This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
There are two other purposes for which one corporation may hold the stock of other corporations: one purpose is to-bring about a grouping or combination of concerns that are non-competitive; the other purpose is to control subsidiary corporations in such a way as to advance the main interests of the holding company, but not with a view to preventing or restraining competition. We find the best illustration of the first of these two purposes in the public utility field. There are about 140 large holding companies which own controlling interests in a number of electric light and power, gas, and traction corporations. Of approximately $2,112,000,000 of securities issued by electric light and power companies, about 82.5% are owned by these 140 holding companies; of about $1,320,000,000 of securities of artificial gas companies, about 66% are owned by the holding companies; of $4,043,000,000 of securities of traction companies, about 81.4% are owned by the holding companies. So far as the available records show, only one holding company in this class has ever been placed in receivership, and that was on account of financing large irrigation schemes.
The chief advantages of applying the holding company plan to public utilities are;
1. Most of the local companies are in small cities and do not have the resources which would enable them to employ high-priced talent. The holding companies, through their superior resources and organization, are able to increase the efficiency of the local companies.
2. While the securities of the local public utilities can be sold only in or near the place of their operations, the securities of great holding companies enjoy a national and even international market and consequently can be sold more widely and on a much better basis.
There appears to be no reason to condemn the holding company in this field. On the contrary, it has been continually an aid to economy and efficiency. The London Underground Electric Railways is purely a holding company. There are, however, comparatively few examples outside the United States of this device.