Walter C. Lyklema, A. C. Allyn, and A. C. Allyn and Company, Incorporated, have filed applications pursuant to Sections 9 (a) (2) and 10 of the Act seeking approval of the acquisition of common stock of Ohio Valley.

The proceedings on the proposed acquisitions have been consolidated with the pending proceedings involving UPU.

After appropriate notice, a public hearing was held with respect to the above transactions at which no one appeared in opposition thereto. The Commission having considered the record now makes the following findings which are limited to (a) Plan A, proposing the sale of UPU's interests in the Indiana gas subsidiaries, (b) the proposed acquisition of securities by Ohio Valley, and (c) the proposed acquisition by Lyklema, Allyn and A. C. Allyn and Company, Incorporated, of common stock of Ohio Valley.

Description of Companies

UPU, a New Jersey corporation, is solely a holding company whose capitalization consists of 370,300 shares of common stock, a small portion of which is represented by voting trust certificates. As a result of the sale of various former subsidiary companies, UPU now has as its only remaining subsidiaries the three Indiana gas subsidiaries, each of which is incorporated in Indiana and conducts operations in the eastcentral part of that state."

Two of the Indiana gas subsidiaries, Indiana-Ohio and Lynn, are engaged in the purchase and distribution of natural gas; the third company, Peoples, is engaged in the production and distribution of manufactured gas. The two natural gas companies serve a total of approximately 4,770 customers in communities having an estimated population of 18,500, the two largest of these communities being Portland and Winchester, Indiana. The manufactured gas company serves approximately 2,340 customers in Connersville, Indiana, which has an estimated population of 18,000.

Ohio Valley an Indiana corporation, is engaged in the purchase and distribution of natural gas to approximately 2,100 customers, chiefly in Tell City, Cannelton and Troy, which have a total estimated population of approximately 8,400 and are situated in the southern part of Indiana.

Financial Statements of Indiana Gas Subsidiaries

Shown below is a condensed combined balance sheet of the three Indiana gas subsidiaries as of July 31, 1948:

4 One of the subsidiaries, Indiana-Ohio, also serves gas in a small community in Ohio, adjacent to the Indiana state line.

(a) Net figure representing $212,628 earned surplus deficit of Indiana-Ohio. $8,056 earned surplus of Lynn and $ 961 earned surplus of Peoples.

Each of the Indiana gas subsidiaries has made an original cost study, as of January 1, 1937, and has recorded the results thereof on its books, with subsequent net additions at cost. Indiana-Ohio filed its original cost report and journal entries with the Federal Power Commission, and all three of these subsidiaries filed such journal entries with the Public Service Commission of Indiana. Neither Commission has approved or disapproved any of the studies or journal entries. Based on the foregoing balance sheet, the $895,836 of combined utility plant, per books, exceeds by $102,327 the original cost thereof as determined by the companies. The combined reserves for depreciation of the Indiana gas companies aggregated $218,582, at July 31, 1948, and were equivalent to 27.5% of the combined original cost of the utility plant as determined by the comanies.

As shown in Table I, the aggregate book value of the outstanding securities of the Indiana gas subsidiaries was $729,084 at July 31, 1948. Of this total amount, approximately $724,500 represented the book value of the securities owned by UPU and approximately $4,600 was applicable to the publicly held stock of Peoples.

It may be noted that UPU's proposed sale price of $700,000 is about $24,500 less than the book value of the securities proposed to be sold. However, if such book value is adjusted to eliminate the amount by which the book carrying value of plant exceeds original cost, the $700,000 sale price is approximately $78,000 greater than book values as so adjusted.

In the following table is shown a condensed combined income statement of the Indiana gas subsidiaries as submitted by UPU for the 12 months ended July 31, 1948.

For the 12 months ended July 31, 1948, the income applicable to the securities being sold was approximately $42,000, after providing $12,031 for amortization of plant acquisition adjustments under a program which commenced in 1944. For the 5 years 1943-1947, inclusive, the average income appli

cable to the securities being sold was $55,512 per annum after deduction of such amortization in four of the five years.5

Balance Sheet of UPU

UPU has in recent months carried out a number of transactions in connection with the consummation of the three Section 11 (e) plans, which, as earlier noted, have been approved by this Commission and the United States District Court for the District of Delaware. The transactions carried out after July 31, 1948, which affected UPU's balance sheet, were: (a) the retirement of UPU's preferred stocks and the distribution of $5 per shares on its common stock; and (b) the sale of UPU's investments in Citizens and the distribution, from the proceeds thereof, of $4 per share on its common stock."

Table III, below, presents a condensed corporate balance sheet of UPU as of July 31, 1948 after adjustments by UPU to reflect the transactions just described and on a pro forma basis giving effect to UPU's proposed sale of its investments in the Indiana gas subsidiaries pursuant to Plan A.

(b)UPU has stated that the cost of these investments to be used in determining Federal taxes is substantially greater than $407,448, and that the sale of these investments for $700,000 will result in a loss for tax purposes.

5 For this 5 year period earnings applicable to UPU's holdings were as follows:

6 Cash for distribution under (a) and (b) above has been deposited with UPU's paying agent and is being distributed.

As shown above the assets of UPU, after carrying out the sale of the Indiana gas subsidiaries, will consist primarily of cash and U. S. Government securities. The only outstanding security of UPU, both at present and after the proposed sale, consists of its 370,300 shares of $1 par value common

stock."

Statutory Standards Applicable to Proposed Transactions

In order to approve Plan A we must find it necessary to effectuate the provisions of Section 11(b) and fair and equitable to the persons affected by the plan. In addition, the sale of securities proposed in the plan is subject to Section 12 (d) of the Act and Rule U-44 thereunder. The proposed acquisition of securities by Ohio Valley and the acquisition of Ohio Valley's securities by Lyklema, Allyn, and A. C. Allyn and Company, Incorporated, are subject to Sections 9 and 10 of the Act.

8

We have previously found that the liquidation of UPU is necessary to effectuate the provisions of Section 11 (b). The sale of securities which UPU has proposed in Plan A is the final step in its program of disposing of its subsidiaries in furtherance of its liquidation and dissolution. Accordingly, we find that the transactions proposed in Plan A are necessary to effectuate the provisions of Section 11 (b) of the Act.

The question of the reasonableness of the sale price is one of the primary considerations in a determination of the fairness of the plan and of whether the proposed sale and acquisition meet the standards of Sections 12 (d) and 10 of the Act and Rule U-44.

The record indicates that prior to entering into the agreement with Ohio Valley, UPU's management engaged in conversations relating to the sale of the Indiana gas subsidiaries with 11 prospective buyers. As a result of these conversations, five prospective buyers indicated a willingness to purchase the Indiana gas subsidiaries at prices ranging from $550,000 to $725,000. Except for the offer of $725,000 made by a prospect who could not give assurances of financial responsibility satisfactory to UPU's management, the highest offer made for the Indiana subsidiaries was the $700,000 offer of Ohio Valley. The record indicates that UPU gave the prospective buyer at the higher price adequate opportunity to provide reasonable assurance of his ability to consummate the purchase, and that UPU was unable to obtain such assurance. It also appears that there is no affiliation between buyer and seller, that the proposed sale price resulted after arm's length bargaining carried on with several prospective buyers, and that competitive conditions were maintained.

7A small portion of this common stock (about 2,027 shares) is represented by voting trust certificates, the holders of which have not claimed the common stock represented thereby. United Public Utilities Corporation, 28 S. E. C. 451 (1948).

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