provided they sold it at a profit, but they could not sell the stock at a loss without the consent of all the syndicate members.

Mr. Guthrie passed away a few months later, and Mr. L. C. Hanna, of Cleveland, Ohio, was elected as the associate syndicate manager with Mr. Schley.

The CHAIRMAN. Mr. Hanna, I believe, was a brother of Senator Hanna?

Mr. GATES. He is a brother of the late Senator Hanna.

We proceeded to operate and improve the company as fast as we could, consistent with good business judgment, and I sailed for Europe in July, 1906.

The CHAIRMAN. You speak of improving this property.

Mr. GATES. Perhaps it was 1907. We went to Europe in July, and we returned from Europe on the 6th of November, I think, of the same year-either the 6th or the 7th, I am not quite certain which. When we returned to America this country was in the throes of a panic, and I picked up a newspaper in the morning before we got off the ship and saw that the stock of the Tennessee Coal & Iron Co. had been sold to the United States Steel Corporation.

Mr. BARTLETT. Did you give the date of your return? Of course that would be important.

Mr. GATES. It was on election day, I remember, on Tuesday of an election day. November of 1906 or 1907 I returned. Then upon my arrival at the hotel I received a note from Mr. Schley

The CHAIRMAN (interposing). The November election?

Mr. GATES. November 6, 1907, I think it was; I will not be positive as to dates, but I know it was a legal holiday and that there was an election the day I returned.

Mr. BARTLETT. You may fix it by this: The letter of the President to the Attorney General is dated November 4, 1907. Probably that will aid you.

Mr. GATES. I think it was November 6 or 7, 1907. Upon my arrival at the Plaza Hotel I found a note from Mr. Schley, who had an office then and has one now at 747 Fifth Avenue between Fiftyseventh and Fifty-eighth Streets, asking me if I would not please come over to his office at once.

Mr. BARTLETT. That is Mr. Schley of the firm of Moore & Schley? Mr. GATES. Yes, sir; of the firm of Moore & Schley.

I probably got there either about 11 or 12 o'clock, and I found negotiations pending between Mr. Frick, Judge Gary, and Mr. Morgan on one side, and Mr. Schley, Mr. Hanna, and associates on the other side, and I was told that they were all at Mr. Morgan's residence. Judge Gary, Mr. Morgan, and Mr. Frick were trying to acquire this block of stock, which was the control by a very large majority.

The CHAIRMAN. Did you say at Mr. Morgan's residence or his office?

Mr. GATES. At his residence in Thirty-sixth Street; at least some one called up from there and said they were all in conference and wanted to know whether they were going to close the Tennessee Coal & Iron deal on the basis of their proposition.

Mr. BARTLETT. It is the impression on my mind that you found Mr. Morgan and Judge Gary at Moore & Schley's office. You do not mean to say that?

Mr. GATES. I said Mr. Morgan, Judge Gary, and Mr. Frick were at Mr. Morgan's house.

Mr. JONES. Mr. Gates was told that they were at Mr. Morgan's house.

Mr. GATES. I was told that and learned its correctness from various telephonic conferences which occurred between Mr. Morgan's residence and Moore & Schley's office on Fifth Avenue.

Judge Gary, Mr. Morgan, and Mr. Frick were trying to acquire the stock, as I remember it, by an exchange of an equal amount of what was known as United States Steel second fives. In other words,

for each 10 shares of the Tennessee Coal & Iron stock they were to get one of the second-mortgage bonds of the United States Steel Corporation. I said to Mr. Morgan I thought that was not enough, and I was not willing to trade on that basis. So, after three, four, or five hours of telephoning backward and forward, we made a trade with them on the basis, as I remember it, of about 119 per cent of United States Steel sinking bond fives, as they are known, for Tennessee stock.

Under the terms of the trade, we were to tender our resignations as directors in a body, and the United States Steel Corporation were to elect such men as they selected to succeed us. We were to meet, I think, the following morning, at the office of the Tennessee Coal & Iron Co., at the Realty Building, 115 Broadway, at 11 o'clock. We met at the appointed hour, and I said to Judge Gary: "You are simply buying a majority of this stock, and taking the resignations of the board of directors."

Mr. BARTLETT. Judge Gary was chairman of the board of directors of the United States Steel Corporation?

Mr. GATES. He was the chairman of the board of directors of the United States Steel Corporation, and Mr. Corey was its president, and he was also there. He said to us: "We do not care anything about the minority." "Well," I said, "Well," I said, "we do care about having the minority treated exactly the same as the majority, and we will not turn over this stock unless you pass a resolution, and give us a copy of it, agreeing to pay all of the minority stockholders the same price for their securities as you pay the majority stockholders." After some discussion a resolution was passed and a copy handed to us, agreeing to take care of the minority stockholders on the same basis and at the same price and terms that the majority stockholders were taken care of.

