Financial History 25th Anniversary Special Edition (104, Fall 2012) - Page 43

Improvement cartel. Standard Oil’s shipments on the Pennsylvania Railroad were sabotaged. Death threats prompted Rockefeller and Flagler to each hire 24-hour armed guards. Three days later, the Petroleum Producers Union agreed to cut production by starting no new wells for 60 days. They also agreed to shut down on Sundays and refused to sell oil to anyone associated with the South Improvement Company. The independents boycotted railroads and threatened to build their own lines. The Petroleum Producer’s Union formed a committee to ask the Pennsylvania legislature to revoke the South Improvement Company’s charter. Another committee requested a federal investigation. The 60-day boycott had caused the oil business to come to a screeching halt. Plants were closed and railroads lost revenue. Pennsylvania railroad workers went on strike, and there were reports of sporadic violence. Within about two months, the state of Pennsylvania revoked the South Improvement Company charter. The independent refiners resumed production on April 15. Standard Oil may have lost the battle, but it won the war. The South Improvement Company tactic showed Flagler that he could continue making acquisitions and control all aspects of the oil refinery business. “Although South Improvement Company had technically failed, it had well served Standard Oil’s purpose,” said Edward N. Akin, in his book, Flagler: Rockefeller Partner and Florida Baron. From 1872 through the end of the decade, Flagler continued to cut deals with the railroads by guaranteeing delivery of a specific amount of oil for a rebate on the price. He also was instrumental in merging large independent refiners in Philadelphia, Pittsburgh and New York, as well as companies that had access to oil pipelines. In 1877 and 1878, Flagler, amid a threat to ship oil exclusively by pipeline, cut shipping price deals with the Pennsylvania, New York Central, Erie and Baltimore & Ohio Railroads. By 1878, however, all the railroads had to pay Standard Oil a rebate of 20-35 cents a barrel for any oil shipped by non-Standard Oil refiners. By 1882, Standard Oil had become so large that it had to change from a corporation to a trust, facilitating its ability to operate in different states. The trust was capitalized for $70 million. Two years later, the company moved its headquarters to 26 Broadway, in New York City. By the end of the 1880s, Flagler’s dealing resulted in Standard Oil controlling 90% of the US refined oil market.1 Unfortunately, the Standard Oil party did not last. In March 1882, the Ohio Attorney General won an antitrust lawsuit against Standard Oil, forcing the trust to dissolve. Standard Oil was split into 20 companies in different states. In reality, this had no impact on the business bottom line. But in 1911, the US Supreme Court ruled that Standard Oil had violated the Sherman Antitrust Act. The company was broken up into 34 new companies. Today, those companies consist of Conoco, ExxonMobil, BP and Chevron. Although Standard Oil was portrayed in the media as a ruthless, capitalistic company, the monopoly benefited the public by lowering costs. Based on 2009 dollars, the price of oil dropped between 1872 and 1897 to $30 per barrel from $80 per barrel. Investors also benefited. By 1905, Standard Oil had paid out about $50 million in dividends on earnings of nearly $100 million. Flagler might have been a tough businessman, but he also enjoyed an active private life. He was an avid reader, and he liked a good cigar and a good drink on occasion. He kept in regular contact with a group of close friends and relatives and was reputed to be very generous to struggling relatives and the downtrodden. “He was a modest and private individual,” said Susan Swiatosz, archivist at the Flagler Museum in Palm Beach, FL. “His letters show that he had a gentle sense of humor; however, if the occasion warranted, he would spea