BELOIT CITY WAS NERVOUS
It was November of 1883 and the 5,500 residents of the city of Beloit had good reason to be concerned. In a short span of time 3 major businesses had failed. The Rock River Paper Company, The Beloit Paper Pail Company and The Hinman Moody and Company all had ceased doing business and closed their doors.
Nervousness turned into a state of shock on November 26 when they learned that Merrill & Houston, the backbone of the economy of their city sometimes referred to as " The Gem of the Rock River Valley" had failed and made an assignment to an attorney named R. J. Burdge. Merrill & Houston could close it's doors forever.
There was reason for Beloit to be in shock. Business at Merrill & Houston had been excellent and the company had just built a new foundry. In 1879 things looked very good for the company. George Houston, a man that instilled confidence and had proved to be good for the company had returned to Merrill & Houston in 1877. Unfortunately, in the process of his return, Orson Merrill was eased out. His brother John Merrill, a vice president was also eased out. When they left they sold their stock back to the company. The management of the company fell on the shoulders of George Houston and C. F. Collins who at one time was the mayor of Beloit.
Of course the public was not aware of the internal problems of the company. Press releases and other information praised Merrill & Houston and the news in March of 1879 was that the company had received an order for a huge machine with 30 dryers for the largest board machine ever for Akron, Ohio. The machine was shipped in late 1879 requiring six railroad cars. 1979 was a banner year for the Merrill & Houston Iron Works.
By all appearances the new management team appeared to work out well in a time of great prosperity for Merrill & Houston but power struggles within the company caused fractures in the management team. An aging Serano T. Merrill allowed an aggressive but less financially focused manager share responsibilities. The arrangement would prove the undoing for Merrill & Houston.
Although the company continued to prosper, in 1880 George Houston, a very savvy businessman, was forced out of the company. More stock transactions occurred. When George Houston left, C. F. Collins was Vice President and treasurer and Fred Messer was superintendent. Although Serano Merrill was still President he was not active in his position. By mid 1880, the work force was 160 with annual wages of $ 65,000. The annual company meeting in the spring of 1881 painted a very rosy picture for the company. Business was booming for Merrill & Houston. Although assets totaled $ 200,000, liabilities were over $ 100,000. Profits were retained by the company and reinvested instead of paying off debts.
Business continued to boom and more money was invested in land and acquisitions. The company workers and Beloit citizens were confident and had great pride in Merrill and Houston. Why not! It all appeared to be going well. The annual report issued in 1881 indicated improved profits over 1880. Again profits were put back into the business rather than pay down debts. The boom in the iron business peaked in mid 1882 but the general prosperity of the country continued well into 1883.
Debt was increasing with Merrill & Houston faster than assets and signs of fractures appeared within the company. Those outside the company had no idea this was so. Improvements by the company continued to early 1883. Property was purchased and improvements were made. Telephones that just arrived in the area for the first time were installed. Electric lights were installed in some areas. All signs from the company and other sources of information indicated to the people outside the company that things were fine. There were internal concerns within the company about financial difficulties but this was kept confidential and the citizenry were not aware of it.
Financial transactions, loans, creditors and the like became increasingly difficult to manage. As usual, in situations like this, there were charges and allegations within the company about mis-management and abuse.
By late 1882 and early 1883 there was not much doubt that Merrill & Houston Iron Works was encountering hard times. Workers were laid off and management took pay cuts. Despite this internal reality, outsiders were unaware of what was happening. A news release by the American Manufacturer, late 1882 stated:
"The Merrill and Houston Iron Works is the largest of its kind in the state. They employ in the neighborhood of 300 men. Space will not permit a more extended notice of this firm and their immense business, which is rapidly increasing."
The true fact however was there were less than 150 employees on the payroll, the debt to assets ratio was poor and orders had fallen off.
