UTILITIES: Eaton to the Wars

Cyrus Stephen Eaton is a well-dressed, frosty-eyed financier of 56. He left his native home in bleak Pugwash, Nova Scotia, to study for the Baptist ministry. In Cleveland in 1925 he dramatized his power to refinance Trumbull Steel Co. by proving to its officers that Cleveland Trust Co. would honor his check for $20,000,000. By 1930 he was instrumental in forming the No. 3 steel Company (by mergers built on Republic), was sitting on the boards of 20 great corporations (utilities, steel, paints, hotels). That year he helped undermine the foundation of the tottering Insull empire by selling Sam Insull a huge block of stocks in Insull companies for $56,000,000, about $6,000,000 above its market value. His financing, in the hardbitten, buccaneering tradition of the Coolidge Era, took on a heroic cast because it brought to the Middle West its share of control of American Industry. Admiring Clevelanders called him "Cyrus the Great."

Depression I finally knocked the props from under Mr. Eaton, washed away his industrial controls. By 1932 he was left with little except his Cleveland securities house, Otis & Co. But Mr. Eaton still rode to hounds. And last week he rode off again to the financial wars.

Cyrus Eaton's Otis & Co. wrote a letter to Wendell Willkie, president of Commonwealth & Southern Corp., saying that they understood that big holding company was about to buy 125,000 shares of stock from its Michigan subsidiary, Consumers Power Co. Mr. Eaton righteously set out a plan to disprove Wendell Willkie's chronic complaint that investors will not buy utilities securities: his Otis & Co. would gladly pay a price "substantially in excess" of the $28.25 that C. & S. was going to pay.

Promptly from Mr. Willkie to the news services went an angry reply: Commonwealth & Southern had offered a year ago to pay up to $60 for Consumers stock, said he. Both SEC and the Michigan Public Utilities Commission had ruled that it could buy the stock at book value.

From the Washington front, another gun began firing from an unsuspected emplacement. For probably the first time in his checkered career Cyrus Eaton found he had old, reforming Senator George Norris on his side. "The Power Trust." said the frail Senator in a prepared statement, "is caught at its old tricks. ... It happens again that the holding company is robbing its own subsidiaries, in order to enrich itself." Rejoined Willkie: "Completely and absolutely false." Back came George Norris with another blast to the effect that the cost of the stock deal would be reflected in electric rates paid by Michigan consumers.

Senator Norris is no longer as young as he once was, and his remarks made less than no sense. Electric rates are not based on per share stock prices; they are based on the total amount of money invested (or supposed to be invested) in the business. Nor could Commonwealth & Southern rob Consumers Power even by buying its stock at 1¢ a share: Commonwealth & Southern already owns 100% of the common stock of its subsidiary, and regardless of price will still own 100% after the transaction it proposes. For that matter, Commonwealth & Southern would lose nothing by paying $1,000,000 a share.