world war was about to erupt and the Titanic catastrophe was still
fresh in people's minds as a grand failure of maritime commerce and
corporate arrogance. The year was 1914. Two of the world's most powerful
men in shipping set themselves on a course to combine their companies,
British India Steam Navigation and Peninsular & Oriental Steam
the bare financial facts of this 'merger' are well known, far less
is known of the attitudes and intentions of those who were consumating
this act, and what they thought they might achieve. The following
document which possibly originates from the archives of the Inchcape
trading company, but whose author is unknown, gives some apparently
fascinating insights into the intentions of Lord Inchcape and Sir
Thomas Sutherland as they brought together their two shipping empires.
AND THE MERGER BETWEEN
BI AND P&O
The merger between
BI and P&O was one of the most shrewd deals of [the Earl of] Inchcape's
life. It is a remarkable case of a company apparently selling itself
out to a more powerful rival, whilst in reality gaining control of
that rival and consolidating
its authority for the present and the future. Why did Sir Thomas Sutherland,
regarded as one of the strongest and most successful of P&O chairmen,
his directors and shareholders allow this to happen?
career was outstanding by any standards. He had joined P&O within
fifteen years of its earliest contract in 1852, when he was only 18.
Two years later, he had been sent to Bombay, but it was in Hong Kong
that he really made his mark. By the time he was 26, he had been appointed
superintendent of P&O's Japan and China agencies and a member of the
Hong Kong Legislative Assembly; Inchcape was 38 before he had achieved
As Inchcape (right)
was to benefit from the vacuum of power at Mackinnon Mackenzie and
BI with the increasing age and untimely death of Sir William Mackinnon
in 1893, so Sutherland rose to power whilst P&O founder, Arthur Anderson,
was reaching the end of his life. Appointed managing director in 1872
after four years as assistant manager and an extensive tour of all
P&O's operations worldwide, he revolutionised the whole set-up. Facing
severe difficulties with the opening of the Suez Canal in 1869, Sutherland
implemented drastic economy measures within a company whose finances
had been cushioned by generous subsidies (Freda Harcourt, 1982).
the principal trends in the ocean carrying trade, Sutherland built
up P&O, moving its base from Southampton to London, and contracting
for a series of new efficient vessels. Under his able leadership,
P&O rose to great power and influence, establishing unique national
prestige. Like Inchcape, he also played a significant role in public
life, elected as Liberal MP for Greenock in 1884, and achieving his
knighthood in 1891.
By 1913, P&O
had a secure financial base and extensive network of routes, such
that it felt strong enough to negotiate with a similarly powerful
shipping company without compromising its position. It had a paid-up
capital of ?5.5 million, 60 ships of over half a million tons and
a dominent position on the prime mail routes through Suez to Calcutta,
Yokohama and Sydney. Meanwhile, P&O "Branch Line" to Australia
, via the Cape ran extensive feeder services, and the company maintained
over 200 overseas agencies.
second factor in persuading Sutherland (pictured left in earlier days
in Hong Kong) to look sympathetically upon a merger with BI was the
growing inclination in the early twentieth century for shipping combines
to grow. For example, P&O had already taken over the Blue Anchor Line
in 1910, and the AUSN (Australasian United SN) had been created through
the ASN and QSS (Queensland Steam Shipping Co) merger.
himself, eighteen years older than Inchcape, was nearly 80 in 1913,
and, unlike his successor was to do, sought retirement and a reduction
of his responsibilities. Although other members of his board certainly
saw themselves as possible candidates for the chairmanship, such as
Sir Walter Lawrence, it was not until Inchcape had established a prominent
position in BI that Sutherland felt confident that he had identified
a worthy successor. All along, the possibility of merger with BI was
tied up with Inchcape's ultimate leadership of the combine.
documentation within P&O archives, charts Sutherland's interest in
BI. Detailed examination of its annual report in 1913 reveals that
BI was closely comparable in size and complementary rather than competitive
- in its activities, with P&O. BI had 120 steamers of over 700,000
tons; although P&O had only half the number of ships, it could muster
a similar aggregate tonnage. BI dominated the Indian Ocean trades:
P&O the long-haul routes and home lines.
