Financial valuation methods in a world under political control: The Case of the (1897 – 1901)

Jean-Guy DEGOS Professor, University of () [email protected]

Abstract

The French canal du Midi, built by Pierre-Paul Riquet in the 17th century was the greatest construction project of its time. It enjoyed a natural monopoly and was protected because the other transport competitors were not able to challenge it for many years. The vagaries of three centuries of economic progress and political changes, associated with the considerable development of railway and road transport have limited its benefits. Revolutions and the French Republic weakened its position. Its owners were obliged to sell their property to the French State, because they were engaging in bad business and the government of the 19th century insisted control of all means of transport in the event of possible wars. Its sale resulted in contradictory analyzes that enable to take on the old techniques of evaluation of assets with very long operating timelines. It is also an interesting case of application of institutionalism and neo-institutionalism, which seek to explain the influence of the institutional environment - - here the State government, and French republican institutions – on the Organizations - here the Canal du Midi companies -.

Keywords: Arbitration - Waterways - Railway – Contestable market - Natural monopoly – Neo Institutionalism - Methods of valuation - Perpetual annuity.

1 - Introduction

The study of major projects in infrastructure is of interest to historians regarding business, finance and accounting for many reasons. Unlike in the battlefield, which highlights the affluent characters (kings, governments, marshals and generals) - and chronicles of the daily life, major projects can be the subject of multi-dimensional analysis and can acknowledge both the important characters and smaller players. Some major projects are of utmost interest, like space exploration or travel to the moon, but they are largely embroiled in the confidentiality of national defense agencies and departments. There are other major projects that exist that could be called as interesting but have the advantage of archives which are available to the public - the waterways are of this kind. For the French and international cases, the archives of the Suez Canal, the Panama Canal and the Canal du Midi are accessible to historians. We previously looked at these three channels, but we analyze in this article a one- off episode in the life of the Canal du Midi in the South of France1: the period between 1897 and 1901. Where its traditional owners, the founder's heirs, were forced to relinquish ownership of the canal for the benefit of the French State. This was the culmination of several factors that should be studied - and the ways in which it occurred it took place also deserves some attention. The Canal du Midi made an impact that was as much political as it was economical, which make it of international, as well as national interest. For a long time - in the tradition of the French (and European) monarchy, sovereigns and generals who represented they seized properties abruptly. Here, the Government has made the effort to establish arbitration and democratic devolution, which is more consistent with our modern life than the previous periods with the roughest devolution. The Canal du Midi has been the cause of much change in the economy of the South of France, and several authors mentioned its origin and early years of commercial exploitation (Andreossy, 1880; Tassot, 1912; Rolt, 1973; Mukerji, 2009; Chatillon, 2012). The channel has 328 architectural works, including 63 locks, 126 bridges, 55 aqueducts, 7 canal bridges, 6 dams, 1 outfall and 1 tunnel. In between 1897 and 1901 the pivotal change in status from having been privately owned to public waterway occurred. How did such a litigated transformation of a work of art that was 216 years old in 1897 and whose status derived from the old French law survive the of 1789 and the revolutions of 1830 and 1848. This is what we will try to analyze, mobilizing the results of institutional theories (Weber, 1905, 1921), and neo-institutional (Scott & Meyer, 1983; Powell & DiMaggio, 1991). The acquisition of the Canal du Midi is a good example of process for organizations and bureaucracy to ensure their leadership on a specific economic activity. For this work, I have consulted the archives of the Canal du Midi in , at the headquarters area of the public institution of Waterways, essentially, and from time to time the National Archives of the working world history (Mi Series 189, 78 AQ) in Roubaix, print archives from the National Library of France (François Mitterrand National Library, Paris) and many newspapers and magazines of this time. I have also consulted financial mathematics textbooks published at the time (French Encyclopedia of Diderot and d'Alembert, 1751-1772; Juvigny, 1840; Charlon, 1878; Labeyrie, 1878; Mary, 1890), which has often inspired courses in business schools, especially the Higher Commercial School in Paris (Hautes Etudes Commerciales). To gain a clearer insight we have identified some key dates for the Canal du Midi.

1 Under the reign of Louis XIV, King of France, the construction of the Canal du Midi, was estimated 18 million French pounds, equivalent 60 millions gold-francs. It was the second major project after the Château de Versailles. - 2 -

Table 1 – Key dates for the Canal du Midi

Date Event Political Head of Officer situation of State in charge of France the waterway June 29, 1609 Birth of Pierre-Paul Riquet, Bourbon Henri IV Duke of Sully designer of the Canal du Midi Monarchy King of France Chief minister November 15, Preparation of the construction Bourbon Louis XIV Jean-Baptiste 1662 plan by Pierre-Paul Riquet, 53 Monarchy King of France Colbert years old Intendant of the finances January 1st, Initial construction Bourbon Louis XIV Jean-Baptiste 1667 Monarchy King of France Colbert General comptroller of finances May 24, 1681 Opening of the Canal du Midi Bourbon Louis XIV Henri François Monarchy King of France d'Aguesseau Chancellor Year 1714 Management of the waterway by Bourbon Louis XIV Nicolas Jean-Mathias, eldest son of Monarchy King of France Desmarets Riquet (two thirds of the share) General and Pierre-Paul of Caraman, comptroller second son of Riquet, Lieutenant- of finances General of the Armies (one third of the share) Year 1789 First year of French Revolution. French Louis XVI Jacques Necker Thomas Jefferson, architect and Revolution and King of France General ambassador of the United-States Constitutional comptroller whishes to construct a similar Monarchy of finances channel to connect Potomac river and Lake Erie Year 1792 The heirs of P.P. Riquet French Revolutionary Leadership by emmigrate and the Government Revolution, national Girondins of the First Republic confiscate 1st Republic Convention Deputies the canal and two-thirds of the shares. The younger branch of the family retains its rights March 10, Creation of the Canal du Midi 1st Empire Napoléon 1er Martin Michel 1810 company by Napoleon 1st and Empereur Charles Gaudin allocation of shares Finance Minister July 8, 1852 Promulgation of Law granting the 2nd Republic Louis-Napoléon Pierre Magne concession of the Company of the Bonaparte Minister of Canal du Midi and the South President public works canal latéral à la Garonne for 99 years August 24, Concession agreement with 2nd Republic Louis-Napoléon Pierre Magne 1852 , James de Bonaparte Minister of Rothschild and Adolphe Eichtal President public works - 3 - April 2, Opening of the railway 2nd Empire Napoléon III Noël Lefebvre- 1857 Bordeaux-Sète by the Company Emperor Duruflé of Railway of Midi Minister of public works May 29, 1858 Imperial decree granting 2nd Empire Napoléon III Noël Lefebvre- the Canal du Midi to the Emperor Duruflé Company of railway of Midi for Minister of 40 years public works November 27, Purchased by the State 3rd Republic Félix Faure Adolphe Turrel 1897 promulgation of the Law of Président Minister of November 27 public works Years 1920 Restoration of channel activity 3rd Republic Raymond Yves Le with the introduction of Poincaré Trocquer motorised barges President Minister of public works October 16, Devolution of Public office 4th Republic René Coty Auguste Pinton 1956 Waterways of France VNF President Secretary of State Décembre 7, Canal du Midi enters the world 5th Republic François Bernard Pons 1996 heritage of UNESCO Mitterrand, Minister for President Infrastructure Source : Author

The imperial decree of 1858 (See above Table 1) had a negative influence on the archives of the Canal du Midi. Indeed, from that date, the Canal du Midi Company2 had left the management of the canal to its competitor: the Company of the Railways du Midi and of the Canal de Garonne. It was created in 1852, had completed construction of the Canal de Garonne started by the State in 1838 and had to build the railway line from Bordeaux to Sète and exploited both the railway and the canal. In a lease signed for 40 years, the archives of the Canal du Midi remained in the reserved area of the owning company. There was a breakdown in communication and for 40 years the documents were rarely archived where they ought to be but instead were stored in the Head Quarter's of the railway company, with some deposited at Roubaix Archives of Labor. The granting of the lease resulted in the loss of some of the documents but the core collection of documents produced until 1858 is fully preserved in Toulouse. We will now study the struggle between two natural monopolies and the ultimate success of the railway, as well as the objective of successive governments to ensure national security and control of all means of transport. Then, we will discuss the conditions of contradictory evaluation and the State control of the Canal du Midi in three steps.

