Eugene Meyer – On Top of a Mountain
Eugene Meyer was the father of Katherine Graham, the former publisher of The Washington Post. For a brief period of time in the late nineteenth century, Meyer worked for Lazard Frères & Co. By 1901, he had formed his own investment banking and brokerage company called Eugene Meyer, Jr., and Company, which ultimately became very successful. His was the first Wall Street firm ever to write lengthy reports on individual companies, so he pioneered individual security research.1
Among his other accomplishments, Meyer founded Allied Chemical in 1920. During the First World War, he was head of the War Finance Corporation during the Wilson Administration. The function of that organization was to make loans to defense companies so that production of armaments could be rapidly expanded. Meyer was also one of the first so-called “dollar-a-year men” in government.2 In 1930, President Herbert Hoover appointed him to be chairman of the Federal Reserve Board. In 1933, after Hoover lost the election, Meyer bought The Washington Post in a bankruptcy auction and built it into a major newspaper. In 1946, President Harry Truman, a Democrat (Hoover was a Republican), appointed Meyer to be the first president of the World Bank. Meyer had a long and very distinguished career, but this section focuses on an event from the early part of his career.
Meyer’s firm made what might be considered a problematic investment in the aftermath of the Panic of 1907 when it bought a 51 percent interest in a company known as Boston Consolidated. This company owned copper deposits located on the upper half of a mountain in Bingham, Utah. Bingham is located 20 miles southwest of Salt Lake City. The bottom portion of that mountain was owned by Utah Copper, a company that was controlled by the Guggenheim family, who were very active in mining interests in the western United States.
Boston Consolidated had many deficiencies, one of which was that its British owners practiced absentee management, and paid very little attention to their copper interests in Bingham. Another problem was that the company was inadequately capitalized in the aftermath of the Panic of 1907. It had a significant amount of debt coming due, and it was not clear that it could be refinanced. In addition to the absentee management, the company had another problem, which was that the onsite engineering management was incompetent and had no idea how to manage a copper deposit. To make matters worse, the copper deposits were low-grade, which meant that the return on those assets would be low. Furthermore, though there existed technology for extracting copper from low-grade ores, that technology was owned by the Guggenheim family, and they would not share or sell it to Boston Consolidated. Last but not least, let us not forget that in the aftermath of the Panic of 1907, the economy was in deep recession and copper prices had declined substantially.
From a fundamental investment aspect, many would judge that Eugene Meyer had made a serious error in buying Boston Consolidated. Therefore, one may ask what Meyer saw in this company that prompted him to make a 51 percent investment. It certainly wasn’t cash flow, good management, value in its tangible assets, competitive position or expectations on the future of the economy. The one crucial aspect that influenced Meyer’s decision was that he understood the laws of gravity.
Since Boston Consolidated owned the top half of the mountain, it would be extraordinarily dangerous to mine the bottom half of a mountain without the cooperation of those who owned the top half, unless one wished to have an avalanche or cave-in. Meyer had bought 51 percent of Boston Consolidated for one purpose and one purpose only: to immediately close down the mining operations on the top half of the mountain. He refused to cooperate with Utah Copper’s operations on the bottom half, thereby making it impossible for the Guggenheims to mine their interests. Shortly thereafter, Eugene Meyer suggested to the Guggenheim family that Utah Copper should be merged with Boston Consolidated, to which the Guggenheims agreed.
Originally published in the Contrarian Research Report Compendium – June 2015
1 Pusey, Merlo J. Eugene Meyer. New York: Alfred A. Knopf, 1974. (pp. 68-70)
2 When the United States entered World War I in 1917, the moral fervor of the American commitment motivated a large number of prominent merchants, manufacturers, bankers, and others to enter the service of the government as executives in departments in which they were expert. For their service they accepted only a token salary of one dollar per year, plus their necessary expenses.
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