Sunday, 15 January 2012

McEwan's prospectus

You'll have to excuse me for doing this arse about tit. It's just the order that I've found the articles.

Yes, we're back in 1889 just as William McEwan is preparing to flog off his business. Or at least half of it. You'll be wishing he was your dad after reading what's below.

As a special treat, I won't be boring you with the full prospectus. These things are a bit repetitive with all their legal forms. I'll just be plucking out some plums with my thumbs.

"The SUBSCRIPTION LIST for the under-mentioned PREFERENCE SHARE CAPITAL will be OPENED on THURSDAY the 25th, and it will be CLOSED on or before MONDAY the 29th Of JULY, 1899.
APPLICATIONS will be received by THE BRITISH LINEN COMPANY BANK, at its Head Office. St Andrew Square, Edinburgh; at its OFFICE, 41

LOMBARD STREET. LONDON. E.C., and at any of its Country Branches.


INCORPORATED UNDER THE COMPANIES ACTS, 1852 to 1886, whereby the liability of a Shareholder is limited to the amount of his Shares.

CAPITAL, £1,000,000.
Divided into

50,000 Ordinary Shares of £10 each (all of which are taken in part payment of the purchase price) £500,000
And 50,000 £5 per Cent Cumulative Preference Shares of £10 each now offered for subscription £500,000


The Preference Shares will be entitled to a cumulative preferential dividend of Five per Cent per Annum, payable half yearly at 1st February and 1st August, out of the profits Of the company, and will also be entitled to priority over the Ordinary Share in respect of capital."
I was right in my guesses. McEwan did go public in 1889 and the share capital was £1,000,000. You can see that they did the usual trick of hanging onto 50% the capital (and total control) through splitting it into ordinary and preference shares. All the brewery flotations look very similar. Just the amount of capital varies.

Now we get to see who was in charge of the company:

WILLIAM MCEWAN., Esq, M P, Edinburgh, Chairman.
JAMES ALEXANDER MOLLESON, Esq, Chartered Accountant, Edinburgh.
ROBERT YOUNGER, Esq, Barrister-at-Law, Lincoln's Inns, London.
WILLIAM YOUNGER, Esq. Fountain Brewery, Edinburgh, Managing Director.

I stress that these are not the Robert Younger and William Younger who also owned breweries in Edinburgh. There are so many Youngers it can get very confusing.

"The Company has been formed for the purpose of acquiring, on the terms of the agreement. referred to below, the Fountain Brewery, Edinburgh, of which Mr. William McEwan, M. P., is the sole Proprietor.

The business. which was commenced by Mr. McEwan in 1856, has steadily increased in dimensions, until it is now one of the great Breweries of the United Kingdom, and it is believed to he the largest belonging to a single owner. The business has attained such proportions and the Capital embarked in it is of such amount, that the proprietor has resolved to convert it into a Limited Liability Company, in order that he may obtain some measure of relief from the strain of business by farther securing the co-operation of others in its management and control; that he may realise a portion of his Capital without diminishing the resources of the undertaking; and that the remainder of his Capital may be brought into more manageable compass, and be more easily dealt with by those who succeed him.

The net profits of the business for the past five years, as exhibited by the books and Profit and Loss Accounts, have been as follows:

Year ending 30th June, 1885    £89,090 11 1
 ,, 1886    83,419 15 2
 ,, 1887    95,440 1 8
 ,, 1888    100,854 17 1
 ,, 1889    93,372 7 9
    £462,177 15 9
Average annual profit    £92,435 11 1

These profits have been arrived at each year by the same methods of Bookkeeping and Statement that have been for many years followed in the conduct of the business; and they have been struck after making ample allowances for maintenance, discounts and depreciation. The Books and Profit and Loss Accounts have been investigated by Messrs Turquand, Youngs. Weise, Bishop & Clarke, Accountants, London, and also by Messrs Howden and Molleson, C A, Edinburgh, and reference is made to their Certificates hereto subjoined.

The largest profits have been earned during the past three years. While always retaining a controlling supervision over the business, the proprietor has during those three years delegated much of the practical management to others. These circumstances indicate that the undertaking has attained such maturity and strength that its continued prosperity is not now dependent on the personal superintendence of the Proprietor. Mr McEwan will, however, act as Chairmain of the Company, and: Mr. William Younger, who has been connected with the business for a considerable period, and has had in great part its practical management during the past three years, will act as Managing Director.