2 Important: The Canal du Midi Company, called, in French Compagnie du Canal du Midi, is the first company, founded in 1810 by the Emperor Napoléon 1st. It is a waterway company. The Railway Company du Midi (and du Canal de Garonne) is the second company, called in French Compagnie des chemins de fer du Midi et du canal latéral à la Garonne and founded in 1852, when Louis-Napoléon Bonaparte was President of the 2nd French Republic (Emperor Napoléon III after December 2, 1852). It is the Railway Company, who manages and controls the waterway after 1858. - 4 - 2 - The struggle between two natural monopolies and the ultimate success of the railway

2.1 Waterways, a means of transport without competition In Antiquity, waterways played an irreplaceable role, including for civilizations such as the Roman Empire which built a network of remarkable land routes. It was possible to go from Bordeaux to Rome by using Roman roads, crossing the city of , in Gallo-Roman Gaul, which were the home of Roman universities. The Garonne River and its tributaries is present over a large part of the journey, and they conditioned the activity of several towns and villages, and in particular the city of Toulouse (Minovez, 1999, p. 571-577). The organization of river systems in the south of France was current in the seventeenth and eighteenth centuries, but the Garonne River was navigable in part and it had overcome its constraints and limitations. The river, and later the artificial waterways were used primarily for the transport of raw materials: wood – for carpentry or for fire - stone, marble, limestone and coal. It is only rarely that ships were carrying wheat, fruit, animals and semi-finished products (wool, fabrics, tiles, slates). There was also some regular transport of passengers, from 60 to 80 people, from Cazères, Carbon to Toulouse (Minovez, 1999). Boats could sail with limited weight: 160 tons maximum. This system was well suited to a traditional society based on trade, crafts and on the transformation of crude products. The Encyclopedia of Diderot and d'Alembert, in the article "Artificial waterway" (Diderot, d'Alembert, 1751, Volume 2 p. 582) recalls that one of the oldest French canals, the Canal de Briare was begun under the reign of Henry IV and was founded in under that of Louis XIII. Its construction lasted from 1605 to 1642, it sometimes required the work of 12,000 workers and was the first channel with a forebay sharing. We give in the appendix the dates of commissioning of 20 major French waterways. The waterways were a means of transport in sharp decline in the nineteenth century, although they already had a natural monopoly, due to incresing profitability, economies of scale and the importance of their infrastructure. Industrial revolutions would destroy them with their goals of mass production, short deadlines and trade intensity. Men working on rivers and canals were poorly organized, hauling systems were varied and expensive locks did not allow for a quick transfer. All these factors were resulting in a lack of competitiveness.

2.2 The rise of the natural monopoly of the railway "The arrival of the railway in this area was the death toll of the waterway transport business" (Minovez, 1999, p. 587). The Canal Lateral à la Garonne, an extension to the Canal du Midi, was obsolete almost before commissioning, a canal project in the was never built, no more than ship canal capacity, may connect Bordeaux to Narbonne and allowing large - 5 - commercial vessels and tonnage of warships to pass from the Atlantic to the Mediterranean. The budget was never allowed France to build such a canal, technically near the Suez Canal. One of the strengths of the central river navigation, was the important demand and trade of the city of Toulouse, even if the city of Toulouse boasted of becoming an important railway junction in the center of a dense network, and the city, despite the involvement of the Chamber of Commerce in the nationalization of the canal, ended up preferring the railway, after many battles and much procrastination. The railway had its novelty as a main advantage, its modernity, and its adaptation to industrial techniques of the nineteenth and twentieth century. Its characteristics make it a natural monopoly and even a double natural monopoly (Numa 2009). These activities require costly infrastructure that only the public sector can provide. In addition, in order to survive, the natural monopoly should be able to perform its production with increasing returns, the development of production or service resulting in a distribution of fixed costs over larger volumes and lower average cost of providing or distribution (Sharkey, 1982, p. 21-27). It is therefore necessary that the incumbent monopoly can satisfy all consumers while remaining competitive. This ultimate state of natural monopoly had not been reached by waterways and they had a monopoly within the meaning of questionable Baumol (1982) and Baumol, Panzar and Willig (1982). The emergence and development of the rail network has challenged the monopoly of waterways which also began to face competition from the road. We were in the presence of a struggle for life between two natural monopolies, the waterways and the railways. Gradually, the railways would supplant waterways. Their role has been particularly studied by Walras, rooting his demonstration in the history of railways. He distinguishes monopolies of public services, and economic monopolies, which can be controlled or licensed by the state but which are fundamentally private activities (Walras, 1875). The competition between waterways and railways began with Emperor Napoleon III. Louis-Napoleon Bonaparte was exiled in England, and took advantage of the revolution of 1848 to return to France, to be elected a member of the National Constituent Assembly June 4, 1848. Then he was elected President of the Republic by universal suffrage, on December 20, 1848. Limited in his powers by the Constitution, he became emperor of the French on December 2, 1852 by a coup d'Etat that ended the 2nd Republic (Milza, 2004). During his reign, the French economy caught up with England in terms of economic, commercial, and industrial assets. One of the leading sectors of this success is the railway. In 1851, France had built three times less railways than England (3500 km against 10,000 km). Napoleon III and his Minister of Public Works, Pierre Magne, reversed this trend at the end of the empire in 1870, when France had 20,000 km of track, serving all French major towns. The railway is preferred, but the road is not neglected, and waterways, although fading into the background, are not abandoned, and multiple canals will still be built, such as the Canal de la Marne au Rhin finished in 1853 and the Canal de l'Aisne - 6 - à la Marne year ended in 1866. Some stakeholders, such as the Chamber of Commerce of Toulouse, always accused Napoleon III to be subservient to the railway. The Chamber of Commerce of Toulouse always considered Pierre-Paul Riquet and his work, the Canal du Midi, with respect, and it always tried to use the channel to help the region. It had, in this sense goals and interests diametrically opposed to those of the heirs of Riquet, who established in 1851 a pricing system that resembles our modern yield management (Ingold and Al, 2001). Riquet's heirs had set up in 1851 a preferential tariff sought to attract distant customers, taking long trips on the canal, which was very high for the captive residents. The Chamber of Commerce of Toulouse fought on two fronts: it campaigned against the Railway Company du Midi, outraged by the concession which it had received on the canal since 1854. Controlling the Canal du Midi and the Canal Lateral à la Garonne, it tried to ruin them and members of the Chamber of Commerce of Toulouse were well aware of it. The House of Representatives tried for 40 years to nationalize the Canal du Midi and it could savor its victory in 1897, according to the law of purchase. The French State became the owner, the two channels entered in the public domain and the users of the two channels stopped paying high taxes. But the railway network still had a decisive advantage. The Canal du Midi Company had obtained ownership of the Canal du Midi after the decree of 10 March 1810, which allowed it to give rent to the Railway Company of Midi, who also owned the Canal Lateral à la Garonne. The planned duration of the lease was 40 years and was subject to strict conditions such as the obligation to pay debts existing at the time of the lease, and manage and pay for improvements to the canal. The Railway Company du Midi was used to divert the customers of the waterway shift to railway.

