The Gulf, Mobile and Ohio
By James H. Lemly

 

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CHAPTER XXIV

The Alton Railroad 1847-1947

 

Abraham Lincoln Funeral Coach on the AltonTHE RAILROAD which for many years was commonly spoken of as “The Alton” has had an even longer history than the Mobile and Ohio.  The Alton and Sangamon, as it was first known, was chartered a year earlier than the M&O and the Alton Railroad was merged into the Gulf, Mobile and Ohio in 1947, just one hundred years later.  It is impossible to crowd the history of this hundred years of service of this famous sectional road into a few pages.  Only the briefest outline of the Alton’s important career is included in this chapter.

Like the M&O the Alton and Sangamon was named for a city and a river.  This road was designed to join the fertile agricultural region around Springfield, Illinois, with the Mississippi River at the river port of Alton.  The people of Alton, who lived some 20 miles upstream on the Mississippi River from St. Louis, dreamed of making their town a major city.  The coming of the railroad seemed to offer the means by which the fertile midcountry of Illinois might be made tributary to Alton.  This little city was located about 3 miles above the confluence of the Missouri and the Mississippi.  It also was about 10 miles below the mouth of the Illinois River.  The town was well situated on land which did not flood or wash and hence offered an admirable site for a river port.  For this reason the people of Alton were eager to support the premature 1837 Illinois program for internal improvements which called for a railroad to be built to Alton.  Although the Panic of 1837 killed this undertaking, the people of Alton did not give up their plans.  Several attempts were made to get construction started, and finally in 1851 the Alton and Sangamon managed to complete the line from Alton to the new state capital which had been named Springfield.

Throughout the decade of the fifty’s the road eked out a precarious existence and somehow extended the line, first to Bloomington, then to Joliet.  During this 10-year period the road changed its name several times and finally sank into bankruptcy.  Money was so scarce that wages were not paid, thus causing the first strike on the road.

The state of Illinois realized that the Chicago and Mississippi, as the road was then named, must be reorganized on a firm basis if the line was to serve the people of the state effectively.  A commission was appointed to reorganize the road.  In this action the company’s name was changed to the Chicago and Alton Railroad Company.  The reorganization brought into the company the leased Joliet and Chicago, and it was through this small company that the Chicago and Alton secured its nineteenth-century man of destiny.  T. B. Blackstone had been chief engineer in the construction of the Joliet and Chicago, as well as a major shareholder.  In 1861 he was made president of the Joliet and Chicago.   In 1864 Blackstone was made a director of the Chicago and Alton and within three months was its president.  From that point the fortunes of the Chicago and Alton began to change.  Blackstone was not the sole cause for this, because the reorganization had been well done, but the expert administration of Blackstone made it possible for the road to develop into a very valuable property.

From 1864 to 1899 the Chicago and Alton never failed to pay a dividend of 6 per cent per year, and it frequently paid as much as 8 or 10 per cent.  Blackstone was president for this entire period, and his reputation and that of the Chicago and Alton increased throughout the period.  In 1864 the Chicago and Alton operated 250 miles of line, but in 1899 it had almost 1,000 miles in operation.  Kansas City had been added as its western terminal, thus giving the road access into three major rail centers of the Midwest.

Throughout the Blackstone era the Chicago and Alton lived an independent existence, proud of its claim of being the best sectional road in the West.  Most of the freight of the Chicago and Alton originated along its lines, and much of it terminated there.  By 1871 the Chicago and Alton hauled more coal into Chicago than any other railroad; only the lake steamers brought more fuel to the city.  The Chicago and Alton was also a prime mover of corn and wheat as well as livestock from its Kansas City terminal.  Blackstone had been one of the developers of the Chicago Union Stockyards idea and served as its president from 1864 to 1868.

