Jay Gould - President, American Union Telegraph Company and Western Union Company

JAY GOULD ON THE STAND

HIS TESTIMONY RELATING TO THE

TELEGRAPH CONSOLIDATION.

INTERVIEWS AND HOW THE ARRANGEMENT

WAS BROUGHT ABOUT — VALUE OF HIS

WESTERN UNION STOCK.

Jay Gould appeared in a court of justice yesterday for the first time since the trial of Edward S. Stokes in 1873. His testimony was taken in the suit of William S. Williams against the Western Union Telegraph Company, its Directors individually, and the Union Trust Company — a suit to restrain the Western Union from dividing $15,000,000 of their increased capital stock among present stockholders of that company. The court in which the proceedings were held was Part II. of the Superior Court, Judge Truax presiding. Mr. Gould was subpoenaed as a witness by the plaintiff. He sauntered in a few minutes after the court had reassembled in the afternoon and seated himself behind his counsel, Messrs. Vanderpoel and Swayne. Leaning his umbrella against his crossed legs, and hanging upon its handle his white beaver hat, Mr. Gould gazed complacently at the Judge, the opposing counsel, and spectators who were critically watching every movement he made. Mr. Gould is verging upon 50. He is remarkably well preserved, and his beard retains its pristine blackness. His eyebrows are as dark as ever, and only his black hair shows a few streakings of gray. His eyes are full of fire. He stepped nimbly to the witness chair when his name was called. His answers to Gen. Robert Sewell's questions were given in a low tone, hardly audible four feet away. They were a trifle more distinct when Gen. Swayne undertook the cross-examination.

He was, he testified, one of the original promoters of the American Union Telegraph Company, and Messrs. Bates and Tinker were the others. The articles of association were not drawn up under his own directions, and he did not know by whose directions they were prepared. He could not remember whether he furnished either Mr. Bates or Mr. Tinker with his check to pay for his capital stock in the company. He believed he subscribed for $5,000,000 altogether, and he got back his check for that amount. Eventually he sold his stock to the Central Construction Company, which was organized to build the line. He himself never solicited subscriptions for the American Union Company. If he remembered right, he did own about Jan. 10, 1881, 10,000 shares of the American Union stock, representing about $1,000,000. He did remember signing a paper as a stockholder of the American Union Company, consenting to the transfer of its property to the Western Union Company. He did not recollect, however, the number of shares he signed for, nor the time when the original consent was signed. In addition to this stock, he owned some bonds, all of which were of the Central Construction Company.

Gen. Sewell - Did you initiate the proceedings for the consolidation of the American Union with the Western Union ? A. - No, Sir.

Q. - Who did ? A. (hesitating) — Mr. Vanderbilt; he sent me a note asking me to call on him.

Q. - Have you still that note ? A. — Yes, Sir. (Producing it.)

The note read:

DEAR SIR: I should like to see you for a few moments about 9 o'clock this evening, if convenient, at my house. Very respectfully yours,

WILLIAM H. VANDERBILT.

Mr. Gould, in response to the note, visited Mr. Vanderbilt at his residence, Fifth-avenue and Fortieth-street, Sunday evening, Jan. 9, 1881. There was no one but themselves present. Mr. Vanderbilt said that the stock of the Western Union was running down in consequence of the building of the American Union's lines, that many of the stockholders were dissatisfied, and that after a discussion of the matter with Mr. Dillon he (Mr. Vanderbilt) had come to the conclusion that some amicable arrangement could be entered into between the two companies. Mr. Vanderbilt also said that Mr. Hatch had written him a letter stating that Mr. Gould did not control the American Union. Mr. Gould replied that Mr. Hatch's statement was true, that he was only a minority stockholder, and that the majority stockholders, who had their own ideas as to the value of their stock, would be the ones to decide upon any proposed arrangement. They discussed briefly their personal interests in telegraph stocks, and Mr. Vanderbilt remarked that he already sold some of his Western Union shares. He also suggested that rumor had it that Mr. Gould had bought heavily of Western Union. To this Mr. Gould said neither yea nor nay. Mr. Gould proposed that there should be a conference of the representatives of the two companies, and they parted for the night. On the following morning Mr. Gould received the following letter:

MONDAY, Jan. 10, 1881,

No. 459 Fifth-avenue.

J. Gould, Esq.:

I have seen committee of the Western Union Telegraph Company this morning, and stated to them the substance of our interview last evening. The committee will meet any committee that may be appointed on behalf of the American Union Telegraph Company to settle matters this evening, at 8 o'clock, either at my house or at Mr. Schell's, No. 39 West Thirty-third street. Very respectfully yours,

WILLIAM H. VANDERBILT.