3 - The Aim of successive Governments to ensure national security and control of all means of transport

States take advantage of economic activity and have never been indifferent to natural monopolies. To exert its control, the State is likely to use two leverages: the nationalization of infrastructure (canals, railways, sources of energy) or regulation power. In the management of communication waterways in the nineteenth century, the French State, represented by the Government of the Second Empire or the Government of the 3rd Republic used both. In the quoted article of Walras (1875) the author states that the railway is a public service, but it is also very useful to national defense. This is an essential pillar of civilization and progress. Without doubt, these views where by the French Government, who had studied so thoroughly the structure of the national railway to balance the economic benefits of this means of transport with strategic military constraints. The Government probably remembered that one of the key successes of the campaign in Italy led by Napoleon III in 1859, which led to the - 7 - liberation of Lombardy and the Austrian defeat following the occupation of Piedmont, was the ability to quickly transport troops and equipment by rail. Despite opposition from public opinion, Napoleon III continued his efforts to organize the military use of railways. In March 24, 1869 he establish a "Central Commission Railway" and place, three days after the declaration of war, on July 22, 1870, four sections of railway campaign units under the command of the General responsible for the engineering armies. The railroad was not only an asset to the belligerents, it also brought to the civilian population the ability to move quickly from one territory to another, which was impossible with other means of transport. The French Government, either the Emperor or the Republican MP, were convinced that the current use of trains by passengers would allow them to rebuild a popularity which was often low. But the need to be popular also meant that one does not ignore the problems of waterways, which had, in many areas, some economic benefits. The economic benefits were important in the north of France, where the river network was dense (Merger, 1990), but the few residents of southern canals, the Canal du Midi and the Canal Latéral à la Garonne, in particular, could not be completely abandoned by the public. This gave them measured attention, which was not a priority, but they had some. A first attempt to totally control the waterway happened in 1844 from the Administration of Domains of the State, but in a judgment dated August 20, 1841 they recognized the rights of the heirs of Riquet on the channel. The Administration of the Domains of the State brought the case to the Supreme Court in 1844 , and the Court , in a judgment of April 22, 1844 recognized that "the right of the channel being neither subject to redemption or federal in nature, should not be subject to the law of 14 Ventôse an 7 (March 4, 1799)3". According to the Supreme Court, the Judge of 1841 recommended "a sane application of the principles on the matter" (Tassot, 1912). The financial situation of the Canal du Midi is good until 1852, date of the concession of the channel to the company of railway of Midi which we spoke about earlier. This grant awarded under the influence of a lobby of 53 MPs representing 12 departments of the South, with 400 deliberations councils and chambers of commerce, allowed the French State to obtain the construction of a railway, without having to build it itself , and save 100 million French investment francs (Deffès , 1891, p. 19). After delegating to a private company the build of an important line of the railway, the State just had to acquire on a contractual basis, guided by the urging stakeholders, what the Administration of the Domains could not get in 1844.

3 The law of 14 Ventôse 7 (4 March 1799) is the law that regulates the rights of former owners of the Civil Domains of the State. It was applicable to land alienated rights and personal commitments and concessions areas, Collection complète des lois, décrets, ordonnances règlemens, avis du Conseil d'Etat depuis 1788, Volume 22, J.B. Duvergier Paris, Guyot et Scribe éditeurs, 1838. (Archives of Harvard College Library). The owners of the Canal du midi have never done any statement or submission to prove their ownership (Tassot, 1912, p. 64). - 8 - 4 - Contradictory evaluation and State control of the Canal du Midi in three steps

The contradictory valuation and State control of the Canal du Midi is a good example of one of three typical forms of domination and legitimacy studied by Max Weber in his work on the Economy and Society (Weber, 1922), and the legitimacy legal-rational. The State bureaucracy, represented by senior civil servants, is a form of domination by some officials, recruited for their competence, working in a corporate world where they do not obey their superiors as a person, but impersonal that these orders can their forward here through the highest political authorities. This approach may implicitly be supplemented by reference to the work of Meyer and Scott (1983), and Powell and DiMaggio (1991).

As we mentioned above, some important stakeholders using the Canal du Midi, such as the Chamber of Commerce of Toulouse, or simple waterway users, never accepted the text published on 8 July 1852, by which the Government of Napoleon III granted the Railways Company du Midi, the line from Bordeaux to Sète4 and the Canal Latéral à la Garonne for 99 years and, in addition, by the decree of 21 June 1858, they have always challenged its legality. The Imperial Government authorized the Railway Company du Midi to collect tolls on the Canal Latéral for 40 years, until June 30, 1898 (Deffès, 1891 Union for purchasing canal, 1896). Two years before this date in 1898, the opponents to the Railway Company were mobilized, and they finally succeeded under the Government of the 3rd Republic: the nationalization of the waterway.

Before the process, the Minister of Public Works, Adolphe Turrel5, General Inspector of Roads and Bridges, send a telegram to the Director of the control of the Railway Company du Midi, Mr. Léthier – on July 4, 1896. Let us recall some excerpts of this letter (Rachat du canal, p. VI):

"When I joined the Department of Public Works, I was concerned about how to put an end to the serious harm that the current channel is experiencing in the South and the

4 The Minister of Transport filed a bill on the grant of a Bordeaux-Sète line, for 75 years, with a grant of 320,000 francs per kilometer of tracks built. The first concession was granted on June 17, 1846 to the Company's railway of Bordeaux to Sète, founded September 24, 1846 by MM. Ezpeleta and Tarbé de Sablons, friend of the Pereire brothers, but French and English shareholders could not release the capital they have subscribed. The company was dissolved on July 31, 1847 and its forfeiture was declared by the Ministerial Decree of 21 December 21, 1847. (Archives, Roubaix CAMT, 78 AQ 1). 5 Adolphe Jean Eugène Napoléon Turrel, 1856 - 1945, was a MP representing the Aude department from 1885 to 1898. As Minister of Public Works in the Government of Jules Meline (2 April 1896 - 28 June 1898) he signed the law of purchasing the Canal du Midi, on November 27 1897. He is also the author of the law of 30 March 1898 which created the Paris Metropolitan (Underground). - 9 - South West. Whereas all other channels are free and offer open trade and offer freight which, more often lowering the long haul to 0.01 French francs and even below average is 0.015 or 0.02 French francs per ton/kilometer, the Canal du Midi and the Canal Latéral à la Garonne are subject to rights that, on average, reaching 0.06 French francs per ton/ kilometer for certain goods and, on average, exceed 0.03 French francs: these rights, in addition to freight, are likely to restrict traffic. If tolls were abolished simultaneously on both canals, the traffic would certainly increase. The agriculture and industry in the South West would not only benefit from a decrease in the price of transport, they would also particularly benefit from the exploitation of natural resources that the high cost of transport has neglected so far, and that the low prices would develop by opening new fields of activity".