By the end of the century T. B. Blackstone had grown old and events outside the C&A were also foreshadowing change for the line.  The high degree of prosperity of the road naturally would evoke interest in the line.  A number of major railroad systems were eyeing the Chicago and Alton as a valuable addition to their holdings.  The Goulds were interested in adding the Chicago and Alton as the connecting link between the Missouri Pacific and the Baltimore and Ohio.  The Rockefellers, who controlled the Missouri, Kansas and Texas, thought that the Chicago and Alton would be a worthwhile addition to their lines.  E. H. Harriman was anxious to join the line to his Union Pacific (UP) and Illinois Central operations.

Under these circumstances the purchase became too big for any one of these units.  When Blackstone and his friends finally agreed to sell their stock, the asking price was $175 per $100 share of common and $200 per share of preferred.  At this point Jay Gould was reported to have given up.  Then E. H. Harriman arranged for a syndicate comprised of several of the major rail financiers of the day to enter the picture.  Blackstone’s price and terms were to be met.  One of the conditions of the sale was that if a majority of stock should be deposited with the syndicate by March 1, 1899, then the syndicate would agree to extend the same terms and prices to all additional stock which should be turned in by April 1, 1899.  This forced the syndicate to buy all offered stock rather than just enough to give voting control.  Blackstone had demanded this to protect his small stockholders, many of whom were widows whose money had been entrusted to him for investing and care.  Newspapers of the day spoke of the unusual terms and said that Blackstone himself had not accepted an earlier offer for his stock, amounting to about one-third of all shares, which would have netted him $1,000,000 more than the final offer.  Because he controlled about 33 per cent of the stock personally, Blackstone was able to set his own terms, since the charter of the C&A required a two-thirds majority vote to issue new bonds.  Unless the syndicate traded with Blackstone, he could thus tie up any refinancing plan which might be desired.

In the final analysis, the syndicate bought about 95 per cent of all C&A shares, for which they paid $39,773,425.  The road had outstanding 187,511 shares of common and 34,795 shares of preferred stock which had a par value of $22,230,600.

With this action, Blackstone’s beloved sectional railroad became merged into national systems and rapidly lost its identity as an independent Midwestern road.  Blackstone did not long survive the sale for he died on May 26, 1900, just a little more than a year after consummation of the deal.

The syndicate meanwhile had proceeded to revise the capital structure of the C&A in an effort to recoup part of their tremendous cash outlay of nearly forty million dollars.  The first move was to issue $32,000,000 in 3 per cent bonds.  These bonds were sold at 65 to the stockholders, who in turn sold them to the public over a period of years.  If the bonds were sold at an average price of 90, a profit of $8,000,000 would have been made by the various stockholders.  In later years the Interstate Commerce Commission reported that $10,000,000 of these bonds were sold to insurance companies in New York for 96, which would have indicated a larger profit at least on that bloc of securities.  In 1900 the new owners of the Chicago and Alton voted a 30 per cent cash dividend on all stock, which amounted to $6,699,000.  These funds came out of the proceeds of the earlier bond sale, which thus left only $13,410,000 in cash out of a sale of $32,000,000 face amount of bonds.

At the same time that these transactions were taking place, the physical properties were being improved considerably.  Expenditures for maintenance of way maintenance of equipment, and other maintenance went up sharply under the new regime.  For example, in 1900 the company spent $1,748 per mile on maintenance of way, whereas in 1905 it spent $3,060 per mile.  One report said that by 1907, 60 per cent of the entire line had been reballasted, 70 per cent had been laid with heavier rail, and ties had been renewed on 77 per cent of the main line.  The tractive power of locomotives had increased 132 per cent, capacity of all freight equipment had been increased 146 per cent, and the average capacity per car had gone up from 21.5 tons to 33⅓ tons.

Much has been written about the Harriman treatment of the Chicago and Alton.  Many writers have stated that the road was gutted by the syndicate and then thrown aside like a sucked-out orange.  Certainly the syndicate increased the capitalization tremendously in the six or seven years that the Chicago and Alton was under its control.  The following table will show just what happened to the capital structure of the road from 1898 to 1906.

