In re Engineers Public Service Co.

Decision Date15 May 1947
Docket NumberCiv. No. 995.
Citation71 F. Supp. 797
PartiesIn re ENGINEERS PUBLIC SERVICE CO.
CourtU.S. District Court — District of Delaware

COPYRIGHT MATERIAL OMITTED

Roger S. Foster, Sol., Sidney H. Willner, Asst. Sol., Harry G. Slater, Chief Counsel, Utilities Division, Bernard Kanton, Jerome S. Katzin and Myer Feldman, Attys., all of Philadelphia, Pa., for the Securities and Exchange Commission.

William E. Tucker and Paul D. Miller (of Mudge, Stern, Williams & Tucker), both of New York City, for Engineers Public Service Co.

Francis H. Scheetz, of Philadelphia, Pa., and Caleb R. Layton, III, of Wilmington, Del., for Home Ins. Co. and other preferred stockholders.

Lawrence R. Condon, of New York City, Frederick Zazove, of Chicago, Ill., and Edwin D. Steel, Jr. (of Morris, Steel, Nichols & Arsht), of Wilmington, Del., for Thomas W. Streeter, Dissenting Minority Director of Engineers, and preferred stockholders.

Alfred Berman and J. Howard Rossbach (of Guggenheimer & Untermyer), both of New York City, and Herbert L. Cobin, of Wilmington, Del., for Central-Illinois Securities Corporation and Christian A. Johnson, common stockholders.

Louis Boehm, Raymond L. Wise, and William Esbitt, all of New York City, for common stockholders.

LEAHY, District Judge.

A § 11(e) court has the affirmative and independent duty to consider and find whether a proposed plan, which has been approved by the Securities and Exchange Commission, is fair and equitable. In the Matter of Interstate Power Company, D.C.Del., 71 F.Supp. 164. The first question is whether the various series of preferreds are entitled to amounts in excess of $100 per share plus accrued and unpaid dividends. When a company is subject to the Act, the quantum of participation of the various security holders is determined by the application of fair and equitable standards to particular fact situations. In re United Light & Power Co., D.C.Del., 51 F.Supp. 217; In re Consolidated Electric & Gas Co., D.C.Del., 55 F. Supp. 211; In the Matter of Community Gas and Power Company, D.C.Del., 71 F. Supp. 171; In the Matter of Interstate Power Company, D.C.Del., 71 F.Supp. 164. The application of those principles convinces me that to pay the premium here would result in a failure to satisfy those standards by a wide margin.

Certain common stockholders argue that this plan involves a true liquidation as distinguished from the fictitious liquidation involved in Re United Light & Power Co., D.C.Del., 51 F.Supp. 217, affirmed 3 Cir., 142 F.2d 411, 413, affirmed sub nom. Otis & Co. v. Securities and Exchange Commission, 323 U.S. 624, 65 S.Ct. 483, 89 L. Ed. 511, and that consequently the stock rights of the various security holders are not to be treated as though in a continuing enterprise. Since this is a true liquidation, the parties argue, the charter provisions do apply and therefore the preferreds are not entitled to a premium. The charter in this case provides that the preferreds shall be entitled to a premium only in the event that the winding up is voluntary; and this and other courts have held that where a company must change its capital structure because of the impact of the Act, the winding up or reorganization is not voluntary.1 See In re Consolidated Electric & Gas Co., D.C.Del., 55 F.Supp. 211; In re North Continent Utilities Corp., D.C. Del., 54 F.Supp. 527; City National Bank & Trust Co. of Chicago v. S. E. C. and North American Light & Power Co., 7 Cir., 134 F.2d 65; New York Trust Co. et al. v. S. E. C., 2 Cir., 131 F.2d 274. This is ingenious argument and, if accepted, would of course be dispositive of the holding that payment of the premiums would not be fair and equitable. I prefer not to definitely decide this particular point but to consider the charter provisions of the company as but one of several factors in determining the relative rights of the various security holders.2 In most of the cases which have arisen involving the payment of premiums, In re United Light & Power Co., D.C.Del., 51 F.Supp. 217; In re North Continent Utilities Corp., D.C. Del., 54 F.Supp. 527; In re Consolidated Electric & Gas Co., D.C.Del., 55 F.Supp. 211; In re Standard Gas & Electric Co., D.C.Del., 59 F.Supp. 274, the charter has called for the payment of premiums in cases of liquidation and redemption, but notwithstanding this fact both the SEC3 and the courts have held that under the particular fact situations the payment of premiums was not warranted on considerations of all the facts involved. As stated, the charter provisions, then, are but one circumstance looking toward non-payment of premiums.

