ment of the companies. It was not expected that these holders would at once become active factors in the selection of directorates. They were presumed to be for the most part investors, who would not interfere with the management of the business as long as it was conducted on a profitable basis. It was, however, thought that, if new elements should seek to obtain control of any one of the concerns, they could use the preferred stock as a ready means to that end, since it can be bought at a much lower price than the common stock. As a matter of fact the ownership of both the preferred and common stock is gradually falling into distinct hands for each company, although the big common holdings have not as yet greatly changed.

III

The sale of a part of the business of the American Tobacco Company to two new concerns and the readjustment of securities between these concerns and the American Company disposed of the more important financial problems connected with the dissolution proceedings. There remained, however, the still more important consideration of the proper distribution of the different classes of product which the American had controlled. The court held that this entire business was conducted in violation of the Sherman Anti-Trust Act, basing its conclusion upon the data showing degree of control presented to the court by the government and originally established through the investigations of the Bureau of Corporations. According to these figures, the American Tobacco Company controlled at the time of its dissolution from 80 to 95 per cent of the cigarette, little-cigar, plug, twist, fine-cut and smoking-tobacco business of the country. The rather arbitrary assumption that the control of one-third of the business in any line does not constitute a monopolistic position-an assumption which was based principally upon discussions in the Senate and House as to what constitutes a monopoly in restraint of trade-had been accepted by the participants in the dissolution proceedings. Upon the basis of this assumption it was decided that the entire tobacco business controlled by the American Tobacco Company should be separated into such parts that in no line would any one concern control more than approximately one-third of the total.

Looking for a moment at the status of the disintegrated combination as a whole, it will be found that the entire business has been separated into seventeen distinct and independent units. Not one of the seventeen companies has a direct stock interest in any of the others, and each is perpetually enjoined from having such an interest. In the following table these concerns have been arranged in the order of their financial importance. In the last column is indicated the proportion of voting stock in each concern controlled by the twenty-nine individual defendants.

P. Lorillard.

plug, smoking, scrap and
fine-cut.

Liggett and Myers. . . Cigarettes, little cigars, plug,

smoking, scrap and fine-cut.

Cigars, cigarettes, little cigars,

The figures in the table are based on data for 1910. The table includes two companies that were not originally planned for. Just prior to the submission of the completed plans to the court, R. P. Richardson, Jr. and Company was freed from the control of the combination after a protracted struggle in the courts. The Hernsheim Company, of New Orleans, is a former branch of the American Cigar Company, but is now separated from it and is operated by a former director of that con

cern.

Of the total assets of the seventeen companies, $356,393,375, the American Tobacco Company retained $138,611,344, or 39 per cent; Liggett and Meyers and the P. Lorillard Company, together, started with assets amounting to $115,000,000, or somewhat more than 32 per cent. The three companies together had thus assets of $254,000,000, or approximately seven tenths of the total. However, unlike most of the remaining companies, they are not confined to single lines of activity, but will each carry on a varied business. A further tenth of the total assets represents investment in foreign business; another tenth, investment in snuff business; and the remaining tenth includes the assets of ten concerns engaged mainly in contributory lines. Six of the seventeen companies are engaged in the smoking tobacco business, five in plug business, five in the cigar business, five in the cigarette business, three in the snuff business, three in the little-cigar business, two in the licorice business, two in the tin-foil business, and one company in the retail sale of tobacco products.

As has already been stated, the distribution of the tobacco business among the various companies was so planned as not to give any one concern more than approximately one-third of the total output of the country for any particular branch. In two branches, however, fine-cut and little cigars, the extraordinary development of single brands made it necessary to assign more than one-third of the total to a company. The distribution of the various branches of the tobacco business among the different concerns and the percentage of independent business are shown on the basis of data for the year 1910 in the following table. Although the American Tobacco Company retains a much larger proportion of the assets than any other single concern, the table shows that it does not occupy an equally prominent position in all the different branches of the industry. In fact, it retains a smaller proportion of the fine-cut and little-cigar business than either of the other two concerns, and it controls less of the plug business of the country than the Liggett and Myers Tobacco Company. Only in the smoking and cigarette lines does its proportion of the total exceed that of either of the other two companies. The R. J. Reynolds Tobacco Company,

which had less than three per cent of the total assets, has nearly as large a plug business as that assigned to the American. The Lorillard concern, with the smallest investment of the three large companies, falls somewhat behind the other two in the percentage of the above lines of business controlled. The American Snuff Company, although its assets greatly exceed those of the other two companies producing snuff, retains less than one-third of the total snuff business. In the snuff and little-cigar business, the proportion of the trade not controlled by the combination is exceedingly small. On the other hand, the cigar business of the country not controlled by the combination amounts to not less than 87 per cent of the total.

In the distribution of the tobacco business among the different concerns, it was necessary to take into account not only the output of individual brands but also the location of their manufacture, their value and their earning power. The brand is the unit in the tobacco industry, and it cannot be assigned to two or more companies, although in output it may reach a total of very large proportions. It had been in part the policy of the combination to concentrate its efforts in the different branches upon comparatively few brands, with the result that in each line there are brands which make up a very considerable proportion of the total output. In the little-cigar branch of the business, a single brand represents practically 44 per cent of the entire production of the country. On account of this extraordinary development of single brands it was not

in all instances possible to divide the business with a strict adherence to the one-third principle. Of more importance even than the extraordinary development of single brands was the degree of concentration in their manufacture. The combination had not only developed the output of single brands but had concentrated the manufacture of groups of similar brands in the different factories it controlled. This concentration had been carried to such an extent that each plant became a unit for the production of a special type of goods. Since it was considered advisable, for economic reasons, not to disturb these conditions any more than was absolutely necessary, the plant instead of the brand became the real basis of distribution, and in not a few instances the business assigned to one or the other of the companies really represented the operations of a single plant. Thus, the entire plug business taken over by the Liggett and Myers Company and the cigarette business taken over by the Lorillard Company were the output of single plants. Again, as a result of the assignment of the manufacture of particular brands to particular plants, some plants were limited to the production of brands which yielded small profits while others produced brands which returned a very high rate of profit. These disturbing factors made it necessary to select for each of the companies in each of the different branches a group of plants representing approximately the same rate of earning power i. e. yielding profits proportionate in each case to the tangible assets. Moreover, each was entitled to brands of which the earning power was likely to continue.

It is evident that an equitable distribution of assets alone would not have solved the problem without an equitable distribution of brands. It is also evident that brands could have been so distributed as to give one or another of the companies an unfair advantage in the future. How to devise a distribution that would assure to each of the companies continued competitive ability presented the most difficult economic problem, and it was to secure competent supervision of its solution that the Department of Justice availed itself of the assistance of economic experts from the Bureau of Corporations.