CONSOLIDATION OF RAILWAY PROPERTIES

WEDNESDAY, MAY 21, 1924

UNITED STATES SENATE,

COMMITTEE ON INTERSTATE COMMERCE,

Washington, D. C.

The committee met at 10 o'clock a. m., pursuant to call of the chairman, Senator Albert B. Cummins presiding as acting chairman. The committee had under consideration the bill (S. 2224) to provide for the consolidation of railway properties, introduced by Senator Cummins January 24, 1924, which is here printed in full, as follows:

[S. 2224, Sixty-eighth Congress, first session]

A BILL To provide for the consolidation of railway properties

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

TITLE I-AMENDMENTS TO CONSOLIDATE PROVISIONS OF THE INTERSTATE COMMERCE ACT

SECTION 1. That paragraph (2) of section 5 of the interstate commerce act, as amended, is amended by adding at the end thereof a new sentence to read as follows: "This paragraph shall cease to be in effect upon the passage of the railroad consolidation act of 1924; except that thereafter the, commission may continue to make supplemental orders under paragraph (3) in respect of any order which was made under this paragraph before the passage of such act." SEC. 2. That paragraphs (4), (5), and (6) of section 5 of the interstate commerce act, as amended, are amended to read as follows:

"(4) The commission shall as soon as practicable prepare and by order adopt a plan for the consolidation of the railway properties of the continental United States into a limited number of systems. In the division of such rail-. way properties into such systems under such plan competition shall be preserved as fully as possible, and wherever practicable the existing routes and channels of trade and commerce shall be maintained. Subject to the foregoing requirements of this paragraph, the several systems shall be so arranged that the cost of transportation as between competitive systems and as related to the values of the properties through which the service is rendered shall be the same, so far as practicable, so that these systems can employ uniform rates in the movement of competitive traffic and under efficient management earn substantially the same rate of return upon the value of their respective railway properties. In its plan the commission may, to such extent as it finds the public interest requires―

"(a) Omit from the systems terminal properties, including main-line tracks for a reasonable distance outside the terminals; and either omit from all the systems or include in any one of the systems properties comprising any section of railway lines, if the commission further finds that the properties are or ought to be available for common use by two or more systems. The commission shall in its plan designate the extent to which such systems shall have the common use of such properties.

"(b) Provide for the extension or abandonment of the properties of any system, or for the enlargement of the properties of terminals or lines that are, under subdivision (a), omitted from the systems. Where terminal properties are to become, under the plan provided for in this paragraph, a part

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of a system, the commission may, in its order adopting the plan as authorized in paragraph (5), ttach such conditions as will insure the joint use, in the public interest of such terminal properties by such systems in connection with any other system or systems..

"(5) When the commission has agreed upon a tentative plan it shall give the same due publicity, and upon reasonable notice, including notice to the governor of each State, shall hear all persons who may file or present objections thereto. The commission is authorized to prescribe a procedure for such hearings and to fix a time for bringing them to a close. After the hearings are at an end the commission shall by order adopt a plan for such consolidation and publish the same, or it may adopt and publish alternative plans if in its judgment more than one plan would fulfill the requirements of paragraph (4) and if it finds that alternative plans would facilitate the voluntary consolidations hereinafter in this section provided for. The commission may at any time after the adoption of such plan or plans, either upon its own motion or upon application, reopen the subject to such extent as it deems advisable for the adoption and publication, after notice and hearing as above provided in this paragraph, of such modifications as in its judgment will promote the results sought and described in paragraph (4). As used hereinafter in this section, the term "plan" means any plan or alternative plan, including all modifications thereof, if any, adopted and published under this paragraph.

"(6) It shall be lawful for two or more carriers to carry out the consolidation of the railway properties, or any part thereof, of any system, by a reorganization approved and authorized by the commission under paragraph (7) or (8). For the purposes of this section, the term "reorganization means"(a) A consolidation or merger of two or more carriers;

"(b) A reincorporation of a carrier as a Federal railroad corporation under Title II of the railroad consolidation act of 1924:

"(c) An acquisition of any part of the properties of a carrier;

"(d) An acquisition of the right to operate any part of the railway properties of a carrier; or

"(e) An acquisition of securities of a carrier in pursuance of an arrangement to acquire control of such carrier, directly or indirectly, through voting power or otherwise; or an acquisition of securities of a carrier in which control has been so acquired.

