besides discussion of general principles, we find butter, margarine, salad dressing (including mayonnaise), limitations of colloid mills, transparent emulsions, parental administration of emulsions, medicinal emulsions, and emulsions in breadmaking, shortening, etc. Cheese, ice cream, and homogenization are among the many items included under Milk. The book is clearly printed on substantial paper and is remarkably free from misprints. All told, it is an outstanding contribution to our literature, and should be in the hands of everyone interested in the fields treated. Ascherson is mentioned on page 1 as a pioneer, but his basic anticipation of more modern workers is not in evidence. Thus, in 1838 he wrote (referring to emulsions): “Coagulation in the form of a membrane occurs inevitably and instantaneously when albumin comes into contact with a liquid fat,” and “conse uently an oil drop cannot be surrounded by an albuminous liquil without a vesicular membrane or cell forming around it (Haptogen membranes).” Thomas Graham’s interesting work on caramel seems to be missing. In most cases the now admittedly incorrect form, uu, is used instead of mu, though in some cases the latter appears. On page 210 the diameter of casein particles is referred to as 10-100 u, when mu is meant. A t the bottom of page 17, CaSOl is meant, not CdSO1. In addition to the large bibliography, numerous references are fven a t the bottom of most pages, but many of these appear t o JEROME ALEXANDER ave eluded the indexes.
BERYLLIUM : ITS PRODUCTION AND APPLIC-4TION. By Zentralstelle fur Wissenschaftlich-Technische Forschungsarbeiten des Siemens Konzerns. Translated by Richard Rimbach and A . b. Michel. 331 pages. The Chemical Catalog Company, Inc., 419 Fourth Ave., Sew York, 1932. Price, $10.00.
THISbook is a direct translation of the original German text and, aa such, appears to be well done. The relettering of the diagrams and the copving of the photomicrographs have been skilfully
accomplished; but, in reproducing the x-ray reflection prints, some of the fainter lines are lost altogether. The text covers the determination of the metal by the quinalizarin colorimetric method, the occurrence of beryl, and the methods of extracting and preparing salts. The electrolytic production of metal and alloys is well described. There are chapters on the metal itself and its alloys with copper, nickel, iron, aluminum, and silicon. The chemical and physical properties of innumerable alloys are studied with much attention to age-
hardening, microstructures, and x-ray patterns. There is even a chapter on the theory of age-hardening. This book is the only complete treatise on beryllium in the English language. While the volume is so eminently satisfying from the scientific point of view, the commercial applications are passed over rather lightly. The metal has long been a beacon of hope in the light alloy field, but this hope is diminished as one reads that it shows “no noteworthy physical properties as an alloying component in light metal all0 s. . .” But the abundant age-hardening series in the copper alcys, and interesting properties when added to nickel-chromium steels indicate that more than a few important applications may eventually come into use. Every chapter in the book emphasizes the difficulties in winning and using the metal. Its low percentage in beryl, its difficult extraction, its high-temperature electrolysis, and the careful attention that must be given any alloy-all preclude nontechnical exploitation. With this in mind, a $10 book is a trifling investment for anyone thinking of experimenting with the metal. H. B. PULSIFER 0-b
THE ANALYSIS OF FUEL, GAS, WATER AND LUBRICANTS. By S. W . Parr. (International Chemical Series.) 4th edition. 371 pages. McGraw-Hill Book Company, Inc., 370 Seventh Ave., New York, 1932. Price, $3.00. THE first edition of Parr’s manual for university students in railvay and in mechanical engineering appeared 21 years ago. It has been widely used and has been revised and supplemented; it will continue to find use in industrial and commercial laboratories and engineering offices, as well as in schools of engineering. This revision was near1 finished by Professor Parr himself. Since the author’s death friends and associatw have completed his work in line with his known plan to illustrate the research method of attack on new problems and to summarize recent results in fuel and power-plant research. The book still is, first, an authoritative treatise on fuels, gas, water, etc., and second, an analytical laborator manual of special merit because it has been written by one wlose knowledge of power-plant technic, supplemented by remarkable ingenuity, has enabled him to invent illium metal, calorimeters, etc., for the chemist; for the power-plant engineer and others, he has made available clear descriptions of the properties of the substances which must be used for efficient power generation. The cause of and remedy for the steam-boiler trouble known as caustic embrittlement of steel are made clear. In chapters aggregating half of the book, the author explains the origin, properties, and methods of efficient use of solid, liquid, and gaseous fuels, and of lubricants. In the second half, approved methods of testing and analysis are given. Of the 15 tables in the appendix, 5 relate to gas analysis, 2 to calorimeters, 6 to oil JAS. 0. HANDY testing, and 1 to boiler water.
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THE VITAMINS. By Ethel Browning. Monographs of the Pickett-Thomson Research Laboratory, Volume I. 575 pa es. Bailliirre, Tindall and Cox, 8 Henrietta St., London, W. 1, and The Williams & Wilkins Co., Baltimore, 1931. Price,
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$10.00.
THIS is a comprehensive digest of the literature of vitamins. Some four thousand papers have been consulted and their tontents classified in accordance with the phases of the s u b p t