The question of the emancipation of the canals of the South has a tremendous economic importance. The Minister of Public Works then refers to the law of August 5, 1879 (the Freyssinet law), which provides not only the opening of 181 local railway lines representing 8,848 km of track, but the development of channels and their locks to a standard template 40 meters long and 5.20 meters wide, will be for many years, the template of the French Boats channels. The buyout of the Canal du Midi by the State begins with the signing of two agreements on Nov. 3, 1896, the one with the Canal du Midi Company, the other with the Railway Company du Midi and Canal Latéral. The first convention6 finds the agreement to buy out the Canal du Midi by the State from July 1st, 1898 with subrogation in the rights of the company, excluding cash on hand, stocks in the portfolio and its claims (Article 2). The compensation for dispossession will consist of a perpetual annuity the amount of which shall be determined by an Arbitration commission, charging the state to pay pensions to retired employees of the company. The second deal7 provides for the handover from July 1st, 1898, to the Canal Latéral à la Garonne, with subrogation to the rights and obligations of the Railway Company du Midi. Until full repayment of the debts of the company to the State, the interest rate was 4% and will be reduced by only 3%. Officers attached to the side channel will be dedicated to service the Canal du Midi. The agreement also set tariffs for the transportation of goods on the railway line between Bordeaux and Sète. On October 26, 1897, the bill was adopted without amendment by the House of Representatives and then by the Senate. The law of purchase, passed on November 27, 1897, was promulgated on December 3, 18978. The Canal du Midi had a special fate: for other channels that have been redeemed, the Arbitration

6 Official Journal of the French Republic, December 3, 1897, p. 6767. 7 Official Journal of the French Republic, December 3, 1897, p. 6767-6768. 8 In Official Journal of 3 December 1897, which is published the Law of 27 November 1897, p. 6766- 6768 the two conventions of November 3, 1896 are annexed to the law.

- 10 - commission gave its opinion before the purchase (Tassot, 1912, p. 159). For the Canal du Midi, the law of purchase was enacted in 1897 and the State took possession of the canal in 1898, but the Arbitration committee submitted its findings on February 1st, 1901, two and a half years later, which is curious from the point of view of strict legality, but it shows the difficulties for both parties to reach an agreement. Most of the work and negotiations were made in the context of the Arbitration commission charged with evaluating a contradictory manner the purchase price of the canal. The Canal du Midi Company edited some documents and specific considerations to appreciate the value of the waterway, and filed these on April 15, 1898. In response, the State, represented by J. Lax, the General Inspector of Roads and Bridges, the director of control on Midi sector and his lawyer C. Bernier, filed its initial findings on April 20, 1899. The Company du Midi presented its objections to the report of his lawyer R. Rousset to the Arbitration Board October 27, 1899. The second findings of the State against the Company Canal du Midi, accompanied by 12 appendices were filed on 25 September 1900. Let us examine the contents of these four documents.

4.1 The initial submissions of the Company Canal du Midi

According to the Canal du Midi Company, The main Canal du Midi, ownership consists of 1292 shares at the time of purchase, but also of auxiliary canals. Associated revenues only belong to the first 1,000 shares created in 1810. The rights of the French State in the auxiliary waterways are 938 shares (1 000 to 62 free actions [3° in table 2], which have been the subject of a final disposition). Before analyzing the claims of the Canal du Midi Company, a partnership company, let us remember that it was owned by several shareholders:

Table 2 – Shareholders of the Canal du Midi Company

Shareholders holding shares created by the decree of Napoleon I, on March 10, 1810, creating the Canal du Midi Company 9 1° Shares called Caraman10, having final return of property 700 595 shares in the family, to the Caraman branch of Riquet's heirs shares 165 outside

9 By a decree of 21 March 1808, Napoleon ordered the sale of the first portion of the Canal du Midi, the State-owned (23 shares and a half) for a price of 10 million French francs by decree of 7 February 1809. The property has been divided into one thousand shares of 10 000 francs each by the decree of 17 May 1809 and by the decree of January 28, 1810, the Emperor transferred this property in his special heritage, to reward those who had rendered distinguished services to the French nation. Finally, by the Decree of 10 March 1810, the Emperor met the shareholders in a limited partnership called Canal du Midi Company. The general meetings of the company were presided over by the Grand Chancellor of the Legion of Honor and the chairman was appointed by the Emperor on the proposal of the Chancellor. 10 The Earl of Caraman is a son of Pierre-Paul Riquet: Pierre-Paul Caraman, from the name of a fief which he had acquired. He was a Lieutenant General and the Commodore of Provence. - 11 - 2° Shares allocated to grants by the Emperor 238 Of which 100 shares shares allocated to General Massena 3° Shares called free shares originally allocated to the 62 Shares finally sold completion of the Louvre Castle and sold in 1812 shares

Number of shares at the creation of the company 1000 shares

Shareholders holding shares created by the royal decree 11 of April 25, 1823

4° Shares called Bonrepos 12, created in 1823 in favor of 292 Plus a fraction of the Bonrepos heirs branch; 52 shares have been split shares 3077/10000, 181 shares to into ten thousands that can be neglected. the family, 111 outside of it Total number of shares issued 1292 shares Source: Report of April 15, 1898, Canal du Midi Company

4.1.1 The company of the Canal du Midi against the French State

The agreement between the French State and the Canal du Midi Company is the result of difficult negotiations that took place from 1897 to 1901. The financial knowledge of the time allowed having equally logical multiple approaches. The evaluation of compensation payable to shareholders of the Company du Midi could be effected by various methods. 1) It could withhold evaluation costs, including the cost of start-up costs, plus the cost of expansion or improvement subsequently executed. 2) It could also a use method of flow evaluation, analyzing the income derived from their property dealers, or by analyzing the value of return to shareholders, regardless of time, or over a limited period of time, 5 years or 10 years, for example. It could finally use relative or comparative evaluation, applicable to comparable cases. The state passed a law on May 29, 1845, which included the acquisition and compensation for the private owners of canals. But the law of May 29, 1845, which laid down the procedure for the purchase of channels, had no specific rule in this regard in case of arbitrage, and in the interest of arbitrators, left them free to accomplish their mission. The three methods mentioned above, property evaluation by cost assessment of revenue streams, and analogue assessment methods, are still widely practiced today, even if they are in

11 Under the Bourbon Restoration, the royal decree of 25 April 1823 decided that the heirs of the branch Bonrepos would become part of partnership and attributed 292 new shares to them. The administration of the royal estates disputed in 1843 the ownership of the canal, but the Court of Appeal of Toulouse in 1843 and the Supreme Court in 1844 confirmed the shareholders in their right, but also the French State in its ownership of auxiliary canals. 12 Jean Mathias, Baron of Bonrepos was another son of Pierre-Paul Riquet. The Caraman and the Bonrepos were therefore two collateral branches of the heirs of the canal builder Pierre-Paul Riquet.

- 12 - competition with others, such as the method of discounted cash flows or real options method (Institute of Chartered Accountants, 2012).