The facts in this case indicate that the issuing price and market history also look toward non-payment of the premium. None of the three series of preferred stocks was initially sold to the public for more than $100 per share. In order to sell the preferreds at these prices it was deemed expedient to attach a "convertible" feature to the $5 series and warrants to the $5.50 series. It is unnecessary to consider what the value of these privileges was; it is sufficient that even with these privileges the stock did not command a premium. Moreover, there is no showing that the company received the amounts which the public paid for the various issues of preferred. There must have been various underwriting fees and the underwriting spreads in vogue at the time were quite large. When the inquiry is as to the relative rights of the preferreds vis-a-vis the common, the important consideration is not what the preferred security holders paid, but how much the company received for their stock. Since it is practically certain, then, that the company did not receive as much as $98 per share for any of the three series of preferreds and since none of the three series was initially sold to the public for more than $100 per share, clearly, with respect to this factor, there is no consideration of colloquial equity why the preferreds should be paid a premium.

The market history ex the conversion and warrant privileges has shown an average price much below $100 per share. The importance of the conversion and warrant features is demonstrated, for example, by the lower average price of the $6 preferred since issued than the other two series of preferreds. Another circumstance to be considered, although not strictly one of market history, is that dividends were omitted from preferreds from July 1, 1933 to July 31, 1936, but such arrearages which accumulated in this period were paid off in 1936 and 1937. The market history accordingly not only fails to support the preferred's claim to a premium, but affords affirmative support to the non-payment of the premium.

The preferreds4 argue for a different conclusion largely on the basis of uncontradicted expert testimony of Dr. R. A. Badger, i.e., on the basis of items "all charges and preferred dividends earned", "proportion of prior obligations to total capitalization", "book value of equity per share of preferred", "percent of quick net assets to prior obligations" and "times parent company dividends were earned", a present value for these preferreds substantially in excess of the charter liquidating preferences would be indicated. I accept Dr. Badger's values and, in the absence of a showing of changed circumstances, I shall assume that those values are applicable at the present time. It must be conceded, however, that these values are not controlling because the plan itself does not propose to give these amounts to the preferreds. Further, it is unnecessary to decide whether these values would more than offset the other factors previously considered and consequently justify the payment of a premium, for in this case this factor is neutralized and rendered impotent by several other considerations. What the plan overlooks is that this is not a one-way argument but a two-way argument. The necessity and impact of the plan which makes...

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10 cases
  • Securities and Exchange Commission v. Securities Corporation Streeter v. Securities Corporation Home Ins Co v. Securities Corporation Securities Corporation v. Securities and Exchange Commission
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    • United States Supreme Court
    • 27 Junio 1949
    ...made before the Commission. It preferred not to determine whether the involuntary liquidation preferences controlled, but stated that (71 F.Supp. 797, 802) 'in each case the inquiry is one of relative rights based on colloquial equity.' That standard, thought the court, necessitated conside......
  • In re Engineers Public Service Co.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • 19 Marzo 1948
    ...facts relating to these three appeals are clearly and succinctly set out in the opinion and findings of fact of the court below. See 71 F.Supp. 797. In addition thereto more complete descriptions of Engineers Public Service Company and its holding company system will be found in In the Matt......
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    • U.S. District Court — District of Delaware
    • 31 Enero 1949
    ...Public Service Co., 3 Cir., 168 F.2d 722; Lahti v. New England Power Association, 1 Cir., 160 F.2d 845, 851; In re Engineers Public Service Co., D.C. Del., 71 F.Supp. 797; In re Illinois Power Co., D.C.Del., 74 F.Supp. 4 In re Engineers Public Service Co., D. C.Del., 71 F.Supp. 797. 5 Otis ......
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    ...regard to the premiums provided for in the indenture. In re Community Gas & Power Co., D.C., 71 F.Supp. 171; In re Engineers Public Service Company, D.C., 71 F.Supp. 797; Massachusetts Mutual Life Insurance Company v. Securities and Exchange Commission, 8 Cir., 151 F.2d 424; In re North Con......
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