appeared financially sound: it could afford to distribute ?130,720
in dividends (5% on preference stock and 10% on the ordinary shares)
with ?15,666 to carry over for 1914. It was expanding its fleet, with
four new vessels delivered since the end of 1913, four more nearing
completion and two cargo steamers on long-term contract had been purchased
outright. Six old steamers had been disposed of in early 1913. Meanwhile,
debentures totalling ?211,860 had been recently paid off. The book
value of BI fleet was placed at ?4.3m, with further capital and reserves
who had unofficially acknowledged Inchcape's prominence in BI for
at least the previous three years, retired owing to failing health
in 1913, and with the death of the Duke of Argyll in the same year,
the ?old guard? was disappearing, and with them, the opposition to
a merger with P&O.
On 19th May 1914,
the P&O board - Sutherland, Adamson, Rathbone, Gladstone and Cunard
- issued a Resolution to make an offer to BI to buy its ordinary and
preferred stock. The two Boards were to be "fused" still
working separately but under a single controlling body "in which
the Directors of P&O will possess a preponderating voice". Despite
their insistence on this clause from the outset, it was not to be
adopted. Lord Balfour, in a private letter to Sutherland, was among
the first of his colleagues to voice disquiet when he expressed fears
that the future board might not adequately protect the interests of
its P&O element.
A further private
letter to Sutherland, this time from Dr Freshfield, P&O solicitor,
reveals a fourth reason why Sutherland welcomed the BI merger. Apparently
the capital powers of P&O were almost completely exhausted. An increase
in its capitalisation was necessary before any further expansion could
be envisaged. An extraordinary general meeting, to authorise the raising
of extra capital, was on the cards in any case.
Such a meeting
was held a month later, when shareholders heard how the P&O board
proposed to come to an agreement with BI whereby BI shares would be
exchanged for P&O stock. Each BI ordinary share (nominally ?50) was
to be paid for in P&O deferred stock, valuing each at ?33. 06s 08d,
and each ?1 BI preferred stock acquired by ?1 fully-paid 5% preferred
stock. The increase in capital which this represented was ?700,000
for the preferred stock and ?638,133 for the deferred stock, totalling
?1.3m., making P&O's total capital ?4.8m.
presenting the case for the merger, insisted on referring to it not
only as a good deal financially, but as a "combination",
and that the aim was "to strengthen the position of both companies,
to promote economy, eliminate possible rivalry and generally to increase
the efficiency of their joint work." He emphasised that the conditions
agreed were ?the only possible terms on which this operation could
have been carried out" He tried to placate the anxieties of P&O
stockholders and directors alike, by reiterating the resolution that
P&O would maintain a "preponderating voice" and that P&O
business would continue under the same management and agencies. The
stockholders were well justified in their suspicions of Inchcape's
motives, and the policies he would adopt when he succeeded to the
That the prospect
of Inchcape as their chairman was not altogether welcomed by P&O stockholders
is plain. Sutherland maintained that P&O was fortunate to acquire
Lord Inchcape's (right) services - there was no need to dwell on his
reputation; this was well known to the whole shipping world. One or
two dissentients (such interventions were comparatively rare at P&O
AGMs, such was the respect in which Sutherland was held) thought that
Lord Inchcape's remuneration should be decided at a public meeting.
Oral evidence (Wilfred Mizen, retired P&O company secretary, who joined
the company in 1913) suggests that Sutherland was deaf by this stage,
so his ignoring this question has no significance: but when repeated,
Sutherland considered that it was but a small matter, and it was ungentlemanly
to raise it. As in (sic) his hopes for the prominence of P&O within
the new combine, he was wrong.
On the 22nd May,
Sutherland issued a telegram to his fellow P&O directors: "INCHCAPE
AND I DECIDED THIS MORNING INVIEW OF THE RUMOURS IN THE PRESS ABOUT
IMPENDING EVENTS THAT IT WOULD BE DESIRABLE TO ANNOUNCE OUR INTENTIONS
TO PREVENT UNWISE SPECULATION AND ALSO TO FACILITATE THE BUSINESS
OF BI MEETING ON TUESDAY WHERE QUESTIONS WILL CERTAINLY BE ASKED.