One year before the Act of May 29, 1845, by the decree of April 22, 1844, the shareholders of the Canal du Midi Company had been granted the absolute property of the waterway, and the incorporation of the company remained as it was established by the imperial decree of 1810 and the royal decree of 1823. The economic situation of the canal remained prosperous until 1852 (Tassot, 1912, p. 119). Between 1832 and 1856, the Canal Latéral à la Garonne was launched and the site was finished at very high cost. It had cost 60 million French francs as before its commissioning,. Meanwhile, a law of June 17, 1846 had granted the rail line Bordeaux-Sète to a company that had paid a deposit of 5 million francs it lost when its forfeiture was pronounced, because it showed its inability to build and operate a railway line. The government experienced great trouble in finding a replacement dealer, probably due to the fact that the Bordeaux-Sète line did not go through Paris, and would have reduced activity. Finally, the Company du Midi Railway obtained the concession line and the Canal Latéral à la Garonne, plus a grant of 51.5 million francs, or 798 km of tracks for a grant of 64,000 francs per kilometer, which was very below the grants awarded in particular to the PLM Company for the journey Lyon-Marseille-Toulon, where each kilometer was subsidized for 287,700 francs. As soon as the operation of the railway and the side canal was active, the Canal du Midi went into bankruptcy: its turnover decreased from 2,447,500 to 778 000 francs, 50,000 francs below the level to cover its operating expenses. In this desperate situation, May 29, 1858, a treaty merged the canal to the Railway Company du Midi. It provided for the payment of 853,000 francs a year to the heirs of Pierre-Paul Riquet, the canal builder. The laws and decrees of 1852 and 1858 consecrated the monopoly of the Railway Company du Midi for transport in the South and South-West of France. On July 7, 1883, there was an attempt to release the Canal du Midi made by MM. Achard (MP of Gironde) and Constans (MP of Haute Garonne) to obtain: - The expropriation lease of the Canal du Midi; - The purchase of the Canal; - The return to 1852 rates on the Canal Latéral à la Garonne. Members of Parliament were aware that the Railway Company du Midi considered both channels under its control, rather than as assets to preserve and develop, but as "weapons of competition that must be destroyed" (Tassot, 1912, p. 140). But this project was strongly rejected by Mr. Raynal, Minister of Public Works. The release of the two channels was nevertheless inevitable since the Act of 21 December 1979, and was postponed until June 30, 1898, as state officials believed - wrongly - that the end of the lease would make the purchase easier and cheaper. At the end of the lease, the Company du Midi, compelled to make

- 13 - proposals, submitted to the State three valuations in its report on the Canal du Midi - specific documents and considerations to appreciate the value of the Canal du Midi.

4.1.2 The Valuation strategy of the company of the Canal du Midi

The company of Canal du Midi offers three methods of valuation, not very different from those we use today:

• Cost approach: The Company initially studied a valuation of the costs incurred since the beginning of the building of the canal. It had first spent 17,279,508 pounds13 with 5,067,626 pounds would have been paid by Riquet and the rest by the King and by the states of Languedoc. In 1898 currency, the heirs of Riquet estimated these costs at 35 million francs. To this they added up, up to the Revolution period, 3.8 million pounds of various developments, corresponding to 7,000,000 francs in 1898, and from 1792 to 1810, 3 million francs were added. Finally, from 1810 to 1858, the work would cost exactly 5,584,390 francs, for 4 periods, about 50 million francs, approximately14.

• Earnings-based approach: Given the shares' ownership and different mutations, the heirs of the Caraman family received at the time of the transaction, an annual dividend of 585 francs per share, those of the Bonrepos family received 570 francs, and the people given grants by Napoleon, 595 francs. The share of the state, bare owner of 600 shares from its rights on the auxiliary canals and the share allocated by the State to the Legion of Honor, corresponded to 10 francs per share, respectively, 6,000 francs and 1,000 francs. The Canal du Midi Company did not provide a flow evaluation from dividends or earnings per share, which could have been considered, but an overall assessment. In this overall assessment flow, the Canal du Midi Company offered a first sum of 1.4 million francs, obtained by taking 75% of the income earned between 1846 and 1856, and taking into account the theft carried out by the Railway Company du Midi, but in any case, if this sum was rejected by the State, the compensation could not be less than 1,090,000 francs, by reference to the lease of 1857, namely:

- A fixed fee of 980,000 francs - A load of 2 million loan of 3% 60,000 francs

13 In 1795, during the transition to the franc and the decimal system, a crown of 6 pounds equals 5.92 francs and a gold Louis of 24 pounds equals 23.68 francs, a pound was equivalent to 1.0125 francs, or approximately a tourney pound for a French franc, the exact ratio being: 101 tourneys pound and 5 tourneys soils = 100 French francs. Report of the Canal Company, second part of the purchase of canal, p. 111. 14 Exact amount: 50,584,390 francs, Report of the Canal Company, second part of the purchase of canal, p. 116. - 14 - - Pensions of employees 50,000 francs Total 1,090,000 francs

Finally, if the first two options were rejected, one should take into account the terms of the lease of 1858, which provided for an annual payment of 853,000 francs to the heirs, and included:

- A fixed fee of 743,000 francs - A load of 2 million loan at 3% 60,000 francs - Pensions of employees 50,000 francs Totaling 853,000 francs

In the arguments of the Company du Midi we see that income during the three periods to which it refers decreases significantly, and the choice of this method would not be an appropriate choice.

• Market-based-approach: The heirs had a third option, which we now call market-based methods, taking the example of the waterways previously expropriated and of the allowances which were paid. Such cases the purchase were of the Canal of Briare, the Canal from Aire to La Bassée, the Canal of Orleans and Loing (Act of 20 May 1863), the Canal from Roanne to Digoin (Act of 20 May 1863), the Concession of the Scarpe (Act of 8 April 1879) and the Canal of Givors (Act of 16 August 1836). For the Canal of Orleans and Loing the Arbitration board did not accept the annual income, but the initial value of the channel, the value of improvements and the value of trees, because the income of the canal had been depreciated with the construction of a railway. For the Canal from Roanne to Digoin, the Arbitration commission retained the sum of 150,000 francs or 50% more than his annual income. For the Concession of the Scarpe River the 5 million allowances included 2,599,189 francs to repair the damage caused by the competition with the Sensée River. The Canal of Givors has much in common with the Canal du Midi, except the essential: it is 20 km long and its cost is 12 times less expensive than the Canal du Midi and it is easy to understand that for a relatively modest sum, the state was not too severe.

The heirs of Pierre-Paul Riquet had no possibility to take into account inflation and currency depreciation. A macroeconomic statistical system did not exist, but the calculations of current values and values obtained were already known, and the problem of capital amortization, and their claims, in the light of the knowledge of the time and current knowledge, seems greatly exaggerated. The owners of the Canal du Midi Company concluded their reporting by - 15 - summarizing their favorite solutions: "the first, the only completely fair, which is to assess the income prior to the construction of the railway by subjecting it to a certain reduction, the second, a rigorous and strict option, which refers to the lease in 1857, and finally the third alternative, which is in keeping with the lease of 1858."

4.2 The objections of civil servants representing the French State It was easy for civil servants representing the State to hide behind the principle of the law of 27 November 1897 on payment of a perpetual annuity of 3%, the amount would be determined by the Arbitration committee constituted for this purpose, and according to the requirements of the Law of August 1, 1860 concerning the buyback of the Canal of Orleans and Loing. The Civil servants of the State, unconvinced, considered the Canal du Midi was losing revenue because of the importance of the railway, and it was not realistic to grant Riquet's heirs anything else than a minimal amount, which they amounted to 300,000 French francs. With the competition from the railway, the waterway revenues steadily declined:

- Net income per year 1859 - 1872 648,927 francs - Net income per year 1873 - 1882 653,488 francs - Net income per year 1883 - 1897 231,275 francs

We can consider that a normal operating canal, not limited by the railways, would reach a cost of 650,000 francs per year, or 2/3 of the demands of the "owners", but the reality is rather close to 300,000 francs, a third or a fifth of what was proposed by the members of the Company du Midi.

