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.
If the promoters and the financiers working with them are well supplied with cash, their problem may be much simplified. In the promotion of the Mount Vernon-Woodberry Cotton Duck Company in Baltimore, 1899, the promoters acquired fourteen mills by making a separate bargain with each manufacturer and paying to him an agreed price in cash. The price fixed with one manufacturer was not known to the others. In working under this method the promoters were, of course, assuming a large personal risk which it is frequently impossible for the organizer of a large combination to take upon himself.
The next most secure plan is to persuade each concern that is to be taken into the combination, to grant an option for a limited period at a fixed price. After the promoter has secured enough of these options to assure the realization of the project, he is then in position to form a definite proposition and take it up with bankers for the purpose of securing financial backing. The methods of securing options may differ in each case, and a separate bargain will in each case be driven. When the United States Shipbuilding Company was first promoted, in 1899, Colonel John J. McCook and John W. Young, the promoters, first of all persuaded Lewis Nixon to give an option on his Crescent Ship Yard and adjoining property, with the understanding that Mr. Nixon should consent to act as general manager of the proposed consolidation. In getting together such a proposition as a new street railway, it is often necessary to secure option on rights of way and to obtain franchises from the city and county authorities in order to forestall "hold-ups" at a later period in the development of the proposition. Under such conditions, these options must be obtained very quietly and quickly.
Sometimes the process of "assembling" is completed when the promoter has obtained a control over some one plant or some one portion of the contemplated project which is regarded as essential. This control puts him in a position of strategic advantage. There can be no general rule as to assembling; the most that can be said is that the promoter must put himself and keep himself in a position of mastery over the situation. If he does not do so, he cannot expect, and, as a matter of fact, he has no right to expect, any large compensation for his services. He is playing his game on the implied understanding that in case he obtains a position of advantage he will expect a large return for his services, which must, in fairness, be balanced by the understanding that in case he finds himself at a disadvantage he will get very little return.
The promoter's relation to the people with whom he is dealing is not that of one banker or business associate to another, but is rather that of buyer and seller of a product which has no fixed value. The promoter is endeavoring to get the highest price obtainable, and the owner of the property or of the cash that goes into the enterprise quite properly wishes to do the best he can for himself.