Nathan Jones had organized The Public Utility Investment Company (PUIC) in 1924. It was used to purchase the assets of States Power Company in Oklahoma, and then to sell the assets to the newly formed United Power Company.
It was a holding company that could own assets and shares of utility companies. The company could also sell investments like stock shares and bonds to raise money. That money could then be used to acquire other utility companies.
In its earliest ad, the company listed two utilities – The United Power Company of Oklahoma, which Jones and Jarvis had just completed, and The Southern Kansas Power Co., which was Jones’ very first endeavor, and which he had never sold.
The ad listed Investments and Bonds, but I’ll bet there weren’t many at that time.
An ambitious vision
Like always, Nathan Jones thought big. He had experienced his own successes in building and selling businesses, and he had already amassed a fortune.
Jones had learned a lot from working for C.L. Brown. Brown had started some 85 companies, from utilities to telephone companies to life insurance. Nathan Jones was just as ambitious.
Not much regulation
The utility industry in the 1920s was the wild, wild west. Other than obtaining a state charter to organize a business, there weren’t many regulations or enforcement.
Buying and selling local utility companies was happening all over the country. They were bought and sold by companies like those of Nathan Jones and C.L. Brown and many others.
Between 1919 and 1927, 3,700 local power companies went out of business; by 1930, 10 holding companies supplied 72 percent of the nation’s electricity.Electric consumer appliances proliferate 1920 – https://www.pbs.org/wgbh/aso/databank/entries/dt20ap.html
Beginning in 1925, Jones began building a sales organization. He had a staff in Salina and began hiring sales reps in major towns around Kansas.
The sales department was responsible for selling bonds and stock shares. If the PUIC found a local utility that could be acquired, they would write a bond issue to raise the purchase money. They would stress the safety of investing in public utilities and promise a 7% return.
Besides sales representatives, the company ran major newspaper ad campaigns.
Acquisitions were the engine of growth. Throughout 1926 and 1927, PUIC added local utility companies to their holdings at a breakneck pace. It required bond issues and stock sales and lots of investors.
The acquisition was often like these examples, where the PUIC bought out a privately-owned telephone company in a small town.
If PUIC owned the telephone companies in nearby towns, they could be merged.
Construction and Engineering
Ralph Jarvis headed the Construction and Engineering operation. When a local utility was acquired, Ralph oversaw any repair and upgrades and construction required.
Often, Ralph was the person that represented PUIC in negotiations that led up to an acquisition. He had the perfect experience to evaluate what improvements were needed, and the engaging personality to negotiate with the owners or town officials.
Notice Ralph was representing the Western Light and Power Company. The PUIC holding company had more and more subsidiaries. Many subsidiaries were regional utilities.
To help finance the great expansion, the utility industry exploited a financial innovation known as the “holding company.”
The holding company would buy the majority of voting stock of an operating utility, and then control that utility. If the holding company owned other operating utilities, it could merge them or at least combine administrative services.
The holding company could also offer management and engineering and other services, charging for these services.
Here’s a diagram showing the complicated ways holding companies and operating utilities could be organized.
Cheap to buy an operating utility
A holding company was also a way to leverage money. The holding company could acquire an operating utility for about 40% of its capital value. Here’s how…
Typically, an operating utility, like many that Nathan Jones organized, raised capital in three ways:
- Common stock – sold to shareholders, this was the voting stock that controlled the company
- Preferred stock – sold to investors, this stock paid dividends, but isn’t voting stock
- Bonds – sold to investors, bonds were a loan from the investor that paid back with interest
Here’s an example. Let’s say a $100,000 operating utility had been organized in this way:
- Common stock 40% $40,000
- Preferred stock 25% $25,000
- Bonds 35% $35,000
- Total $100,000
If a holding company bought all the common stock of this operating utility for $40,000, it would have voting control. It would control a $100,000 operating utility. That’s a bargain.
Now, let’s raise capital for the new holding company so we can buy the utility for $40,000. Let’s raise the capital for the holding company in the same manner.
- Common stock 40% $16,000
- Preferred stock 25% $10,000
- Bonds 35% $14,000
- Total $40,000
So we can put up $16,000 to own all the shares of the holding company, sell preferred stock and bonds to investors, and purchase an operating utility worth $100,000.
Sweet, huh? And we could organize another holding company to buy the first holding company, which owns the utility. Like a pyramid or Ponzi scheme.
Nibbles Extra Credit – The Roaring Twenties – Music and Dance
The 1920s are sometimes called the Jazz Age. Of all American music, jazz became the mainstream new music of a generation.
Spellings such as “jas”, “jass” and “jasz” were seen until 1918, when the word “jazz” came into wide usage as a music genre.
Since the turn of the century, New Orleans had been the epicenter of a different type of music called “The new Orleans sound.” By 1920, it was called New Orleans jazz.
In the early 20s, there was an exodus of jazz musicians from New Orleans. They moved north, settling in cities that offered opportunities for their music.
