RKO Assessment

In 1929 taurine whoops generally greeted any company's offer of rights to buy new securities. This year has seen a reverse trend. Electric Power & Light shares dropped sharply last month, when the company sought to raise $21,000,000 from stockholders. Simms Petroleum made the unique gesture of offering stockholders rights to sell 12 1/2% of their holdings back to the company at a price level with the market. And last week when Radio-Keith-Orpheum Corp. announced plans to raise much-needed cash from its stockholders there were angry mumblings, threats of legal action.

The RKO plan is to sell $11.600,000 worth of debentures to shareholders--$5 worth for every share held. But the details made the offer practically an assessment. In simple language, the company planned to take away from stockholders 75% of their shares, give back three-quarters of a share as a bonus with each $5 worth of debentures. The stockholder who subscribes to the offer will in effect get his stock back. The one who does not will have a 75% smaller interest in the company.

Justification for this drastic action was seen in the fact that RKO faces a receivership unless it gets cash, that a receivership would probably wipe out the value of the common stock. No public offering of securities could be made at this time; banks have been unwilling to assist. Radio Corp., which controls RKO, has agreed to buy any unsubscribed debentures on the same terms at which they were offered. Immediate cash needs of RKO are $1,000,000 during November, $3,000,000 by Jan. 1, $3,000,000 by July 1,1932. During 1929 the company made $1,670,000 against $3,386,000 last year and a profit of $622 for the first nine months of 1931.

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