Bound morally if not legally to ponder the new Federal tax on undistributed earnings are the directors of all profitable U. S. corporations except banks and insurance companies. Before the year end they must decide on how much of this year's profit they will pass on to stockholders to avoid the levy, running as high as 27% on earnings retained in the business. Last week in Chicago the directors of Sears, Roebuck & Co. made their decision. After marking the company's 50th anniversary by voting a special $1,500,000 "Jubilee" wage bonus, the Sears board declared a $1.75 extra dividend representing an estimated one-half of the year's profits not needed for the $2 Sears regular. In December, when full-year figures can be estimated more closely, the directors will meet again, probably vote another extra of at least the same amount. In effect, the No. 1 U. S. mail-order house committed itself to paying out approximately all it earned.
Promptly raised by this decision was a corporate question which President Robert E. Wood undertook to explain in a letter to his 34,500 stockholders. This year, he declared, Sears would probably do a $500,000,000 business, a record. Only four years ago total sales were $276,000. To handle this tremendous increase in volume Sears had to carry bigger inventories, more accounts receivable. The rise in these two items alone required $60,000,000 of additional working capital, a sum provided part by bank loans, part by profits. In the normal course, wrote President Wood, the bank loans would have been paid off out of earnings, thus perpetuating the Sears tradition of financing its own growth.
Since the normal Sears course had been interrupted by the new tax, President Wood proposed to raise the necessary funds by selling common stock to stock holders and employes for the first time since the original public offering in 1906. Subject to their approval, stockholders will be given rights to buy one new Sears share for every ten of old, at not less than $60 per share (current price: $98). That meant the sale of approximately 600,000 shares, which will provide at least $36,000,000 and constitute the biggest common stock offering since 1929.
This deal will be underwritten by a banking group headed by Manhattan's Goldman, Sachs & Co., which floated Sears's first public offering 30 years ago. The price then was $50 per share. Through split-ups and stock dividends each original share has multiplied to nearly 16 shares, worth close to $1,500.
At No, 30 Pine Street. Manhattan, home of Goldman, Sachs & Co., the proposed Sears deal had a significance all its own: it signalled the most remarkable investment banking comeback of Depression.
In the beginning there were no Sachs in Goldman Sachs. Today there are no Goldmans. The business dates back to 1869 when the late Marcus Goldman started to buy from Manhattan tobacco and diamond dealers the promissory notes given them by their customers. Clapping the notes in his high black hat, Founder Goldman would then make the rounds of the banks, selling the notes as short-term investments at a slight profit.