Different cities developed different styles of jazz.
Chicago in the 1920s held great opportunities for musicians. Prohibition had sparked tremendous growth in speakeasies and dance clubs, many run by gangsters. King Oliver’s Creole Jazz Band brought a bluesy sound and exciting rhythm.
The early New York Jazz music was influenced by ragtime music, which had been popular there in the early 1900s. After The Original Dixieland Jazz Band played on Broadway, jazz musicians imitated the New Orleans sound. The 1920s proved to be a Golden Age of jazz in New York.
Jazz became the music of choice in New York during the 20s. There were many speakeasies and dance clubs. Louis Armstrong and Duke Ellington were two of many big-name jazz entertainers.
Jazz music began as “underground” music, but exploded into the mainstream. Jazz was the most popular form of music for young people.
Broadway contributed to this more mainstream jazz. In 1924, George Gershwin wrote Rhapsody in Blue, one of the best jazz compositions. Many more famous jazz standards followed in Broadway plays, like Blue Skies and Ain’t Misbehavin’ and Honeysuckle Rose.
Kansas City was a jazz band Mecca. There was a jazz club on nearly every street corner. In one six-block district, there were over fifty jazz joints.
The city was segregated, but black jazz musicians were in high demand in white clubs and dance halls. Count Basie and Charlie “Bird” Parker were two of many famous musicians.
Country Western music also garnered a wide audience in the 20s. The radio spread the music across the nation. The Grand Ole Opry was founded on November 28, 1925, by George D. Hay as a one-hour radio “barn dance” on WSM. Its weekly broadcast made Nashville the capital of country music.
The first great country act, the Carter Family, borrowed from black gospel, including what later morphed into folksinger Woody Guthrie’s iconic Depression-era hit “This Land Is Your Land.”
At the turn of the century, the Waltz and the Tango were considered scandalous because they involved physical contact between dance partners.
Now, in the 1920s, new more daring dances were introduced. Young people were doing the Charleston. Freed of corsets and floor-length dresses, women twisted their feet, kicked their legs, and swung their arms across the dance floor.
Older generations stayed with the waltz and tango, but perhaps to more lively music. The foxtrot became a dance for all ages. Other popular dances included “Black Bottom,” “Raccoon,” “Varsity Drag,” and “Collegiate Hop.”
By 1927, the Lindy Hop, named for Charles Lindbergh, became the favorite dance.
By the 1930s, swing dances were replacing those of the 20s.
Dance clubs were everywhere, helped along by prohibition. They were in speakeasies, but also public dance halls where you might bring a hidden bottle.
Some dance clubs attracted a multi-racial clientele. Others, like the famous Cotton Club in Harlem featured black performers but catered to a white clientele. Duke Ellington’s band entertained at the Cotton Club.
Timeline – 1926
- Image – Ad for Public Utility Investment Company – R.L. Polk – Salina City Directory – 1925 – Ancestry.com
- Image – Ad for 7% Bonds by Public Utility Investment Company – The Burr Oak Herald, September 9, 1926 – newspapers.com
- Quotation – number of holding companies – PBS – https://www.pbs.org/wgbh/aso/databank/entries/dt20ap.html
- Image – Monopoly Tycoon – myFICO – HSBC – https://ficoforums.myfico.com/t5/Credit-Card-Approvals/HSBC-Cash-Rewards-MC-CLI-1500-00-Approved/td-p/6011422
- Image – Sheet music “That Funny Jas Band from Dixieland” – Jazz (Word) – Wikipedia – https://en.wikipedia.org/wiki/Jazz_(word)
- Image – Kansas City clubs – KC History – Kansas City Public Library – https://kchistory.org/islandora/search/musicians%20local%20627?page=2&type=edismax
- Image – Bennie Moten’s band – KC History – Kansas City Public Library – https://kchistory.org/week-kansas-city-history/all-jazz
- Image – Duke Ellington – The Roaring Twenties – Lumen Learning – https://courses.lumenlearning.com/boundless-ushistory/chapter/the-roaring-twenties/
- Image – Grand Ole Opry – 1st broadcast – November 28, 1925 – Eyes of a Generation – Television’s Living History – https://eyesofageneration.com/november-28-1925-the-grand-ole-opry-was-born/
- Image – Charleston dancer – What Caused the Roaring Twenties – The Smithsonian Magazine – https://www.smithsonianmag.com/history/are-we-headed-roaring-2020s-historians-say-its-complicated-180977638/
- Image – couple dancing – Jazz Age Social Dancing (“The Modern Dances”) – Mass Historia – http://www.walternelson.com/dr/1920s-dance
- Image – City Activities with a Dance Hall – Thomas Hart Benton – History Hub – http://sites.austincc.edu/caddis/roaring-20s/
- Image – Cotton Club – https://www.smithsonianmag.com/history/are-we-headed-roaring-2020s-historians-say-its-complicated-180977638/