CHAPTER VI

ATCHISON, TOPEKA & SANTA FE Charter—Strategic extensions—Competitive extensions—Effect on finances—Raise in rate of dividend—Reorganization of 1889—Acquisition of the St. Louis & San Francisco and of the Colorado Midland—Income bond conversion—Receivership—English reorganization plan—Mr. Little’s report—Final reorganization plan —Sale—Subsequent history. The Atchison, Topeka & Santa Fe Railroad has been reorganized twice, in 1889 and in 1893–5; the first time without, but the second time after a foreclosure sale. The keynote of its history has been extension. It was the enterprise of the men in control before 1889 which gave it the position and power it holds to-day, but it was also that enterprise which necessitated its first reorganization by imposing upon it heavier burdens than it could bear. Chartered in Kansas in 1863, the Atchison spread west, southwest, south, and northeast. It received some aid from the state of Kansas in the shape of a grant of lands, but depended primarily on the investment of private capital. Kansas itself was not, in 1870, a very encouraging field for railroad building. It had been admitted as a state only in 1861, and could boast for the most part of less than two inhabitants to the square mile;—although settlement was pushing westward with considerable rapidity, and stores of mineral wealth had been discovered in Colorado. The railroad in those days had to create its own traffic, and population followed the means of transportation. The peculiarity of Kansas was a central position, which lent itself to schemes of the most far-reaching nature. A railroad reaching from one end of the state to the other might almost equally well have been extended to California, to Chicago, or to the Gulf; and could be sure in time, if it survived, of the carriage of a vast volume of traffic out in every direction from the Central West. The Atchison managers saw this opportunity, and courageously and persistently endeavored to realize it;—part of the project they announced, and part they kept back till the fitting time should come. The systematic extension of the Atchison Railroad may be divided into four parts: (1) The construction through Kansas to Colorado, to save the charter, then down the valley of the Rio Grande to Albuquerque. (2) The securing of a connection with the Pacific Coast by construction, lease, or traffic agreement. (3) The connection with the Gulf. (4) The connection with Chicago. As the system neared completion, and its territory came to be invaded by other roads, there were added to this systematic extension what may be called competitive extensions, consisting largely in the construction of branch lines, and multiplied beyond anything which the country could need for years to come. This sort of building was most prominent from 1884 to 1888 and will be considered in its place. The first stretch of road was built with few difficulties or complications. It was commenced in 1869, and, after numerous delays, it reached the western border of the state of Kansas on December 28 of the same year; from this point it went on more leisurely, first west and then southwest, to Albuquerque.[401] These early miles were paid for from the proceeds of both stocks and bonds. From Albuquerque a variety of routes presented themselves. The Southern Pacific had by that time built to El Paso, and it was feasible to extend the Atchison to that point and to rely on a traffic agreement for the handling of the western business. Or, building to Deming near El Paso, Atchison might have extended its line down the river valleys in the northwestern part of Mexico to Guaymas on the Gulf of California. Or, Atchison might have built directly west from Albuquerque. All three of these routes were considered, and all three were eventually carried out.[402] The connection with the Southern Pacific was not a very difficult one to make, and the Atchison reached Deming in March, 1881. By the traffic agreement then concluded the Atchison secured the use of the Southern Pacific tracks from Deming to Benson, Arizona, and arranged to build south into Mexico from this point; while the Southern Pacific was allotted 51 per cent of the through rate on traffic passing over Southern Pacific lines.[403] This formed the second through route from the East, and in September, 1881, it took one-quarter as much business as the Central Pacific. It was also the first of Atchison’s projected routes to be completed. The line to Guaymas was added by purchase. Instead of building, Atchison exchanged its stock for the stock of the already existing Sonora Railroad in the proportion of one to two, and guaranteed the interest on the Sonora first mortgage 7 per cent bonds.[404] This made up for the lack of an independent line to the coast further north. The total of Sonora stock was $5,400,000, requiring $2,700,000 Atchison stock in exchange. The total first mortgage 7 per cent bond issue was $4,050,000. With the railroad came a subsidy of $2,608,200 (American gold), equal to $11,270 (Mexican) per mile. This subsidy kept cropping up in Atchison finance for some time, and was finally adjusted in 1896 by the transfer to the company of $1,159,800 in 3 per cent bonds of the Mexican Interior Consolidated Debt. For the direct route President Strong sought the help of the St. Louis & San Francisco, and the use of the charter of the Atlantic & Pacific which it owned. The Atlantic & Pacific was a road incorporated in 1886, with a charter to build from St. Louis to California. In spite both of its charter and of its name it had never gone further west than Vinita, in the northeast corner of Indian Territory.[405] President Strong and the Frisco now agreed to continue construction under the name of the Atlantic & Pacific, both from Vinita and from Albuquerque. The Atchison was to be given a half-interest in the charter, directors were to be chosen equally from the two companies, and the cost was to be met by a $25,000,000 loan, which the Atchison and the Frisco were to guarantee jointly but not severally.