That is about all I can tell you about the Tennessee Coal & Iron proposition.

Mr. McGILLICUDDY. Who owned the majority stock?

Mr. GATES. I stated earlier that the majority of the stock was bought by a syndicate. Col. Oliver Payne was in that syndicate, and I think Mr. J. B. Duke and Mr. E. J. Berwind.

Mr. BARTLETT. O. H. Payne, L. C. Hanna, G. B. Schley, J. B. Duke, E. J. Berwind, J. W. Gates, A. N. Brady, G. A. Kessler, O. Thorne, E. W. Oglebay, H. S. Black, F. D. Stout, J. W. Simpson, G. W. French, S. G. Cooper, and J. A. Topping. Is that correct? Mr. GATES. I think that is a correct statement of the syndicate. The CHAIRMAN. Do you recall the shares that they held of this stock?

Mr. GATES. There were varying amounts.

The CHAIRMAN. I do not mean the separate amounts, but the combined amount?

Mr. GATES. I think there were in the neighborhood of 200,000 shares, perhaps more. In the original participation, I think Payne, Kessler, Berwind, Schley, Duke, and myself each had 18,000 shares. The others were divided up in smaller donominations; some had 3,000, some had 5,000, and some had 9,000.

The CHAIRMAN. You spoke of exchanging the bonds or the stock of the Tennessee Coal & Iron Co. for the second-mortgage bonds of the United States Steel Corporation.

Mr. GATES. Yes, sir.

The CHAIRMAN. Which security had the greater basis of tangible value behind it, the stock or bonds of the Tennessee Coal & Iron Co. or the second-mortgage bonds of the Steel Corporation, for which they were exchanged?

Mr. JONES. That, if you please, is a question of opinion, and my understanding is that you are after the facts here; but I have no objection to Mr. Gates stating his opinion, if he so desires.

The CHAIRMAN. I will not insist upon Mr. Gates giving an answer to that question; but I think his opinion would have great weight before this committee.

Mr. GATES. I can only give you an answer by telling you what the quotations on the New York Stock Exchange were for each of the securities at the time of the exchange. I think the Tennessee Coal & Iron stock was selling at somewhere between $120 and $160 per share at that time, and the United States Steel sinking fund seconds were selling between $80 and $85.

Mr. BARTLETT. The prices of securities of that sort are generally controlled by what is behind them? I do not mean the speculative price, but the price on the market, rather, the difference in the value of the property that is behind it.

Mr. GATES. That is supposed to be the fact, but I do not know that it always is.

The CHAIRMAN. What I had in mind was this: This was in time of stress-panic-and collateral very often is measured by what you can get on it under an execution, as we say, a forced sale of tangible property that can be reached by virtue of foreclosing the bonds or putting up the property behind the stock. Now, which one of those two securities had the greater amount of tangible, unencumbered property behind it, the stock or bonds of the Tennessee Coal & Iron Co. or the second-mortgage bonds of the United States Steel Corporation?

Mr. YOUNG. Those exchanged or the whole of the stock?
The CHAIRMAN. Those for which the exchange was made.

Mr. GATES. The second-mortgage bonds of the United States Steel Corporation are practically a promise to pay. I do not think there is any particular security behind them except the preferred shares of the Steel Corporation itself. The stock of the Tennessee Coal & Iron Co. represented the total equity in the property of the Tennessee Coal & Iron Co. over and above its bonded indebtedness. The CHAIRMAN. What property had you there? What kind of property? What amount of ore was available at that time?

Mr. GATES. Well, I do not think anyone could testify correctly today as to the amount of ore owned by the Tennessee Coal & Iron Co.

It would take a year to correctly measure up the amount of ore we had. We always estimated that we had not less than 300,000,000 tons, and we might have 500,000,000 to 700,000,000 tons of ore in the Tennessee Coal & Iron Co. property.

The CHAIRMAN. Coal and iron ore?

Mr. GATES. No; I am talking about iron ore. The coal acreage was enormous. Unless I saw a statement of the Tennessee Coal & Iron Co. I could not give anything like an approximate statement of the coal. If you will let me see that statement I am willing to testify whether I think that statement is fairly correct.

The CHAIRMAN. I believe you esimated your acreage, the tonnage of coal, to be something like 1,400,000,000 tons of coal?

Mr. GATES. Well, Mr. Chairman, I could so easily make a mistake of 500,000 tons that I should prefer to look at the statement. I had a voice in drawing up that statement, and I know I thought it was correct at the time I assisted in drawing it up.

