for a part of the property only! It was a condition clearly impossible of fulfilment for the present, if at all, by the owners of the property. The offer was a mere "feeler." The next proposal, that of May 26th, in the same year, from the same gentlemen, contained a valuation of the different classes of bonds outstanding, ranging from 80 cents to 11 cents on the dollar. It advises the bondholders that Messrs. Smith and Stephen are to furnish the money, and it asks for notice of sixty or ninety days, in case the proposal is favorably received, in which to obtain the necessary funds. On request of the Dutch Committee, the proposition was extended until September 10th. Mr. Carp was trying to get better terms than those that had been named. On December 27, 1915, Mr. Hill, reviewing this transaction, summed it up thus in conversation: "I remember when Stephen went to England to try to raise funds. He was sanguine, and said to go ahead and make an offer for the property. But I feared a miscarriage. When Mr. Kittson and I made the offer to the Dutch bond holders, I worked all night over the form of the proposition to be made, and took it to Judge Young in the morning to see that the phraseology was all right.

It

was construed by them as an offer for the property outright; but it was, in reality, only an option under which we secured a certain time to raise the money, and were not bound if we did not succeed."

SOME THINGS J. J. H. observed Two statements still exist in the handwriting of Mr. Hill, one describing the lines and their property, under date of September 1, 1877, and the other listing the bonded indebtedness, which show that he was in possession of even completer details of the business than were the owners themselves. He lists 455 miles of completed track, ten miles from Crookston to Fisher's Landing, and 34 miles under construction from Breckenridge to the end of the track south of Glyndon, for which the bondholders had at last been persuaded to furnish some money and which was opened for traffic October 22, 1877. There are 229 other miles on which the grading is mostly done, but nothing else. He catalogues all the

rolling-stock, with current valuation, and the real estate. He shows the net eamings of the First Division Company to have been $264,142, which was about $6,000 less than they were six years before. But he also notes that during the fiscal year 1877 there had been expended on additions and improvements to the property $188,250 which had been charged to operating expenses instead of to construction and equipment. That detail, which attracted little notice) when railroad accounting was such a mass of jugglery with figures that nobody paid much attention to any item of it, had vast significance for his practical mind. It showed net earnings, on a fair operating basis, of $450,000 a year; a more than respectable total.

THE PURCHASE PRICE

The rest of the inventory is even more interesting. Mr. Hill lists every fraction of the debt, describes the securities and values them as if he had been dealing with them all his life. He shows that the cost of the bonds at prices set in his proposal would be $4,330, 180. To this he adds costs of foreclosure and of completing uncompleted portions of the line, and arrives at the figure of $5,540,180 as the "total amount required to buy the property as it now stands and complete the system as far as at present desirable.

But the list of assets is different. How the eyes of the Dutch Committee would have bulged if they could have seen the prospective purchaser's estimate of what he was going to get! So fixed, however, was their own unbelief that it would only have convinced them that he was an impractical dreamer. Every detail is there: and every item is valued by a man who knew personally its quality and quantity, and who was never accused of getting the bad end of a bargain or of overvaluing what he was trying to purchase. Putting the moderate figure, absurd in the eyes of to-day, of $20,000 a mile on the track of the 570 miles that would exist after work under way had been finished, and the expense of completing which he had figured into his cost prices, and adding the actual value, with depreciation, of equipment. shops, supplies, etc., the bare railroad prop

erty stands at $12,216,718. Townsites and land grants, the latter estimated only at the current figure of $2.50 per acre, the price then put on public lands in general, footed up $6,586,205 more. Here is a total property value of a little less than 20 million dollars, to be had at a little more than twenty-five cents on the dollar. And this is a flat bargain, allowing not a penny for the certain increase of business and rise of values with the development of the country. In a supplementary note, so as not to mar the severe austerity of the estimate itself, Mr. Hill says: "We believe that $600,000 per year would be a low estimate, and with fair average crops the net earnings would undoubtedly reach $700,000; which amount will increase from year to year as the country is settled up." It is little wonder that, with these facts at his fingers' ends, Mr. Hill was dominated by the sense of unparalleled opportunity. After a lot of dickering over prices during the latter part of 1877, a schedule at which the various classes of bonds might be bought in was accepted by Mr. Hill and Mr. Kittson and by the Dutch Committee. As was stated above, the former had so worded their offer as to make it cover only an option to purchase, and began with redoubled energy to try to raise the cash. The latter understood that they had made a sale, and made public announcement to that effect.

NO HELP FROM ENGLAND

But in December of that year Mr. Stephen came back from England to report a flat failure. This was a terrible setback for the Dutch Committee, who had foreseen an end to the troublous responsibilities of their stewardship; and to the bondholders of all degrees, who had been counting on a little cash in exchange for their depreciated paper. They became desperate for a trade; for any kind of trade that would put an end to their worries, their negotiations, their apprehensions, their responsibilities.