THE NOTICE WHICH WILL APPEAR PUTS AN END TO THE SECRECY WHICH HAS
BEEN SO WELL KEPT" The extent to which Sutherland realised Inchcape's
intentions at this point is still open to doubt.
The final agreement
came on 27th May 1914, whereby BI duly transferred all its issued
stock to P&O. All twelve P&O directors were now also directors of
BI, and all eight directors of BI were to have a seat on the P&O board.
At this stage, Inchcape was to continue as Chairman of BI for a term
of ten years only, and there was nothing to say he would be P&O chairman.
BI closed its books on 30th September 1914, and officially ceased
to exist. But in reality it was stronger than ever.
If P&O really
wanted to cut out rivalry with BI in an age of fierce competition,
and at the same time take over its property and goodwill, why was
BI not liquidated? Sutherland argued to P&O stockholders that BI stockholders
wanted to retain an interest in their own company through P&O "and
we will have a controlling power in both concerns". BI, he said,
was as large as P &O, too bigot be immediately taken over, and it
needed to be managed separately. Mackinnon Mackenzie would remain
managers for at least the next ten years, and its commission business
with BI - although very extensive and remunerative - was necessary
for BI's effective running. The two companies operating side by side
would have a wider base of security for future profits than just one.
But this was
not the full story. The directors' minutes record that when Sutherland
opened negotiations with Inchcape in March 1914, he had advocated
the liquidation of BI, but objections were anticipated from the Board
of Trade in view of the monopoly this would create. Also, P&O could
hardly have managed the heavy outlay of capital that would have been
necessary to pay off BI's debenture issue which amounted to ?1.6m.
So, in a nutshell, P&O's shortage of funds meabt that the future independence
and power of BI, especially combined with the influence of its powerful
leader, was assured.
By 10th June,
Waltons, BI solicitors, informed Freshfields, representing P&O, that
P&O offer to BI shareholders had been accepted by the requisite majority,
and the acceptance documents were duly issued. In the final proof
of the notification to the press, all references to P&O having a "preponderating
voice" had been eliminated.
The last meeting
of the old P&O board was held on 22nd July. Any hopes of a last-ditch
attempt to assert the power of P&O in the new arrangement were lost
at Sutherland's insistence that all the actions of the previous few
months should be taken as confirmed so that no minutes would need
to be read at the first meeting
of the new board in October. At the new board meeting, all seemed
to go smoothly ahead as planned. There was no immediate cause for
alarm. It seemed just a formality when Sutherland (left) successfully
proposed that Inchcape's salary as a managing director of P&O should
be the same as that which he received from BI as chairman - ?5000.
Yet this meeting
marked a turning-point in P&O history more far-reaching than was realised
at the time, except possibly by Inchcape, and to a certain extent,
by Sutherland. Inchcape had written to his friend, Lord Kilbracken,
"I have, after much labour, fixed it up with P&O. I think the
settlement is an uncommonly good one and perfectly fair to both companies".
Sutherland agreed with this, or at least attempted to persuade himself,
his fellow directors, and P&O shareholders that he did. He would have
been less happy to read another private letter of Inchcape's, boasting
that he now had nearly two million tons of shipping under his control,
'governing a 'single traffic system' which touched 'every conceivable
port of the British Empire.'
powers of persuasion were not altogether successful was shown in the
reaction of a shareholder at the 24th June extraordinary meeting of
P&O. Drawing attention to the high price finally paid for BI shares
(?96 when the market price was ?83, and the original agreement was
?33), he complained that "the British India Company had made
a very good bargain indeed. Whether P&O had done the same was open
The steady accumulation
of power by Inchcape, his assumption of the chairmanship and 2.5%
of the net profits, the new prominence of BI and Mackinnon Mackenzie
men and interests vis-à-vis P&O, and an overall feeling of
usurpation of authority by BI - described graphically in contemporary
oral evidence - confirmed worst P&O fears over the next few years.
But none can have considered that this regime would continue for nearly
a quarter of a century.
acknowledgements to Tom Kelso and theScottish Maritime Museum
Irvine, Ayrshire, KA12 8QE
Tel: +44 (0)1294 278283
from whom this transcript was obtained.
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