The story
Background
The first deep-level tube railway, the City and South London Railway (C&SLR), opened in 1890. Its early success resulted in a rush of proposals to Parliament for other deep-level routes under the capital, but by 1901 only two more lines had opened: the Waterloo & City Railway (W&CR) in 1898 and the Central London Railway (CLR) in 1900. Construction started on one other line and stopped following a financial crisis. The rest of the companies needed help to raise funding.
The District Railway (DR) was a sub-surface underground railway, which had opened in 1868. Its steam-hauled services operated around the Inner Circle and on branches to Hounslow, Wimbledon, Richmond, Ealing, Whitechapel and New Cross. By 1901, the DR was struggling to compete with emerging motor bus and electric tram companies and the CLR, which were eroding its passenger traffic. To become more competitive, the DR was contemplating a programme of electrification. However, it needed to be financially strong enough to raise the capital to carry out the work independently. It also had parliamentary approval for a congestion-relieving deep-level line that was to run beneath its existing route between Gloucester Road and Mansion House.
By 1898, American financier Charles Tyson Yerkes had made a large fortune developing the electric tramway and elevated railway systems in Chicago, but his questionable business methods, which included bribery and blackmail, had finally drawn the disapproving attention of the public. Yerkes had unsuccessfully attempted to bribe the city council and Illinois state legislature into granting him a 100-year franchise for the tramway system. Following a public backlash, he sold his Chicago investments and turned his attention to opportunities in London.
Acquisitions
Yerkes' first acquisition in London was the Charing Cross, Euston and Hampstead Railway (CCE&HR). The company had parliamentary permission to build a deep-level tube railway from Charing Cross to Hampstead and Highgate. Still, it could not raise the finances, selling only a tiny fraction of the shares. Robert Perks, a solicitor for several railway companies and Member of Parliament for Louth, had suggested the CCE&HR to Yerkes and the American's consortium bought the company for £100,000 (approximately £10.6 million today) on 28 September 1900.
Perks was also a large shareholder in Yerkes' next target, the Metropolitan District Railway, usually known as the District Railway or DR. By March 1901, the syndicate had acquired a controlling interest in the DR and proposed its electrification. Yerkes established the Metropolitan District Electric Traction Company (MDETC) on 15 July 1901 with himself as managing director. The company raised £1 million (£106 million today) to carry out the electrification works including the construction of the generating station and supplying the new electric rolling stock. In September 1901, Perks became the DR's chairman.
The Brompton and Piccadilly Circus Railway (B&PCR) was a tube railway company that had been purchased by the DR in 1898 but had remained a separate financial entity. It had permission to construct a line from South Kensington to Piccadilly Circus. Still, it had yet to raise the capital to do so. At South Kensington, it was to connect to the deep-level line planned by the DR. On 12 September 1901, the DR-controlled board of the B&PCR sold the company to the MDETC. In the same month, the B&PCR took over the Great Northern and Strand Railway (GN&SR), a tube railway with permission to build a line from Strand to Finsbury Park. The routes of the B&PCR and GN&SR were subsequently linked and combined with part of the DR's tube route to create the Great Northern, Piccadilly and Brompton Railway (GNP&BR).
Yerkes' final purchase was the Baker Street and Waterloo Railway (BS&WR) in March 1902 for £360,000 (£38.3 million today). The BS&WR had permission to construct a line from Paddington to Elephant & Castle and, unlike his other tube railway purchases, construction work had started in 1898. Substantial progress had been made before it was stopped following the collapse of the BS&WR's parent company, the London & Globe Finance Corporation, due to the fraud of its managing director Whitaker Wright in 1900. With a varied collection of companies under his control, Yerkes established the UERL in April 1902 to take control of them all and manage the planned works and took the position of chairman. On 8 June 1902, the UERL took over the MDETC and paid off the company's shareholders with cash and UERL shares.
Finances
The UERL was set up with an initial capitalisation of £5 million (£531 million today). The company was backed by three merchant banks, Speyer Brothers in London, Speyer & Co. in New York and Old Colony Trust Company in Boston, each of which was to receive £250,000 from the capital raised. Almost 60 per cent of the initial share offering was bought in the United States, with a third sold in Britain and the rest mainly in the Netherlands. Further capital was soon needed for the construction works and additional share and bond issues followed. The UERL eventually raised a total of £18 million (£1.89 billion today).
Read the full text
Like many of Yerkes' schemes in the United States, the structure of the UERL's finances was highly complex and involved the use of novel financial instruments. One method, used by Yerkes to raise £7 million, was "profit-sharing secured notes", a form of bond which was secured against the value of shares. They were sold at a 4 per cent discount, paid 5 per cent interest and were due for repayment in 1908. The assumption was that shares would inevitably rise in value once the UERL's tube railways were operational and producing a profit. Investors in the notes would gain the double benefit of the growth in share price and interest.
From Wikipedia’s article on Underground Electric Railways Company of London, shared under CC BY-SA 4.0.3