On Mr. Stephen's return from abroad, Christmas Day or the day afterward, 1877, the four disappointed associates had a meeting at Montreal. Every road but Every road but one had been closed to them. They could

not get cash. It remained only to be seen whether a proposition to buy these bonds by pledging their credit would be considered. At this meeting they drew up another proposition. The prices of the bonds as already agreed upon were to stand. But an effort was to be made to get the securities by putting up only such amount of cash as these gentlemen could raise themselves; and providing for payment of the balance only after the foreclosures should have been completed and the property thus put in shape for a future issue of credit against it. With this understanding they all went to New York about January 2, 1878, to negotiate anew with Kennedy & Co.

Here, in the evening, Mr. Hill personally drew up the memorandum which was the basis of the discussions that ended in the transfer of the property.

THE TERMS OF THE DEAL

He proved himself as shrewd here as in his inventory of the property itself. This memorandum, of two printed pages in length, is the patent of nobility for the whole Great Northern system of to-day. It proposed that the bonds should be turned over at the prices already agreed upon. Then it agreed to pay to the bondholders interest on the purchase money at 7 per cent. until the various mortgages could be foreclosed and clear title obtained. Within six months after that, the whole purchase price was to be paid in 6 per cent. gold bonds of the new company, together with $250 of 6 per cent. preferred stock for each $1,000 of such bonds. The purchasers were to obtain and advance the money necessary for the extensions of the system urgently demanded to save forefeiture of land grants. Until all was completed, the bonds were to be put in escrow; but the purchasers were to get immediate possession and management of the foreclosure proceedings, and through these of the property. That was the substance of the new, and, as it was to be, the successful offer to the Dutch bondholders, which was formally made January 5, 1878.

At last the associates saw a way to get control of these railroad properties and put their plan to the test. Only-and they were fully aware of it—a failure, judgment

until it had passed beyond their reach. Only a few believed in the future of the property. Nobody believed in the future of the bonds.

During all these years these four men had been working together with the most absolute faith in one another, but without the stroke of a pen to prevent any undue advantage being taken by one of them, or to show what each might expect to receive in case of success. The matter had, indeed, come up indirectly during the conference before Mr. Stephen left for England on his unsuccessful mission. It was agreed that no capitalist could be expected to come forward with the desired support unless it were made to his advantage by assuring him a share in the profits of the project under consideration.

Now that no partner had appeared, and it seemed probable that their last offer, which they could make good, might be accepted, a formal agreement was required. So it was agreed in writing by the four associates that all the profits and losses to accrue from the possession and operation of the railroad companies, when bought, were to be divided in the proportion of two fifths for Mr. Stephen and one fifth for each of the others. It was so that the matter was settled, and some hundreds of millions of future values were allotted to these sanguine and desperately daring men.

The sale was a good thing for the bondholders, because they obtained prices above reasonable expectation. It was frequently said, during the years following the sale and reorganization of the property, that the bondholders had been unjustly dealt with; that the purchasers had hoodwinked them and obtained from them a valuable property for a song. The same story has been repeated in later years. It was purely the invention of envy and disappoint.nent on the part of those

The various classes of discredited bonds were of different intrinsic value, according to the dates and amounts of the different issues and the amount and quality of the property by which they were secured. Some were bought at 75 per cent. of par, some at 28, some at 35, some at 30, and $11,400,000 of that extraordinary $15,000,000 issue at 13. The bids for these bonds on the New York Stock Exchange, September 28, 1877, three months before the offer of the associates was prepared, ranged from 45 for those for which they offered to pay 75, to 6 for those they took at 13. Clearly a very handsome advance, even when payment was to be made in new securities. For six years, from the time when construction stopped in 1872 to the purchase in 1878, the property lay there for any man to see and estimate. Mr. Hill had talked freely, as has been seen, of his plan to get control of it if he could. Any man who believed in the country, no matter whether he believed in Mr. Hill or not, could have foreseen that these securities must have value; should have bought bonds instead of selling. It was a commonsense business transaction in the open market, precisely as such securities are bought to-day by persons contemplating the acquisition of control or of a heavy interest in some property, and sold by those who are sorry for it afterward. The ghost of that "unfair bargain" story ought never to walk again.

[In the WORLD'S WORK for January, Mr. Pyle will tell bow Mr. Hill reorganized the St. Paul & Pacific properties and developed the Great Northern Railroad system. This article will reveal Mr. Hill's unusual theories of railroad management working out in practice into principles of business that have since been universally accepted.]