In addition, the heirs have no rights to many parts of the Canal du Midi, since the Revolution of 1789; they could not invoke the heritage approach. Before the Revolution, the property of the Canal du Midi was divided into 28 shares. The heirs of Caraman Branch (heirs of Jean- Mathias, eldest son of PP Riquet) owned 21 + 2/3 shares. The heirs of Bonrepos Branch (heirs of Pierre-Paul, younger son of PP Riquet) owned 6 + 1/3 shares (see Table 2). The heirs of Caraman Branch emigrated in 1792 and the National Convention of the French Revolution confiscated 21 + 2/3 shares they held. These shares constituted, in 1810, the assets of the Company Canal du Midi (Factum, 1900 Second Opinion of State, Appendix G, p. 350). The initial findings for the State against the Canal du Midi Company say that "now it is possible to remove, as they are struck by legal annulment, the first of the two modes and the three numerical bases of assessment of compensation for dispossession between which the company claims to be able to exercise its choice later, namely, the default quality of the plaintiff, the aforesaid valuation mode, and because of inconsistencies with the letter and the - 16 - spirit of the Convention November 3, 1896, the aforesaid digital bases", because the Company cannot legitimately claim all the rights of Riquet de Bonrepos. On the other hand, regarding the digital bases for valuation based on income, the demand exceeds the rights granted to the company. None of the three number bases can properly support the claim made by the Canal du Midi Company. The Company du Midi cannot assert definitely exhausted and long extinct rights. In front of differing proposals from both parties, the Arbitration commission had to make a decision. It studied the buyout of canals that were in the same situation as the Canal du Midi, granted in perpetuity: it was the Canal of Briare, the Canal from Aire to La Bassée, the Canal from Roanne to Dugoin and the Canal of Orleans and Loing. For the first three, the referees based their estimation on the average score of each concession for the past seven years, minus the two lowest ones, with an income capitalized at 4%. For the Canal of Orleans and Loing, belonging to the same owners, the commission took into account the capital value of the property with the primitive value of the canal, the value of the work performed and the extraordinary value of the trees. The temporary concessions of the Scarpe River and of the canals of Beaucaire and Radelle did not catch the attention of the Committee. The Canal of Givors, 20 km long, and granted in perpetuity, had cost 3 million and extraordinary expenses pushed to 9 million, but at the time of purchase, it had no activity. After a deprivation order made against the company's owner and an appeal before the Court, the convention was ratified by the Act of August 16, 1886, fixing the compensation to 2 million francs. All of these examples gave arguments to the Company du Midi, which we have seen claimed an annual income of 1.5 million francs, while state officials asked the Arbitration commission to assess the compensation to zero, based on the fact that this award was not a compensation for expropriation, and that the Company du Midi suffered no real harm. The Government also rejected the principle of the sunk cost of building, spent more than two centuries before. The only rational method for the state was estimated by income. But because of the destructive activity of the Railway Company du Midi, the profit of the Company du Midi was negative, since it was not possible to cover expenses.

4.3 The new proposal of the Canal du Midi Company Raoul Rousset, lawyer at the Court of Appeal recalls the conclusions of the Canal du Midi Company against the State, filed on October 27, 1899, the terms of the brief filed on April 18, 1898. Shareholders still considered that an assessment of the value of the canal to 50 million francs would be a minimum, as "an assessment of 50 million, corresponding to the amounts actually paid out, would obviously be less than the current value of the property, because of the already considerable added value gained by some elements of the property. "The defendants propose to assess the Canal du Midi with the cost-kilometer of Canal Latéral à la - 17 - Garonne: the former, built in a simple manner, cost 309,500 francs per kilometer, and the Canal du Midi only 207,468 francs. Evaluated according to this system, the Canal du Midi has a value of 75 million francs, excluding the cost of the works on the Black Mountain. If account is taken of these works on the Black Mountain, we should add 10 million, and the total was 85 million francs15. Another evaluation by the Company results in a lower but more accurate amount: 62,188,000 francs. The heritage evaluation cannot, according to the company, be paid by perpetuity of less than 1.5 million francs16.

To complete the second evaluation by income, the company reverts to the normal operation of the years preceding 1857 and shows an average profit of 1.9 million francs. The appearance of the railway lowers the amount to 40%, and should be amounted to 1,135,000 francs, close to 1,090,000 francs offered by the Company Railway Midi in rent in 1857. Summing these three values, the lawyer argues for an assessment income of 1,100,000, corresponding to the "income generated by the normal operation of its waterways." The analog method is abandoned, and the lawyer asks the Arbitration board set to a 1.5 million annuity of 3% required by the law of 27 November 1897, or – to the largest extent - to 1.3 million, the average between 1500 000 and 1,100,000, representing a capital of 50 million francs in the first case and a capital of about 37 million in the second.

4.4 -New arguments of civil servants representing the State and the final award

After an interminable development of arguments in favour of the State17, the civil servants representing the State suggested that the State should pay the pension rights of the employees of the canal up to 547,000 francs, and possibly acquire portions of the private company out of court, including easements and compensation for 46,395 francs. The representatives of the State (C. Bernier, lawyer and J. Lax, Inspector General of Roads and Bridges) required the Arbitration commission to quantify the amount of zero compensation for dispossession under the law of November 27, 1897. After the counter proposal of October 27, 1899, the representatives of the State made a very detailed study, year after year, of the development works on the canal, before leasing, from 1827 to 1857 and after farming, from 1859 to 1897 (Ministry of Public Works, 1901, Annexes V and VI). They also studied the dividends received by shareholders, using company records and ledgers. Neither party has assessed the value of the channel from the dividends paid to the shareholders although information was

15 Conclusions for the Company du Midi against the State, evaluation by the substance of the canal purchasing, p. 177-178. 16 This gives a capital of 50 million francs for a perpetual annuity at 3%. 17 The second Opinion to the French State against the Canal du Midi Company, Purchasing, p. 185- 212. - 18 - available, and the method was already known (Charlon, 1878; Marie, 1890; Brasilier, 1891). The archives of the Canal du Midi in Toulouse include the registers of voters dividends and the second findings of the State against the owners of the canal recall, in Annexes G - G and I - II (Redemption channel, p. 350 - 354), the payments made from 1810 to 1898, the first period starting in 1810 to 1858, prior to the lease of the canal, and the second from 30 June 1858 to 30 June 1898, which is part of this lease. The following exhibit summarizes these two periods:

Table 3 - Distributed dividends from 1810 to 1898 by the Canal du Midi Company (In current French francs) Distributed dividends by the Canal du Midi Company Years To heirs of To 1000 owners of original shares Bonrepos 5 % Residual Total Income Total branch Preferred dividend accrued for dividend (Super in% Company (Premier dividende) per share dividende) From 1810 to 15 389 434 24 500 000 28 690 000 52 940 000 529,40 % 68 329 434 June 1858 From July 6 668 596 20 000 000 3 947 620 23 947 620 239,47 % 30 616 216 1858 to June 1898 Totaling 22 058 031 44 250 000 32 637 620 76 887 620 768,87 % 98 945 651 Source: Purchase of the canal, the State Second conclusions to the State, Appendix G - I, p. 353

Appendix G explains why, in the opinion of the civil servants of the State, the shares had no value at the time of negotiation, after the distribution of reserves. If the company, using caution, had cushioned the nominal value of share capital, it could have made it in 88.5 years from 1810 to 1898. Indeed, if we name x the average rate of dividends received each year, and a1, a2, a3, ..., a89 the annuities actually paid from 1810 to 1898, the value of x is the solution of the next equation, where C is the initial capital: - 2 - 87 - 88 C = a1 + [a2  (1 + x)] + [a3  (1 + x) ] + ... + [a88  (1 + x) ] + [a89  (1 + x) ] The initial paid capital C is equal to the sum of the present values of the dividends received during 88.5 years, calculated in compound interest. If we replace the terms ai by their value expressed as a percentage of capital, by solving the equation of the 89th degree by interpolation, we find a value for x of 0.098 or 9.80%. On average since 1810, the shareholders received an annual dividend of 9.80% of the nominal value, and the company could have easily created a reserve fund designed to cushion the initial capital. Since this was

- 19 - not done, the shareholders – in the opinion of the civil servants representing the State - recklessly consumed themselves their capital and the State had no reason to pay a second time.

