We may next take up the case of a corporation which desires to raise a considerable amount of new capital either at its organization or at some later stage in its development, and which cannot count on meeting its needs by selling to its own stockholders or to those intimately associated with the business as employees or customers. The corporation, we will assume for the present, either cannot command or does not desire to obtain the services of bankers or stock exchange brokers, but wishes to deal directly with the prospective purchasers of its securities. In other words, the corporation is in the position of wishing to sell its own securities to the public at large without the employment of intermediaries.

The simplest method, and one which is much used among public utilities abroad, although almost unknown in this country, is known as the "auction" or "tender" method. The corporation either disposes of its securities at public auction, or by public advertisement invites tenders and sells to the highest bidders.

This method is required by statute in England of all gas and water companies. It is believed to have originated with the Nottingham Gas Company in 1845, and is now generally agreed to be the most economical method of floating new issues, either of share capital or of loan capital, for companies of this class. The so-called "Model Auction Clause" provides among other things:

1. That due notice of the intended sale be given at least 28 days before the date of the auction.

2. That a reserved price be fixed and sent in a sealed letter to the Board of Trade.

3. That no block of shares offered for sale be of more than 100 nominal value.

4. That the total sum payable by the purchaser be due within the three months from the date of the auction or the acceptance of the tender.

5. That any shares not taken at the reserved price may then be offered to previous shareholders and employees and to consumers.

6. That any shares still remaining unsold shall be again offered for sale and, if unsold after the second attempt, may be disposed of at such price and in such manner as the directors may determine.

The well-known firm of A. & W. Richards of London handles practically all of the auction sales of gas securities, and sales usually take place at the offices of this firm on Tuesday of each week.

The auction or tender method eliminates the immediate cause of speculative fluctuation, inasmuch as it does away with "melon-cutting." There has been little difficulty in obtaining plenty of bona fide bids from permanent investors. Brokers and bankers find that they cannot purchase at a price which will permit them to resell at a profit. There seems to be no question but that the policy is working well with gas and water companies; yet for some reason it is not applied to other public utility corporations.

In Canada, the Consumers Gas Company of Toronto follows the same practice. During the last several years, it has sold 59,508 shares of a par value of $50 each at public auction, the prices averaging about $200 per share. In this country the plan has been adopted only in the city of Boston, where it is provided that the new shares of gas and electric light companies shall be sold at public auction.

In view of the long continued and successful experience of the English gas and water companies in raising capital by this method, it would appear that the advisability of its further application to public utility companies in the United States - and possibly even to other companies' securities which appeal to the investing public - would be well worth careful consideration.*