For payment of the dividend on the whole of the Preference Shares £25,000 only will be required. There will thus be left a balance of profit on the average of the last five years of upwards of £60,000 per annum, which it will be seen leaves so wide a margin for contingencies as to afford ample security for payment of dividend on the Preference Shares."

Now there's something I didn't already know.William McEwan was the sole owner of the Fountain Brewery. I can easily believe it was the largest brewery in Britain owned by one person. Most were run as partnerships. And the Fountain Brewery was already of a considerable size. Speaking of which, here's a map of the brewery from 1893:

I'm not surprised William McEwan wanted some of his capital back. Though he couldn't have been short of a bob or two. The brewery which he owned outright made a profit of half a million quid over five years. That's before he sold half of it for another half million. He must easily have been a millionaire. Back in the days when that really meant something.

You'll note how they reassure possible investors about the stable management of the company by stressing that William McEwan would remain chairman and William Younger would remain managing director. I wouldn't have taken much persuading after looking at the profits. The company averaged a more than 9% return on investment, assuming a capital of £1,000,000.

As we've seen, McEwan never had any trouble finding the £25,000 dividend each year for the preference shares. In fact, that was just a small portion of the the profit. A much bigger part went to the lucky owners of ordinary shares.

"The business is conducted at the Fountain Brewery, Edinburgh. The Brewery premises and property cover an area of about twelve acres, and are held in absolute feu-simple, unburdened by mortgage; and subject to a merely nominal feu-duty or ground rent. There is large siding accommodation into the premises from the main line of the Caledonian Railway, which bounds nearly the whole of one side of the property, and gives ample accommodation for traffic to all parts of the country, and to ports for export shipment. The premises are in perfect repair, and sufficient in all respects for the present or an increased business. The property contains within its own limits wells affording a superabundant supply of water specially suited for brewing purposes.

In addition to the good will of the business and the property and premises mentioned above, including the machinery and fixed plant, the Stocks of ales for home and foreign markets; Stocks of barley, malt, hops, casks, bottles, utensils, &c, and customers' balances as at 30th June, 1889, will be transferred to the Company. These are entered in the stock sheets and books, upon the same principles of valuation as have been followed for many years, at the sum of £407,720 8s 6d.

It has not been deemed necessary to obtain. a valuation by  experts of the land, buildings, machinery, and fixed plant, as it is manifest that any valuation of a concern capable of producing our results as have been indicated would, in conjunction with the above sums of £407,720 8s 6d. exhibit a total largely In excess of the £500,000 of Preference Shares now to be issued, and which, as regards both Dividend and Capital, are to rank in priority to the Ordinary Shares.

It is a feature of the business not to take credit for materials, &c, purchased, but to pay cash in all transactions, And the Company will thus take over the business and assets free from debt.

The business consists of the production of Home and Export Ales - and a large proportion of the trade consists of Exports to Indian, Colonial, and Foreign markets. The business has the specialities possessed by very few competitors, that there are no tied houses connected with it, and that (with the exception of four sums of small amount, not exceeding £2,000 in all, and given under exceptional circumstances) no advances are made to customers or others.

The average annual profits of the past five years show the large margin for payment of dividend on the Preference Shares; and the above statements with regard to the property and assets of the concern show that the capital of these shares is amply secure.

The business and property as above, with the goodwill, will be taken over by the Company as from the 1st day of July, 1889, at the total amount of £1,000,000 - of which £500,000 is represented by the Ordinary Shares taken in part payment of the Purchase Price."
Glasgow Herald - Thursday 25 July 1889, page 1.
You can see the railway siding in the map. Presumably the brewery was deliberately situated next to the railway line.

It's not quite clear to me if that £407,720 8s 6d valuation includes the buildings and land, because it later states that they haven't bothered getting them valued. The implication is that the brewery is worth a lot more and that investors are getting a great deal in only paying £500,000 for half of it.

There's also stress placed on the export trade - at this point still important for many Scottish breweries. But I really don't get why having no tied houses is portrayed as an advantage. Could it be that it meant there wasn't a huge amount of capital tied up in real estate?

How many businesses today insist on paying cash for everything? Less than zero would be my guess. It sounds very old-fashioned, not taking credit and not giving it, either. I would make a remark about fiscally prudent Scots. If I didn't loathe national stereotyping.

One final point. The vendor, William McEwan, didn't keep all of the ordinary shares. As we've already seen., he only kept 43,000, the rest going to the other Directors and the company secretary.

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