On February 2, 1901, the Arbitration Commission18 appointed by the Government awarded the company the Canal du Midi, 750,000 francs with 3% with effect from 1st July 1898, without giving the reasons for or the details of its decision. The members of the committee met the day before February 1, 1901, favored giving out an indemnity between 900,000 and one million francs for some and between 200,000 and 300,000 francs for others. On February 2, the members of the commission noted that the basis of calculation used by the company of the Canal du Midi was too old to be retained, and the forecasts of future results had "a too speculative character to be the basis for a legal decision"19. Presumably the commission merely did a simple arithmetic mean between the claims of the Company du Midi, who wanted to get a pension of 1,500,000 francs and the state, who wanted to pay nothing. The final award reads: "The Commission, based on these various considerations, decides that the compensation for dispossession due to the Canal du Midi Company will be a title of 750,000 francs enjoyment with 3% on July 1, 1898, through which all accounts pending or reserved between the State and the Company will be finally settled, without any addition or reduction being made for any reason whatsoever". The arbitration court refused to rule for compensation to be awarded to the Legion of Honor, the beneficiary of a portion of the revenues of the canal, and said it was for the company to address this problem. For both waterways, the Canal du Midi and the Canal Latéral à la Garonne, the French State also supported the staff and maintenance, which was net of Frontier income, an extra outlay of 1 million francs.

We may wonder if, in the acquisition, there was a winner and a loser, or if the contract was fair. With the lease of 1858, the Company du Midi received 853,000 francs per year, given the borrowing costs and the already paid pensions. The gross income for shareholders was equal to the fixed fee, or 743,000 francs. The pension granted by the arbitration panel, 750,000 francs is quite consistent with this, if we ignore inflation and currency depreciation. In 1897, the spending on maintenance and administration of the Canal du Midi amounted to 680,410 francs, and the total revenue of 789,994 francs, that is a net income of 109,584 francs. By deducting 110 000 francs for expenses from the farming company, there is a significant deficit

18 The meeting of Saturday, February 2, 1901, open 15 hours, was the 11th meeting of the Arbitration Board. Were present MM. Ballot-Beaupré, President, de Bellomayre, Boutan, Delmas, Holtz (General Inspector of Bridges and Roads) Houette (General Inspector of Finance), Rousse, de la Tournerie and Colson (State Councillor, acting secretary). 19 Minutes of the 11th meeting, Arbitration Board, February 2, 1901. - 20 - of 410 francs. If we take the result of the last year, the benefit of shareholders would be: 750,000 + 410 = 750,410 francs. If we take the previous year, or the average over the total time of lease (between 1859 and 1898) the figures are more important: the order of 470,000 francs a year. But these figures do not take into account the determination of the Railway Company du Midi to destroy the economic activity of the Canal du Midi. The Railway Company du Midi, which gave up its lease on the Canal Latéral à la Garonne, running for 99 years, lost an average annual profit of 200,000 francs from the Canal Latéral, but for the rest, its Rail activity largely offset the operating losses of the Canal du Midi. It estimated its losses in 1899 to 4.8 million francs, but in return, it received a considerable increase in traffic and got a reduction of interest rates from 4% to 3% of its debt to the State, that is a 25% discount. This discount interest was 1.5 million francs in 1899, but in the accounts of the company published in 1908, the state debt amounted to 285,641,962 francs, and the interest subsidy was therefore of 2,856,419 francs, which is far from negligible (Levesque, 1910, p. 299-254; Tassot, 1912, p.164). At the time, immediate, early or delayed annuities are well known by financial specialists. The technique is taught in business schools and their theory is developed in the mathematical and practical financial transaction Treaty (Marie, 1890) which is a comprehensive presentation of annuities (p. 318-328) and French State funds (p. 447-489). Mr. Marie finds that the French pensions give rise to the majority of transactions on Security Exchange of Paris and the main annuity rates are 3% or 4.5%. The 3% rate chosen by the Arbitration commission is not a rate selected at random, but one of the two interest rates used in France at the time, and this is the rate that is used the most by shareholders. Indeed, the general formula for calculating the annuity is RPI = (a / t), with a = amount of the annuity and t = interest rate, the perpetuity of 3% corresponds to a capital of 750 000 / 0.03 = 25 million francs, while a perpetual annuity of 4.50% corresponds to a capital of 750,000 / 0.045 = 16,660,000 francs. The State did not make a good move by acquiring the Canal du Midi, but this buyout was necessary to send a strong signal of the sovereignty of the State and its power to reassure holders and users of the canal (businessmen, entrepreneurs and boatmen) and to stop both the excessive pricing of river transport in the south of France, and also to limit the high pricing of transport by rail, taking advantage of its natural monopoly. The acquisition of the canal has not restored the earlier position of this natural monopoly and the domination it enjoyed in the 17th and 18th centuries, because in the meantime, the railway became the new natural monopoly for transport.

5 - Conclusions

The purchase of Canal du Midi by the French Republic is a case showing the difficulty of evaluating a series of assets the value of which depends on their diversity, complexity, their

- 21 - evolution in time, and on contingent factors that made them move from a monopoly situation to a situation of crisis, hence the difficulty to choose a clear rational method. This difficulty is increased by the complexity of the different organizations that institutionalism and neo institutionalism tried to explain later. The process of valuating assets which were acquired or constituted two or three centuries ago, when political and economic changes were profound, is a challenging one. The difficulty of valuation also stemmed from the lack of specific objective on the part of the buyer that was the State. Generally, the buyer is guided by its private interest and may have an investment objective and simply expect cash dividends and long term capital gains goal, or play on the liquidation price differences, or target acquisition. In pursuing these objectives, the investor's perception of the company can be very different and consequently induces different valuation parameters. For the Canal du Midi, the goal was obviously a takeover target, not for private reasons but for matters of general interest. The transaction, in the general case, can focus on a production capacity and it then implies a technical and financial valuation of the equipment, the valuation of the competitiveness of the organization and of the flexibility of the technical and human factors. It can also be seen as the ability to control a percentage of the market. This involves assessing the level of commercial and technical services, the clients' characteristics, and the possibilities of changing prices, as well as possible additional investment to be planned. This analysis was not been thoroughly completed by the representatives of the State as far as the Canal was concerned. To consider the canal as a portfolio of tangible assets was not either in the logic of the state, which did not need to add numerous movable and immovable assets to the public domain. In the assessment of both contradictory parties, the number of periods taken into account was very subjective. While the economic outlook was different in the early 20th century, it was difficult to make predictions more than 5 years ahead and the unpredictable status of the railway did not enable a reliable estimation of river traffic. The logic of the Canal du Midi Company, only wishing to maximize its income, was more efficient than that of the state, which was not unique and thus was weaker. Nobody could have foreseen, in 1897, the future world wars and the development of transport by road and by air. We can only note that due to the weaknesses of statistical knowledge and of accounting, and of the uncertainty of upheavals in the 20th century, the result obtained by the Arbitration commission is not satisfactory, since it involves an uncertain amount of benefits, at an approximate (but not too much so) rate, and an irrelevant number of periods. Another factor of disappointment is the fact that in 1897, the long-term financial operations were well known, whether they be compound interest, annuities, or annuity and amortization of long-term debt. It was the same for future operations and options, perfectly understood by specialists (Pochet, 1873; Marie, 1890). But despite all these techniques that could have lead the parties to have different approaches, the disproportion between the power of the State and the limited negotiating - 22 - skills of the heirs of Pierre-Paul Riquet was considerable, and the Government ended up imposed its decisions on private interests. And the vicissitudes of these agreements let us note that ultimately, it is also as difficult to valuate companies undergoing a declining process - which was the case of the Canal du Midi - than companies with a bright future ahead of them.

