Submitted September 20, 1924. Decided October 21, 1924.
REPORT OF COMMISSION
DIVISION 4, COMMISSIONERS MEYER, EASTMAN, AND POTTER
BY DIVISION 4:
On July 14, 1924, the Kansas City, Fort Scott & Memphis Railway Company, a corporation organized for the purpose of engaging in interest commerce by railroad, hereinafter called the Fort Scott Company, and the St. Louis-San Francisco Railway Company, a carrier by railroad subject to the interstate commerce act, hereinafter called the Frisco, filed a joint application under paragraph (2) of section 5 of the act, (1) for authority to the Fort Scott Company to acquire control of the Kansas City, Clinton & Springfield Railway Company, hereinafter called the Clinton Company, through stock ownership, and (2) for authority to the Frisco to acquire control, by lease,. of the railroad of the Clinton Company. The Public Service Commission of Missouri has advised us that it would not make any representations. A hearing has been held, and no objection to the granting of the application has been presented to us.
The Frisco control the Fort Scott Company through stock ownership, and operates its railroad under a lease for 99 years, dated August 23, 1901. All of the outstanding stock of the Clinton Company, amounting to $1,775,400, is held by a committee under an agreement with the predecessor of the Frisco, dated June 24, 1901, which provides, among other things, that the committee will not sell or otherwise dispose of any of the stock except at prices to be approved by the Frisco, and will pay to the Frisco the gross proceeds of any sale or other disposition of the stock. The agreement further provides that until said stock shall be sold the railroad of the Clinton Company shall be operated independently and in its own interest.. It is represented that the capital stock of the Clinton Company has no ascertainable market value. No consideration is to be paid therefor by the Fort Scott Company, except that its acquisition of the stock will operate as a release and termination of the agreement of June 24, 1901. The stock was transferred to the committee at about the time the railroad of the Fort Scott Company was leased to the Frisco's immediate predecessor. While the legal title to the stock is held by the individual members of the committee, the equitable interest and the control of the stock in in the Frisco. Apparently the transfer of the stock from the committee to the Fort Scott Company would not enlarge or diminish the control which the Frisco now has. It is claimed that such transfer would simplify the complicated intercorporate relations of the three companies.
On June 27, 1901, the Kansas City, Fort Scott & Memphis Railroad Company, the predecessor of the Fort Scott Company, conveyed to the Clinton Company a line of railroad from Arcadia, Kans., to Springfield, Mo., approximately 86 miles. This line was subject to the consolidated mortgage of the grantor company, under which bonds to the amount of $13,736,000, maturing May 1, 1928, are outstanding, and was conveyed subject to such mortgage. In consideration of the conveyance the Clinton Company, in effect, assumed the payment of principal and interest of $2,000,000 of the consolidated-mortgage bonds. By deed dated November 1, 1906, this line was conveyed by the Clinton Company to the Fort Scott Company, in consideration of the release of the Clinton Company from its obligation in respect of the consolidated-mortgage bonds, the Clinton Company agreeing to hold the Fort Scott Company harmless against any lien of the first mortgage of the Clinton Company. Because of the after-acquired property clauses in the first mortgage of the Clinton Company, it is claimed that mortgage is a second lien on the line in question, which now forms a part of the Frisco's main line west from Springfield. The bonds of the Clinton Company become due October 1, 1925, and it is claimed that the proposed acquisition of stock and the proposed lease will enable effective provision to be made for caring for the bonds at maturity.
The railroad of the Clinton Company extends from Ash Grove, Mo., to Olathe, Kans., approximately 155 miles. For the greater part of its length it parallels the Frisco's Springfield - Kansas City line at distances ranging from 100 feet to 4 miles. It was formerly operated as a part of the system of the Kansas City, Fort Scott & Memphis Railroad Company. On August 12, 1901, the latter company conveyed all its properties to the Fort Scott Company. The railroad of the Clinton Company was not included in the lease of the Fort Scott Company's properties to the predecessor of the Frisco. From July 1, 1914, to December 31, 1923, the results of its operation were operating revenues $4,497,652.19; operating expenses $4,185,067.57; taxes, rents, and interest $2,279,022.17; deficit after all charges, $1,966,437.55. On December 31, 1923, the Clinton Company had outstanding $3,274,000, principal amount, of first-mortgage bonds. The bonds were guaranteed, principal and interest, by the Kansas City, Fort Scott & Gulf Railroad Company, whose franchises and properties thereafter became vested, through consolidation, in the Kansas City, Fort Scott & Memphis Railroad Company, but such guaranty was not expressly assumed by the Fort Scott Company when it acquired the properties. Operations have been financed by the Frisco, through the Fort Scott Company, either through the payment of the interest on the Clinton Company bonds, or through cash advanced to,pay all or a part of such interest, taxes, and other charges. The amount so advanced to December 31, 1923, was $4,029,366.21, evidenced by promissory notes or open accounts, upon which no interest has been collected or demanded.
The Clinton Company propose to lease its railroad to the Frisco for a term expiring June 12, 2000, with a covenant for renewal, at the expiration of the term and of each renewal term, for a further period of 99 years. The term is identical to the term of the lease of the properties of the Fort Scott Company to the Frisco. The leasee agrees to pay, as rental, the interest on the first-mortgage bonds of the lessor now outstanding, and upon all bonds thereafter issued by the lessor with the consent of the lessee, all sinking-fund payments required to be made by the lessor under any mortgage hereafter executed by the lessor with the leasee's consent; all taxes that may be levied on the lessor or upon the demised property during the term; and a sum sufficient to enable the lessor to maintain its corporate organization, not to exceed $500 a year. Upon default of the leasee the lessor may proceed to enforce the convenants of the leasee by proper legal action, or at its election may terminate the lease.
It is represented that the railroad of the Clinton Company and the Frisco's lines serve practically the same towns; that the traffic is insufficient to sustain properly one line; that the completion of a hard-surfaced highway between Kansas City and Springfield, no under construction, will result in decreasing the present inadequate volume of traffic; that there is no prospect that the line of the Clinton Company will ever show more favorable results under separate operation and that the proposed lease will enable the Frisco to provide better service in the territory and to effect a saving in expenses of approximately $175,000 a year.
Upon the facts presented we find that the acquisition by the Fort Scott Company of control of the Clinton Company, through stock ownership, and the acquisition by the Frisco of control of the railroad of the Clinton Company, by lease, all for the consideration and upon the terms and conditions set forth in the application and in the copy of the proposed lease submitted therewith, will be in the public interest. An order will be entered accordingly.
COMMISSONER EASTMAN dissents.
A hearing and investigation of the matters and things involved in this proceeding having been had, and said division having, on the date hereof, made and filed a report containing its findings of fact and conclusions thereon, which said report is hereby referred to and made a part hereof:
It is ordered, That acquisition by the Kansas City, Fort Scott & Memphis Railway Company of control of the Kansas City, Clinton & Springfield Railway Company, through stock ownership, be, and the same is hereby, approved and authorized.
It is further ordered, That acquisition by the St. Louis-San Francisco Railway Company of control of the railroad of the Kansas City, Clinton & Springfield Railway Company, under the terms of the lease described in the application and report aforesaid, be, and the same is hereby, approved and authorized.
Source: 94 I.C.C. 5-8