General Electric-Westinghouse Combination - A Mutual Working Agreement Made

THE NEW ARRANGEMENT WILL SAVE HUNDREDS OF THOUSANDS OF DOLLARS IN LITIGATION AND EXPERT EVIDENCE TO BOTH COMPANIES — APPARENTLY AN EQUITABLE DIVISION OF PATENTS — A BOARD OF CONTROL WILL MANAGE THE PATENTS.

As predicted in the ELECTRICAL REVIEW some time ago, a working arrangement based on the patents owned by both companies has been entered into by the General Electric Company, of Schenectady, N. Y., and the Westinghouse Electric and Manufacturing Company, of Pittsburgh, Pa. This arrangement is in no sense a consolidation of the companies. Its object is to do away with the expensive patent litigation which has been indulged in for years by both these great concerns. The legal expenses and fees for expert testimony have been something enormous and out of all proportion to the commercial value of the patents involved. These expenses will be saved under the new mutual arrangement.

The news that such a deal had been made became public on the evening of March 12, when the following official statement, representing the views of both companies, was given out by Mr. Charles A. Terry, one of the counsel of the Westinghouse company:

“Negotiations between the General Electric Company and the Westinghouse Electric and Manufacturing Company have resulted in an arrangement with respect to a joint use of the patents of the two companies, subject to existing licenses on terms which are considered mutually advantageous.

“It has been agreed that after certain exclusions the General Electric Company has contributed 62½ per cent and the Westinghouse Electric and Manufacturing Company 37½ per cent in value of the combined patents, and each company is licensed to use the patents of the other company, except as to the matters excluded, each paying a royalty for any use of the combined patents in excess of the value of its contribution to the patents.

“The patents are to be managed by a board of control, consisting of five members, two appointed by each company and a fifth selected by the four so appointed. Both companies have acquired during their existence a large number of valuable patents, and numerous suits have been instituted in consequence of the infringement of these patents by one party or the other or by their customers. In the prosecution of these suits large sums of money have been expended and the general expenses of the companies have in this manner been greatly increased. It is expected that the economies to be effected will be very considerable and that the two companies and their customers will be mutually protected.

“The especial incentives which led to the arrangement at this time were the recent decisions in favor of patents of the General Electric Company controlling the overhead system of electric railways, the approaching trials on a number of other important General Electric patents on controllers and details of electric railway apparatus and systems and other electrical devices, and the equally strong position of the Westinghouse company in respect to power transmission, covered by the patents of Nikola Tesla, and in view of its other patents in active litigation, some of which are of controlling importance.”

President Charles A. Coffin, of the General Electric Company, stated on Saturday to the ELECTRICAL REVIEW that “the arrangement between the two companies had been formally approved by the directors of both companies. The agreement is as yet in skeleton form. It may take a few weeks to complete it. I should say it might perhaps be perfected and put into effect by June 1. It is the intention that it shall continue during the life of the patents of the companies. The patents which are excluded are foreign patents, which can not be embraced, patents on cable and underground railway materials, which are covered by licenses, and a few patents excluded for special reasons.”

Continuing, Mr. Coffin said: “The companies will stop fighting each other in the courts, and will join in prosecuting infringements of their patents. How much will be saved by the termination of litigation I can not say, as all legal expenses are included in one account. It would be necessary to separate the items to furnish actual figures. The saving, however, will be large.

“No monopoly of the electrical business will be created by the agreement. There are other important concerns in the business. The General Electric and Westinghouse companies do not consolidate. They retain their entire independence and will, in fact, as heretofore, be competitors in business. Prices will doubtless be agreed upon which will benefit customers of the companies and the companies themselves, but the first proposition for an agreement between the companies was made several years ago, but the negotiations which resulted in the agreement were opened recently.

“Mr. Geo. Westinghouse, Jr., could not be seen, as he had left the city. Vice-President Geo. W. Hebard stated to the ELECTRICAL REVIEW that the announcement given out by Mr. Terry embodied what his company wished to say to the public.

“The New York Recorder of March 13 referred to the deal as follows:

“The annual meeting of the General Electric Company will be held in May, and efforts will be made to oust President Coffin. Yesterday Duer, Strong & Jarvis, lawyers, of 50 Wall street, advertised for the names and addresses of stockholders opposed to the management of Mr. Coffin. A. Pennington Whitehead of the firm said he represented clients whom he could not name. However, Mr. Coffin’s master stroke in forming a combination with the Westinghouse company may temper the opposition materially. He is not at all worried, apparently, as to the security of his place as executive.

“The authorized capital stock of the General Electric Company is $50,000,000, of which $10,000,000 may be preferred. The amount of common stock outstanding is $30,460,000 and of the preferred stock $4,252,000. Prior to August, 1893, dividends at the rate of eight per cent a year were paid on the common stock, but no dividends have been paid since that date. The preferred is entitled to dividends at the rate of seven per cent a year, and these are cumulative, so that when unpaid they become a lien on earnings. The dividends on the preferred stopped with the one due January, 1894. The company has issued $8,750,000 of five per cent debenture bonds, which are convertible into stock on the basis of $100 in stock for $120 in bonds.

“The surplus reported by the company for the year ended January 31, 1895, after charging off $932,521 for old losses, depreciation, etc., was $414,643. The annual meeting takes place May 12. The company’s principal works are at Schenectady, N. Y. It has other works at Harrison, N. J., and at Lynn, Mass. The company was organized on April 15, 1892, and acquired all of the capital stocks of the Edison Electric Light, Edison General Electric, Thomson-Houston Electric and Thomson-Houston International Electric companies. It controlled all the Edison patents for electric lighting.

“The Westinghouse company has outstanding $179,150 old common stock, $5,333,940 assenting stock and $4,000,000 preferred seven per cent cumulative stock, $500,000 United States Electric Light Company six per cent bonds, $250,000 collateral trust five per cent notes and $194,560 old scrip for dividends. The company holds in its treasury $6,735 preferred stock and $663,349 assenting stock. The total net income of the company for the year ended March 31, 1895, was $802,409. The new works of the company are at East Pittsburgh, Pa.

“A Boston man, acquainted with both companies, says that the agreement means that 12 per cent will be easily earned on both of the Westinghouse stocks and at least seven per cent will be earned on General Electric common. He claims that there has not been in five years so important a deal as this one.

“Matthew Marshall, the well known financial writer for the New York Sun, referred to the deal on Monday last as ‘The Electric Treaty.’ He says: ‘As usual, the speculators for a rise in General Electric stock, who had early information of the negotiations which have resulted in the peace just announced, overestimated its beneficial effect upon the market. The stock, which, since last January, had been gradually going up from 22 to 35, jumped, upon the news of the making of the treaty, nearly to 40, but immediately receded and closed finally on Saturday at 37. This shows that the uninformed public is not convinced that the cessation of the war between the two companies guarantees anything more than a cessation of the losses resulting from the previous hostilities. Whether, eventually, positive profits will be reaped, is not yet certain.’”