"(7) If two or more carriers propose a reorganization plan prior to the expiration of two years after the passage of the railroad consolidation act of 1924, the carriers shall jointly apply to the commission for approval of the plan. Thereupon the commission shall notify the governor of each State in which any part of the properties sought to be consolidated are situated, and the carriers involved in the proposed reorganization, of the time and place for a public hearing. If after such hearing the commission finds (a) that the public interest will be promoted by the reorganization, (b) that the reorganization consolidates or furthers the consolidation of the railway properties of the carriers into one corporation for ownership, management, and operation, (c) that the reorganization will, in the judgment of the commission, promote the results sought and described in paragraph (4) or, if a plan of consolidation has been adopted and published, is in harmony with such plan, and (d) that the conditions of paragraph (10) will be fulfilled, it may enter an order approving the reorganization plan and authorizing the reorganization with such modifications and upon such terms, conditions, and in accordance with such procedure, as it may prescribe. Thereupon the reorganization may be effected in accordance with such order, if all the carriers involved assent thereto, the law of any State or the decision or order of any State authority to the contrary notwithstanding.

"The assent of any such carrier shall be held to be given if the holders of at least a majority of the voting shares of the carrier approve the reorganization plan at a shareholders' meeting. The reorganization plan may provide for the organization of or reincorporation of a carrier, as a Federal railroad corporation under Title II of the railroad consolidation act of 1924, by incorporators designated in the plan, or by at least a majority of the directors of such carrier, respectively.

"(8) If after the plan of consolidation has been adopted (but not before the expiration of a period of two years after the passage of the railroad consolidation act of 1924) the railway properties within any system have not been consolidated into one corporation for ownership, management, and opera

tion, the commission shall appoint for the system a committee to be known as a consolidation committee. Each such committee shall be composed of a representative who shall be a member of the commission, to be selected by it, and two representatives of each of the carriers any part of whose railway properties are within the system, one for the shareholders and one for the creditors, respectively, to be selected in accordance with regulations prescribed by the commission. Vacancies in the membership of the committee shall be filled in the same manner as the original selection. No vacancy or failure to select a member of the committee shall extinguish or diminish the powers or duties of the committee or the remaining members thereof.

"It shall be the duty of the committee to ascertain the value of the railway properties within the system of the carriers who have appointed representatives upon the committee, by taking the final value thereof as determined under section 19a of the interstate commerce act, as amended, and by adding thereto the value of additions and betterments made subsequent to the time of valuation and deducting therefrom depreciation suffered and the value of any part of the property which has been abandoned, sold, or otherwise retired since such time. Each such committee shall also determine the value of each class or kind of the outstanding securities of such carriers and shall prepare and, if agreement can be reached, determine upon the 'exchange of securities or other form of reorganization regarded as the most expeditious and practicable way of bringing about the consolidation, and upon the terms, conditions, and procedure for the reorganization. If the committee can not determine upon any such matters, it shall so report to the commission, which shall thereupon take the whole subject into consideration and submit to the committee its views thereon. Whenever such matters have been determined and included in a reorganization plan in respect of carriers whose properties comprise the whole or any part of the railway properties within the system, and agreed upon by all the members of the committee representing the commission and such carriers, such members may jointly apply to the commission for approval of the reorganization plan. If upon such application the commission finds (a) that the public interests will be promoted by the reorganization, (b) that the reorganization is in harmony with the plan of consolidation and consolidates or furthers the consolidation of the railway properties of the system into one corporation for ownership, management, and operation, and (c) that the conditions of paragraph (10) will be fulfilled, it may enter an order approving the reorganization plan and authorizing the reorganization in accordance therewith, or disapproving and directing the modification of the plan in particulars specified in the order. If disapproved, new reorganization plans may be agreed upon and application for reorganization in accordance therewith made and acted upon in the same manner as an original reorganization plan and application. Upon the approval of the reorganization plan the reorganization may be effected in accordance with the order of the commission, the law of any State, or the decision or order of any State authority to the contrary notwithstanding. The reorganization plan may provide for the organization of or the reincorporation of a carrier as a Federal railroad corporation under Title II of the railroad consolidation act of 1924 by incorporators designated in the plan or by at least a majority of the directors of the carrier.

"(9) Any corporation which has acquired 51 per centum or more of the outstanding voting shares of any carrier whose railway properties are within the system may, if authorized by the commission, condemn the remaining securities of such carrier, as provided in section 235 of the railroad consolidation act of 1924.

"(10) No reorganization plan shall be approved by the commission under paragraph (7) or (8)—

"(a) If the reorganization plan provides for the payment of rents upon railway properties in excess of a fair return upon the value of such properties, as determined by the commission.

"(b) Unless the reorganization plan prohibits the issuance at any time by any carrier of securities, the aggregate par values of which plus the aggregate par values of its outstanding securities will at such time exceed the value (as determined by the commission or the consolidation committee in case of a reorganization approved under paragraph (7) or (8), respectively) of the properties of the carrier and of the properties to be acquired with the proceeds of the issue. For the purposes of this subdivision, the amount of the par values of the outstanding securities includes, in the case of shares without a par value, the amount of the consideration fixed for such shares. The issuance of securi