In spite of the very large increases in liabilities, the road was able to show increases in gross and net revenues in the period 1900 to 1907.  By that time the road had changed hands, and the Harriman interests were no longer in control.  In 1904 the Chicago and Alton had passed into the control of the UP and the Chicago, Rock Island and Pacific (Rock Island) with the latter holding a majority of the stock.  In 1907 the Rock Island stock was sold to the Toledo, St. Louis and Western, better known in that time as the Clover Leaf.  When this transaction took place, the C&A passed into the control of the Clover Leaf and E. H. Harriman ceased to be the guiding hand in C&A affairs.

After the 1907 purchase of control of the C&A by the Clover Leaf, the C&A began to lose ground financially.  Although some dividends were declared out of previously accumulated surplus, the company soon lost its record of dividend payments.  By 1912 the Chicago and Alton and the Toledo, St. Louis and Western were both in dire straits.  From that date the Chicago and Alton showed a deficit for every year up to 1941 except 1918, 1923, 1925, and 1926.   For a number of years prior to federal control in 1918, the UP provided funds to keep it from going into bankruptcy.  This apparently was done by the Harriman family to hold down the attacks on Harriman’s reputation because of the earlier transaction.  After 1906, Theodore Roosevelt had attacked Harriman bitterly and used the Alton affair as his principal talking point.  The controversy over the propriety of the actions of the syndicate became front-page news and remained in the public mind for many years after Harriman’s death in 1909.

  

TABLE V

CHANGES IN CAPITAL STRUCTURE OF THE CHICAGO AND ALTON RAILROAD -- 1898-1906

Liabilities

1898

1906

Increase

Per Cent of Increase

Common stock

$18,751,100

$19,542,800

 791,700

4

Preferred and prior lien stock

3,479,500

20,423,300

16,943,800

480

Total share capital

$22,230,600

$39,966,100

$17,735,500

60

Funded debt outstanding

$ 8,650,850

$64,350,000

$55,699,150

644

Guaranteed stock

2,129,000

3,693,200

1,564,200

73

Other liabilities

940,957

5,865,056

4,924,099

525

Total Indebtedness

$11,720,807

$73,908,256

$62,187,449

530

Total liabilities

$33,951,407

$113,874,356

$79,922,949*

235

* A total increase of almost $80,000,000 to capital liabilities.  According to the company’s own books, only $18,000,000 had been added to the total investment.

 

In spite of the generosity of the UP, the Chicago and Alton did finally slip into receivership in 1922.  The road just could not earn enough to pay its fixed charges and a collapse was inevitable.  The road had lost much of its cattle trade from Kansas City, and its coal business into Chicago was fast slipping away.  The labor strife of 1922 evidently served as the coup de grace from which the sick Chicago and Alton could not recover.  In reality, the road had not paid interest on some of its bonded indebtedness since 1917 and hence it had been insolvent from that date.

During all of the years of the 1920’s the road remained in receivership, not able to earn enough to cause a plan of reorganization to be formulated.  Finally, in 1929 the road was sold under foreclosure and the B&O acquired control of the company.  When the Interstate Commerce Commission agreed to the “permanent” joining of the B&O and the C&A, a new company was formed to operate the property.  The Alton Railroad was created to assume title to the property of the old Chicago and Alton, and thus the proud name disappeared from rail circles.

The road remained in operation, and the deficits continued.  The depression of the 1930’s obviously made the task infinitely worse, but even in the early years of World War II the Alton did not respond promptly to increased business.   At last in 1942 the B&O decided that its venture with the Alton was an unwise move, and so the road once more returned to the control of the courts.  It was from this receivership that the GM&O took the Alton in 1947, when the once proud sectional road was joined to the expanding GM&O.  This was not just a purchase but a merger, which made the transaction different from previous efforts.  The GM&O took the Alton for better or for worse and merged the bankrupt Western road with the solvent aggressive Southern line, thus forming the nation’s second midcontinental trunk line from Chicago to the major ports on the Gulf of Mexico.  The Alton has become the northern sector of this newest of America’s major rail systems.

 

 

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