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Appendices

Appendix 1 - Note on the French waterways network

In 1789, there were only 1,000 km of canals in operation in the nineteenth century we built about 3000 km longer. The river system has not withstood the competition realistic railroad, and from 1920, its decline is programmed. And yet ... As a comparison, a single river convoy of 10 000 tons and 150 meters long can replace 200 railway wagons of 50 tons, or 333 30-ton trucks. While not a panacea, the waterway may still have a role to play with regard to sustainable development.

Twenty French canals and date of commissioning:

1 - Canal de Briare: de en Seine par le Loing. 1642 2 - Canal du Midi: de Garonne en Méditerranée. 1681 3 - Canal d'Orleans : du Loing à la Loire. 1723 4 - Canal Crazat: de l'Oise à la Somme. 1738 5 - Canal du Centre: de Loire en Saône. 1793 6 - Canal de Saint-Quentin: d'Oise en Somme et en Escaut. 1810 7 - Canal de haute Seine en Basse Seine. 1821 8 - Canal de Bourgogne: d'Yonne en Saône. 1832 9 - Canal d'Ille-et-Rance. 1833 - 25 - 10 - Canal du Rhône au Rhin. 1833 11- Canal des Ardennes: de l'Aisne à la Meuse. 1836 12 - Canal de Nantes à Brest: Vilaine, Oust, Blavet, Aulne. 1838 13 - Canal de la Sambre à l'Oise. 1839 14 - Canal du Berry: du Cher en Loire. 1841 15 - Canal du Nivernais: d'Yonne en Loire. 1842 16 - Canal de la Marne au Rhin. 1853 17 - Canal de l'Aisne à la Marne. 1866 18 - Canal de l'Est: de la Meuse à la Moselle et à la Saône. 1882 19- Canal de l'Oise à l'Aisne. 1890 20 - Canal de la Marne à la Saône. 1907

In this list, there is just one canal in Southern France. This is confirmed by a very relevant map, drawn by Michelle Merger which shows that in the south of France, only the link provided by the canal of the two seas (the Canal du Midi and Canal Latéral à la Garonne) is located beyond of a horizontal line from Nantes to Lake Geneva (Merger M., Appendix I, p. 88, 1990). Napoleon's continental blockade prompted the first to focus on the inland waterway network, but the inner workings are related in some way to external difficulties, requiring budgetary decisions. Napoleon III, then, gave the priority to rail network and canals passed the background. Politicians of the nineteenth century had not the obsession with return on investment, and some channels had a short life, like that of Burgundy, commissioned in 1832, we had waited three centuries, and has today a tourist activity.

Appendix 2 – General Archives of the Canal du Midi in Toulouse on farming and the Company railway du Midi in 1858 • The thematic funds (1598-1898) consist of 906 bundles of documents. They are classified by major topics related to the construction and ongoing management of the network. The bundles include manuscripts, printed documents and iconographic documents. • The book collection includes a large amount of boxes grouped into several series: - Series A: Accounting for the building of the Canal du Midi and the building of Sète Harbor (1666-1684); - Series B: Accounting management of the Canal du Midi and its branches (1684-1858); - C: Accounting Service Fast Navigation (1834-1858); - Series D: State and project status report (1680-1858).

Appendix 3 - Records about the leasing and purchase of the Canal du Midi: bundle #852, Archives of the Canal, Waterways of France, Toulouse. (To facilitate historical research, we provide the original titles in French)

1 - Discussion du Sénat (séances des 23 mai 1865 et 27 avril 1866). 2 - L’amélioration des voies navigables (1879). 3 - Chambre des Députés : discussion de la convention avec la Compagnie des Chemins de Fer du Midi (1883). 4 - Rapport fait à la Chambre des députés au nom d’une commission par M.Adrien Achard. (1885). 5 et 6 - Brochure de l’Union Syndicale du Commerce et de l’Industrie (1891). 7 - Les Canaux du Midi, étude par M. Léon Foigne (1891). - 26 - 8 - Le rachat des Canaux du Midi, Rapport présenté par M. Albert Deffès, membre de la Chambre de Commerce de Toulouse (1891). 9 à 11 - La question des Canaux du Midi (1892). 12 - Compte-rendu des délibérations du Congrès régional de Toulouse, rapport de M.Léon Foigne (1894). 13 - Pour les Canaux du Midi, relevé des débats parlementaires, démarches auprès des pouvoirs publics, congrès, conférences, réunions (1896) 14 - Etudes sur les conditions de rachat des Canaux du Midi, par Léon Foigne (1897). 15 - Documents relatifs à la préparation et à l’exécution de la loi de rachat (1901). 16 - Commission arbitrale instituée par l’article 3 de la Convention de rachat du Canal du Midi par l’Etat, Deuxièmes conclusions pour l’Etat contre la Compagnie du Canal du Midi (1900).

Newspapers Articles

17 - Le journal des transports, 18 juin 1892. 18 - La Voie Ferrée, 23 juin 1892. 19 - Le journal du Lundi, 27 juin 1892. 20 - Le journal des transports, 2 juillet 1892. 21 et 22 - Loi du 27 novembre 1897 relative au rachat par l’Etat du Canal du Midi et du Canal latéral à la Garonne.

Appendix 4 - Archives of Railway Company du Midi and subsidiaries companies, series 189 Mi 1-3 (78 AQ), National Archives of working world, CAMT, Roubaix, France.

Annual general meetings 78 AQ 4 et 78 AQ 6 Statutes, 1852-1898. Reports to general meetings, 1852-1865 78 AQ 7 Reports to annual general meetings, 1866-1879 78 AQ 8 Reports to annual general meetings, 1879-1893 78 AQ 9 Reports to annual general meetings, 1893-1910.

Boards of trustees 78 AQ 53 Minutes of the Board, May 1894-October 1895 78 AQ 54 Minutes of the Board, October 1895-March 1897 78 AQ 55 Minutes of the Board, March 1897-July 1898 78 AQ 56 Minutes of the Board, July 1898-December 1899 78 AQ 57 Minutes of the Board, December1899-March 1901 78 AQ 58 Minutes of the Board, March 1901-June 1902 78 AQ 59 Minutes of the Board, June 1902-December 1903.

Printed material relating to Railway Company du Midi. Various brochures (conventions and legislative text) 78 AQ 92 Railway Company du Midi. Collection of agreements concluded with the State. Laws and decrees from 1883 to 1900.- Paris, 1901, in-4. 1883-1900 78 AQ 93 Railway Company du Midi. Collection of agreements concluded with the State. Laws and decrees from 1901 à 1911.- S.l.n.d., in-4.

- 27 - 189 Mi 1 à 3. (78 AQ 1, 2 et 4). Railway Company du Midi. (1847-1921). Rép. num. dact., 1 p. [the National Archives microfilm of the working world, Roubaix, France]

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