Promotion, Finance and Mergers in Canadian Manufacturing Industry, 1885-1918
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PROMOTION, FINANCE AND MERGERS IN CANADIAN MANUFACTURING INDUSTRY, 1885-1918 by Gregory Philip Marchildon A Thesis submitted for the degree of Doctor of Philosophy in the Department of Economic History The London School of Economics and Political Science University of London Lent Term, 1990 UMI Number: U048B31 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U0483B1 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 r\*esas> F 673^ ABSTRACT OF THESIS The existing research on the first merger waves in the United States, Britain, and to a lesser extent in Germany, has produced valuable information on the rise of the modern industrial enterprise. These studies reveal important similarities as well as a few significant differences in the nature of the economic development of these nations. A new merger series for Canadian manufacturing industry was generated to provide a further comparison. In addition, a large pool of information was gathered concerning the workings of promotional syndicates, corporate flotations, and secondary financial markets. This aggregate data, in conjunction with a case study of the most prominent Canadian promoter of the era and the companies he consolidated, is used to determine the relationship between security financing and the evolution of manufacturing industry in Canada. An explanation of the cause of the first Canadian merger wave, 1909-1912, is based on individual case evidence and the results of causality tests using aggregate data. The necessary pre-condition to a merger wave was the emergence of a broad market for Canadian industrial securities. Although high stock prices stimulated merger waves in Britain and the United States at the turn of the century, the first Canadian merger wave had to wait another decade until the expansion of the Canadian market and the tapping of the British market for Canadian "industrials" permitted large-scale flotations. The potential profits which were available through corporate reorganisation, rationalisation of manufacturing and distribution networks, and monopolisation, were reflected in the higher rates of return which British investors sought en masse in the new Canadian securities. This flood of British capital in turn accelerated the industrial transformation taking place in Canada and encouraged further mergers. High stock prices triggered the first merger movement as they had in Britain and the United States. Corporate financiers became merger promoters as they catapulted propositions into consolidations large enough to be listed on public stock exchanges and to be of interest to prospective investors. High-risk financial methods provided the incentive to financial intermediaries to broaden this market as quickly as possible and, therefore, to deliver the maximum amount of cash to the new industrial consolidations. TABLE OF CONTENTS page Acknowledgments ............................................ i List of Abbreviations........................................ iii List of Tables and Figures ............................... iv CHAPTER ONE The Laurier Boom, Mergers and the Rise of the Modem Industrial Enterprise 1.1 Integrating history and theory ....................... 1 1.2 Mergers, finance capitalism and the second industrial revolution ............................................ 3 1.3 The Laurier boom and manufacturing in Canada ........ 13 CHAPTER TWO Finance and Manufacturing 2.1 The inadequacy of existing forms of finance.......... 20 2.2 Development of a market for industrial securities. 23 2.3 The evolution of finance for Canadian manufacturing industry 3 0 2.4 Expansion of the Canadian capital market ............ 38 2.5 The British capital market and Canadian manufacturing. 42 CHAPTER THREE Max Aitken: Investment Banker and Merger Promoter 3.1 Max Aitken and the creation of the Royal Securities Corporation............................................ 49 3.2 Electric lighting and tramway financing.............. 56 3.3 Breaking into the British capital market ............ 60 3.4 The transition to industrial promoter and investment b a n k e r ................................................ 64 3.5 The nature of profits in merger promoting............ 68 CHAPTER FOUR Company Case Studies 4.1 The impact of capital structure on corporate evolution.............................................. 75 4.2 The Canada Cement Company............................. 91 4.3 The Canadian Car and Foundry C o m p a n y ................... 105 4.4 The Steel Company of Canada..............................117 4.5 The impact of mergers on relative performance and industrial organisation.................................. 126 CHAPTER FIVE Antitrust and the Politics of Merger page 5.1 From combines to mergers: the illusion of legislation............................................... 130 5.2 The Fleming assault: the reality of business and p o l i t i c s ................................................. 144 CHAPTER SIX The Purpose and Structure of a New Series of Merger Statistics for Canadian Manufacturing Industry, 1885-1918 6.1 Mergers in comparative economic history.................160 6.2 The limitations of previous Canadian studies ........ 169 6.3 The structure of the new series......................... 175 CHAPTER SEVEN Mergers in Canadian Manufacturing Industry, 1885-1918 7.1 The number and value of Canadian mergers ...............189 7.2 Industrial grouping of merger activity ............... 195 7.3 Security financing and merger promotion................. 205 7.4 Major promoters during the first Canadian merger wave. 209 CHAPTER EIGHT Towards a General Theory of Merger Causation 8.1 The general versus the historically unique explanation...............................................216 8.2 The buoyant stock market supposition ................. 218 8.3 The Granger and Sims tests of causality................. 227 CHAPTER NINE Conclusion 237 APPENDIX A Real growth in the Canadian economy, 1885-1918: total growth, sectoral growth and growth by SIC (194 8) major industry groups ............................................ 24 5 APPENDIX B List of Canadian manufacturing industry flotations in London: January, 1905 to December, 1 9 1 3 ..................... 252 APPENDIX C Case Study of Canadian Car and Foundry Company, Limited London share flotation of 1909.............................. 255 APPENDIX D page Mergers in Canadian manufacturing industry, 1885-1918 . 261 APPENDIX E Causality tests on merger activity in Canadian industry, 1900-1934 ................................................... 277 Bibliography.................................................285 ACKNOWLEDGMENTS This thesis was directed by Professor Leslie Hannah of the London School of Economics. I have profited immensely from his comments and criticisms and I am grateful for the amount of freedom he permitted me during the last three years. I started my thesis research under Dr. Reuven Brenner of the University of Montreal and, although it went in a far different direction than originally conceived, my willingness to change in order to improve and my desire to work within a broader framework owes much to his example. I benefitted from the suggestions of Dr. Paul Johnson as well as the many other doctoral candidates at the LSE both, in the Ph.D. workshops guided by Professor Alan Milward and in our many informal sessions. Duncan Ross and Till Geiger should be singled out as well as Dr. Ranald Michie of the University of Durham for helping me fathom the complexities of financial history in the early stages of my work. Vivian Noble helped by double-checking some merger references in the Monetary Times. James Alexander of the LSE and Rodney Chun of The Johns Hopkins University gave occasional computer guidance. The staff of the House of Lords Record Office in London were helpful and kind during the hundreds of hours I spent plodding through the Beaverbrook Papers. I would like to thank all my Canadian colleagues — economists, historians and archivists — who helped me in the immense task of collecting all the necessary merger and financial data. Ian Drummond, Duncan McDowall, Tom Traves, Michael Bliss, Kris Inwood and Graham Taylor were the individuals I pestered the most. Mac Urquhart answered my many questions about his new national accounts series and Morris Altman was generous enough to provide me with his as yet unpublished statistics on the growth of Canadian industry. Charles Armour (Dalhousie University Archives), Barry Cahill (Public Archives of Nova Scotia), Robert Sweeny (Montreal Business History Project) and James Whalen, Neil Forsyth, and Larry McNally of the National Archives of Canada were particularly helpful in providing leads to archival material. Giovanna Pirro, my partner, deserves significant credit for reading and re-reading my manuscript forcing me throughout to clarify my thoughts and defend or revise my overly weighty style. I thank her for her patience and perseverance. i As a recipient of the George W. Robertson Scholarship for