The company annual report of April 1883 was not as promising as previous years. Business had declined. As a result, the annual report, at least to insiders, was bad. There were losses instead of a profit and the ratio of assets over liabilities was a topic of concern. Of more concern were the short-term debts. The creditors could call them at any time which frequently happens in bad economic times and these were fast becoming bad economic times.
Luckily, at this time the debts were not recalled. The company had very limited resources to pay the short term debts. From inside things looked bad in mid-1883. To outsiders everything looked normal. The company continued to expand including tearing down the old Parker and Stone Foundry to make space for coal sheds. The "business as usual" attitude at Merrill and Houston had a positive impact to those on the outside and hid the precarious position of the company.
Merrill & Houston continued to borrow money but this could not go on for long. The debt must be paid or the company could not get credit to pay off notes when they became due. The company crisis could become worse. There were other major industries in Beloit that failed in late 1883. Each failure caused further fear and had an effect on the business of other Beloit companies.
Beloit City and its residents were caught off guard when an announcement was made on November 26th, 1883. Merrill and Houston made an assignment to R. J. Burdge, an attorney. Everyone wanted explanations of how this could happened. Some blamed it on customers who failed to meet their obligations. The Beloit Daily Free Press reported it was certain that the company assets exceeded debt, and creditors' claims would be satisfied. Orders were coming in and the company operation could continue. The Beloit Weekly Outlook supported the company but were more critical. They also placed blame on the creditors and described assets as twice that of liabilities.
In December the people of Beloit were grabbing at straws. The only positive note was the urging of local newspapers to be optimistic in this time of crisis. There were many theories and rumors. Charges of mismanagement, financial impropriety and other observations were made. In the end after the fact, the courts would make judgments and sort out the charges.
The Monday morning quarterbacks had many observations and most of them were probably correct. Times were bad and creditors would not have been so concerned about their loans had times been better. If the company management had been better the company could have survived. The company should have paid off their debts rather than reinvesting profits. The company should have retained George Houston. When George Houston was employed the company did well.
Some thought Burdge a poor choice to become the assignee but no more than he took over the creditors decided to let him try to run the works at a profit. The company had some back orders and with good management they might even get 100% on the dollar This did not happen but it wasn't because Burdge hadn't tried.
Merrill and Houston continued to operate with a staff of about 100 people. Operation continued for about 6 months and they made a small profit in the bargain. Despite stories about a panic on the New York Stock Exchange the newspaper’s preached optimism and indicated the company had a backlog of orders which turned out not to be correct.
Business was poor and the forecast was not good. Creditors wanted payment. On the first anniversary of the assignment Burdge announced publicly that the entire plant and property, excepting bills and accounts receivable, would be sold at auction on January 7, 1885. The real estate was appraised at over $60,000, tools and machinery at another $70,000. The auction took place as scheduled and the company was split and sold to two bidders. Charles H. Besley, of Chicago, a creditor of the company and also a mortgage holder, bid $10,875 for that portion of the property known as the "Parker and Stone" part. His bid was exactly the amount of his mortgage plus interest. The rest of the plant, including all real and personal property, was sold to J. D. Rexford of Janesville, Wisconsin, a creditor who bid for a consortium of creditors. He paid $20,000. The creditors paid a total of $ 31,000 for real estate and property appraised at approximately $130,000.
The saying, "there was no joy in Mudville" was appropriate in this case but there was to be a silver lining for the City and people of Beloit. On March 9, a group representing the creditors met and reorganized the company under the name, The Merrill and Houston Iron Works Limited, with J. D. Rexford as President.
The Merrill and Houston Iron Works closed their doors forever in March 1885.
Finally, a breakthrough occurred in July, 1885 when a number of former employees of Merrill and Houston offered to lease the factory for two years. The offer was accepted, and the Beloit Iron Works was established with Fred Messer, President and General Manager; W. H. Grinnell, Vice President; Noble J. Ross, Superintendent and Alonzo Aldrich, Secretary.