Continuing his testimony, Mr. Gould said he notified Gen. Eckert, Mr. Ames, and Russell Sage to attend the conference on behalf of the American Union. The Monday night conference came near breaking up in a row instead of resulting in an amicable arrangement. Mr. Gould denied that he made a proposition to bring the two companies together on a basis of a capitalization of $70,000,000. The market price of American Union at that time was $80 a share. At this conference, as on the previous night's conference, Mr. Gould took the ground, he says, that the largest holders in the American Union should have the controlling voice in the deposition of the stock. He might have been willing to take less for his portion of the American Union than what the others insisted on receiving, for he was a large holder in Western Union stock at the time.

Q. — How much did you pay for that Western Union stock ? A. (smiling blandly) — I don't remember. I bought when I thought it was cheap and sold when I thought it was dear. I shouldn't have been likely to have made the statement that Western Union might sell at 60, for I was interested in a rise. Western Union was at that time, I believe, somewhere about 78 or 80.

Returning again to Monday night's conference, Mr. Gould testified that after it was found that no basis of agreement could be settled upon, a conference committee was appointed, in which he and Mr. Dillon represented the American Union. He sat up with Dillon until 1 or 2 o'clock discussing the matter. There was no agreement made that night. At another conference the next night, however, the terms of consolidation as finally as finally carried out were agreed upon. Mr. Gould believed that Mr. Green, or some one of the Western Union Company, made the remark at one of these that there was an undivided dividend due the Western Union's stockholders. Asked as to the condition of the American Union and its prospects at that time, Mr. Gould replied that the company had 70,000 miles of wire in operation, and between 800 and 900 offices. They were gradually opening out, and a large business was in prospect. He himself calculated to make 6 per cent profit on the investment, but Gen. Eckert was of the opinion that 20 percent would be yielded. He estimated the monthly expenses to be $80,000, and at that time the monthly receipts were as high as $120,000. For this present year he calculated the receipts would be over $2,000,000, while the expenses would still remain about $80,000 a month. He had carefully watched the development of the American Union, and he was free to say that he considered their property cheap at $15,000,000. He could not say how much it cost to put the company where it stood at that time. He knew that he got his stock in it at par, and so did everybody else. There was nothing got with the stock that brought it to them at less than par value.

Mr. Gould's connection with the Directorship of the Western Union Company was next taken up by Gen. Sewell. He did, he testified, enter upon his duties as Director immediately after he was elected, on Feb. 5, and was appointed a member of the Executive Committee. On the 3d of February he owned 90,200 shares in Western Union, and to this day he never sold one share of it. He denied that he was at all familiar with the expense of creating telegraph companies; he never entered into such details. He thought the American Union Telegraph system could not be reproduced, for the control of the railroads could not again be readily secured. Such a control as that obtained by the American Union would cost $40,000,000 or $50,000,000. His experience was that the railroads much preferred an association with the Western Union to association with a new company. Small companies would stand no show at all in competing with the Western Union for railroad favors. His ownership in railroads and his Directorship enabled him to secure exceptional advantages for the American Union Company. Such facilities were not for sale to-day.

Cross-examined by Gen. Swayne, Mr. Gould testified that at the time of the consolidation his share in American Union stock was about $1,000,000 and that in Western Union about $9,000,000. Mr. Vanderbilt distinctly told him that he had no stock of the American Union. Mr. Gould denied emphatically that portion of Mr. William's complaint charging that the consolidation was an unlawful combination to injure the interests of Western Union stockholders. He fully believed that the consolidation was the salvation of the Western Union. He thought the Western Union had much the best of the trade. As proof that the Western Union was very considerably benefited, Mr. Gould pointed out the fact that its stock rose from 95 to 102. He asserted that public opinion recognized that Western Union had been strengthened , otherwise the stock would not have gone up. Mr. Gould added more information about the promising condition of the American Union at the time of consolidation. He had perfected arrangements to include in its system an additional 5,200 miles in the region to the south-west of St. Louis, where the Western Union was already strongly entrenched. Besides that, he had just let the contracts for a couple of cables. The Western Union earned from its cable service alone about $500,000 yearly.

To Gen. Sewell Mr. Gould admitted, with a broad smile, that he had exchanged all of his American Union stock into Western Union stock, that he was one of the early birds. (Laughter.) He wanted to be on the safe side, and, finding he was a little lame, (Laughter.) he started early to make the exchange. He believed he was one of the first to make this exchange, for if his memory served him right, the machine for stamping the certificates was not ready quite as soon as he was. (Laughter.) The Central Construction Company also exchanged its stock for Western Union, and paid him his share of its bonds in Western Union. His share from this source was a million.