Robbins: Tennessee Coal, member of the First Dow Jones Industrial Average

Robbins: Tennessee Coal, member of the First Dow Jones Industrial Average

March 4th, 2018 by Mickey Robbins in Opinion Columns

1899 Certificate for 100 Shares in TCI issued to FW Gilley Jr. & Co.

1899 Certificate for 100 Shares in TCI issued...

Photo by Contributed Photo /Times Free Press.

The Sewanee Mining Company began mining coal and hauling it on its Mountain Goat Railway in the 1850s. That company eventually became the Tennessee Coal, Iron and Railroad Company and in 1896 one of the first members of the Dow Jones Industrial Average.

The discovery of coal on the Cumberland Plateau in 1845 led Nashville entrepreneurs seeking to exploit Tennessee's rich coal reserves to form the Sewanee Mining Company, so named after the local bituminous coal seam. After losses, the business was sold in 1859 to New York investors and reorganized as the Tennessee Coal and Rail Company. The outbreak of the Civil War saw the fledgling company repossessed by local creditors. Over the next decade that enterprise became Tennessee's leading coal extractor as it mined coal around the towns of Cowan and Tracy City, its headquarters, and branched out into coke manufacturing.

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A Thomas O'Connor bought the company in 1876, expanded operations into iron anufacturing to stimulate coke sales and built a blast furnace near Cowan. The enterprise was subsequently renamed the Tennessee Coal, Iron, and Railroad Company and kept that name despite a major expansion into Alabama. In 1895 the company relocated its offices to Birmingham. Canny investments and the purchase of major competitors saw the firm grow rapidly, become the largest blast furnace operator in the South and at one time the second largest steel producer on the continent. Tennessee Coal was fiercely competitive with the larger steel businesses in Pittsburgh, due to having all the needed natural resources for producing steel located in abundance within a small radius of Birmingham. For several decades the company was one of the few major heavy industries based in the largely agricultural South.

Tennessee Coal's status was bolstered when it became one of the first 12 companies listed in 1896 in the inaugural Dow Jones Industrial Average. However, it was not long before the company was eclipsed by its principal competitor, the U.S. Steel Company, which had been formed in 1901 out of the huge Carnegie and Federal steel empires.

By the time of the Panic of 1907, U.S. Steel was able to launch a takeover bid for its Southern rival. On the morning of Nov. 2, banker J.P. Morgan, one of the founders of U.S. Steel, convened a meeting in his library to purchase the near insolvent Wall Street brokerage firm, Moore and Schley, which had large loans secured against Tennessee Coal shares. In an effort to avoid troublesome anti-trust litigation, Morgan sent E.H. Gary, president of U.S. Steel, to Washington the next day before the stock market opened to have the takeover vetted by President Theodore Roosevelt.

Seeing the benefits of injecting liquidity into the brokerage firm and shoring up general investor confidence, Roosevelt granted the transaction antitrust immunity, a decision for which he was later derided by critics as a hypocrite. Indeed, in 1911 the federal government sought to undo what it perceived to be Roosevelt's mistake and sued U.S. Steel — without success. Meanwhile, Moore and Schley was saved from collapse, the panic subsided and U.S. Steel was rewarded with a valuable prize: a controlling stake in Tennessee Coal.

The practice of using prison laborers, mostly blacks convicted of petty crimes, as a method of paying fines was common for a coal company in Alabama during the close of the Reconstruction era. Tennessee Coal became one of the largest users of such labor. In 1908 almost 60 prison workers died from workplace-related accidents. Discovering a 400 percent annual turnover in its workers, the new owner of the company, U.S. Steel, undertook a comprehensive program to stabilize its manpower by excluding prison labor and developing planned "model villages," thereby improving worker health, welfare and loyalty. Its paternalistic approach benefited the company and its workers but drew criticism for limiting the free movement and organization of labor.

When U.S. Steel gained control of Tennessee Coal, the new owner took the latter's place on the Dow Jones Industrial Index and remained there until 1991. The other members of the original Dow Industrial Index included American Cotton Oil, American Sugar, American Tobacco, Chicago Gas, Distilling and Cattle Feeding, General Electric, still in the index, Laclede Gas, National Lead, North American (utilities and rail), U.S. Leather, and U.S. Rubber. The last vestige of Tennessee Coal is U.S. Steel's Fairfield, Ala., plant, whose tubular operations and arc furnace still operate.

Frank "Mickey" Robbins is an investment adviser with Patten and Patten. For more visit Chattahistoricalassoc.org.

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