[406] Before the new construction neared completion, however, the St. Louis & San Francisco fell under the control of Messrs. Gould and Huntington, who, as owners of the Texas & Pacific and the Southern Pacific respectively, naturally disapproved of the plan to extend the Atlantic & Pacific to the coast. The Atchison, therefore, agreed to build no further west than the Colorado River. At that point the Southern Pacific was to meet it with a line from Mojave. The Southern Pacific gave to the Atlantic & Pacific an interest guarantee on its bonds to the extent of 25 per cent of the gross earnings derived from Atlantic & Pacific through business, and the latter road retained all its rights for a line in California.[407] This proved unprofitable, for the Southern Pacific persistently diverted traffic to Ogden and El Paso, and in 1884 still another arrangement was made. By this— (_a_) The Atlantic & Pacific bought the Southern Pacific division between the Needles (the Colorado River) and Mojave, 242 miles, for $30,000 per mile, and, until such time as title could be given by the discharge of the mortgage upon it, took a lease at an annual rental of 6 per cent on the purchase price. (_b_) The Atlantic & Pacific secured trackage and traffic rights and facilities between Mojave and Oakland and San Francisco, as well as the use of terminals at the latter point. (_c_) The Atchison (and the St. Louis & San Francisco likewise) agreed to buy from the Pacific Improvement Company first mortgage bonds and other securities of the Atlantic & Pacific of the par value of $3,096,768, at the actual cost to the Improvement Company, to wit, $1,524,356. To complete the connection to the coast the Atchison built from Waterman, some seventy miles east of Mojave on the Atlantic & Pacific, to Colton on the Southern Pacific, and secured control of the California Southern from Colton to San Diego.[408] In 1885 entrance was obtained to Los Angeles by lease of the Southern Pacific track between Colton and that city.[409] The money for this rapid progress was obtained by the sale of both stocks and bonds, but on the whole stock predominated. The directors rightly considered it much more conservative to issue stock and sell it at par than to load the road down with a heavy debt in the shape of bonds; and what is more, they were able to make good their word, and to sell stock at or near par in spite of the risk incident to operations such as the Atchison was conducting and the frequent bonuses or stock dividends declared. By 1884, then, Atchison had reached the Pacific coast. The next great steps were the extensions to Galveston and to Chicago. The year of entrance to Los Angeles the Atchison did not cross the southern boundary of Kansas. Certain of its stockholders were, however, unofficially interested in the Gulf, Colorado & Santa Fe, which ran from Galveston on the south to the Indian Territory on the north, roughly 200 miles. In 1884 a charter was obtained for the Southern Kansas Railway Company, a corporation organized solely to build south from Arkansas City. The same year the Gulf, Colorado & Santa Fe obtained permission to stretch north. The two roads met at Purcell in the summer of 1887.[410] In 1886 the Gulf, Colorado & Santa Fe was formally brought in. Gulf stock then amounted to $4,560,000 and bonds had been issued to a limit of $17,000 per mile. For the entire capital stock, subject to the above encumbrance, Atchison agreed to pay $8000 a mile in Atchison stock, par value.[411] The final move was to get into Chicago. “The Atchison Company has been much too conservative during the last few years,” said the _Chronicle_, “and thus has allowed its territory to be invaded.” The first intent was to build direct. There were incorporated, in Illinois the Chicago, Santa Fe & California Railway Company, and in Iowa the Chicago, Santa Fe & California Railway Company of Iowa. In 1887 the Atchison was able to purchase the Chicago & St. Louis Railroad, between Chicago and Streator, with a branch to Pekin,[412] and to save itself construction between these points. The whole line was opened for traffic in May, 1888.[413] This completed Atchison’s systematic extensions before 1889. From a local road in Kansas it had become a through route, taking freight over its own rails from Chicago to Galveston and to the Pacific coast. But especially in the latter eighties competition had become keen; and to its strategic extensions Atchison was obliged to add competitive building on an enormous scale. Of the 7000 miles in 1888, over 2700 had been added since January, 1886, and had been built, not to tap new sources of traffic, but to defend what was thought to be Atchison’s rightful territory by means of a desperate war of rates. “About three or four years ago,” said a competent observer, “a mania seized three great corporations (Atchison, Missouri Pacific, and Rock Island) to gridiron Kansas with railroad iron, and each tried hard to see which could cover the most ground, without regard to the character of the ground, the result [being that] railroads were built where they would not be required for ten years to come.”[414] Such roads could not be expected to pay, and in fact did not. Even in the case of better planned extensions, the lines had to be built in an unopened territory, the traffic of which had yet to be developed. In Indian Territory, Oklahoma, and Arizona, the bulk of the country had less than two inhabitants to the square mile; in New Mexico and Lower California only one-half of the area was more thickly settled; and it was largely from this southwestern corner that local traffic for the Atchison had to be built up. The method of financiering these competitive extensions varied: sometimes the parent company guaranteed the principal and interest of the branch-line bonds; sometimes it took these into its treasury