The CHAIRMAN. How are the coal, iron ore, and limestone located in that company-with reference-I refer now to the convenience in assembling it or facility for assembling your ores. Were they separated by any great distances or were they close together?

Mr. GATES. I think that in the Birmingham district it is possible to assemble a ton of material and make a ton of pig iron cheaper than at any other place in the world.

The CHAIRMAN. I think Mr. Schwab made the same statement before the Ways and Means Committee. Have you examined his statement?

Mr. GATES. Well, I do not know. It would not have any effect on me. I learned what I learned by hard knocks and not from the other fellow.

The CHAIRMAN. I want to call your attention to this statement: It has been estimated that you could make a ton of steel rails or convert the iron ore at $2 or $3 less cost per ton, that with improved machinery and a proper plant you could convert a ton of iron ore at $2 or $3 a ton cheaper. I think Mr. Schwab makes it $4 a ton. Mr. GATES. Do you ask for an opinion or a fact?

The CHAIRMAN. I want both.

Mr. GATES. If you ask for an opinion, I am willing to give you one. The CHAIRMAN. All right.

Mr. GATES. If you ask for a fact, I would like to look at the cost

sheet.

The CHAIRMAN. I want an estimate, that is all.

Mr. GATES. A ton of pig iron, under the most modern practice, in what is known as the Birmingham district can be produced to-day for less than $9 a ton. There is no other part of the United States that I am acquainted with, however, where it can be produced at less than $11 a ton, based on the freight rates for assembling the raw material. As an illustration, the freight rate on dolomite, which is used for the flux, is perhaps 12 cents a ton, in some cases possibly 15 cents a ton, freight to the furnace. The freight on the coke in some instances is nothing; the coke is made at the furnaces. The freight on the ore varies, I think, from 10 cents a ton to about a maximum of 25 cents a ton on anything directly in the Birmingham district. When you get out of the Birmingham district and get to use a richer brown ore, the freight rate runs up to 35 cents and 40

cents and, I think, 50 cents a ton, but in the close proximity of Birmingham you can assemble the material and make a ton of pig iron cheaper, in my opinion, than anywhere in the world.

The CHAIRMAN. This company seems to show some improvement in its property by the character of betterments made in the years 1906 and 1907, before its absorption by the United States Steel Corporation. Do you remember what improvements were made on that property at that time?

Mr. GATES. We spent money as fast as we could and do it intelligently. I think we spent during the time we had the property somewhere between $6,000,000 and $8,000,000.

The CHAIRMAN. For what was that money spent?

Mr. GATES. Everything you can think of to improve a steel plant or a blast furnace or a coke oven or a coal mine or a dolomite quarry. The CHAIRMAN. Now, what were you doing-getting any business in the way of orders for converting this ore into rails, and the like of that?

Mr. GATES. Why, we had just taken a very large order for railsI think 150,000 tons of rails-from Mr. E. H. Harriman, at $2 per ton advance over the price of Bessemer steel rails.

Mr. BEALL. What kind of a rail were you making?

Mr. GATES. We were making a Bessemer open-hearth rail. We took the contract, I think, for the Southern Pacific and the Union Pacific roads for an open-hearth rail. Whether they were actually making the rails at the time the company was taken over by the corporation I do not remember, but we were preparing to make the open-hearth rail and had sold 150,000 tons.

The CHAIRMAN. What was the reason for this excess in the price of your rail over the Bessemer rail?

Mr. GATES. We thought it was a better rail and we convinced Mr. Harriman.

The CHAIRMAN. Did you get orders from any other concern?

Mr. GATES. The Harriman order was a large order, and it would take several months to fill it. We had some small orders, but that practically put us out of the market.

Mr. BEALL. Was the United States Steel Corporation in a position to make that character of rail at that time?

Mr. GATES. They had open-hearth plants in the North, but I do not think they had made for the commercial market any open-hearth rails; they might have made a few trials.

Mr. YOUNG. Had you made any before that time?

Mr. GATES. Yes, sir.

Mr. YOUNG. To any great extent?

Mr. GATES. Yes; we had made a good many thousand tons; but we were putting in a new and improved mill to make the rails cheaper; they were costing more than they should have cost.

The CHAIRMAN. Was there any other concern in the United States, Mr. Gates, or in America, that was situated with reference to its raw material the natural resources-as favorably as the Tennessee Coal & Iron Co., with the possible exception of the United States Steel Corporation, at the time it acquired this company?

Mr. GATES. The Republic Iron & Steel Co. was as favorably situated with their Birmingham plant, but they were only making pig iron; but the Republic Iron & Steel Co. can make just as cheap steel