J.P. Morgan and the Merger Which Threatened an Empire

by Josh Williamson

In May 1902, two formidable figures dined together in London. One was John Pierpont Morgan, the astute American business magnate who commanded the J.P. Morgan & Co bank. The other was Joseph Chamberlain, the monocled and enigmatic British politician whose defection from the Liberal Party ushered in two decades of Conservative parliamentary dominance.


Chamberlain fused ruthless ambition with passionate imperialism, securing a position as Prime Minister Lord Salisbury’s Colonial Secretary. These two very different men met to discuss Morgan’s latest enterprise: an American Atlantic shipping merger, later named the International Mercantile Marine (IMM) Company.


Clement Griscom and Bernard Baker, two American shipowners, instigated the IMM in the hope of monopolising the North Atlantic shipping trade. To expand their limited combined market share, they hoped to acquire rival firms.


However, they needed funds; thus, they approached J.P. Morgan & Co. for a loan. Despite initially serving purely as banker to the founders, J.P. Morgan & Co. acquired a sizeable sum of stock – 5,000 shares in preferred and 50,000 in common stock – in exchange for raising the $50 million in cash needed to integrate multiple shipping companies under the IMM. Morgan thus became tied to this ambitious enterprise.


As the IMM expected to integrate various large British shipping companies, including the White Star Line, Morgan wanted to secure support in Britain. With the cooperation of policymakers, Morgan would ensure that the IMM would not fall foul of laws preventing foreigners from acquiring control of Britain’s shipping. After all, the British associated a strong mercantile presence with prestige, prosperity, and economic independence.


Morgan expected some opposition to the IMM, but Chamberlain’s reaction shocked him. The Colonial Secretary was furious, viewing the proposed sale of British shipping companies to Americans as a personal insult and as a significant threat to the Empire.


Clinton Dawkins, Morgan’s business partner, described Chamberlain as ‘violent and unreasonable’. Enough of Salisbury’s cabinet shared Chamberlain’s views that Morgan agreed to make concessions. He offered to work with the Salisbury Government to keep legally British ships British, despite their American ownership.


Ultimately, the IMM and Salisbury Government signed an agreement, coming into force as the IMM formally acquired its new British subsidiaries in 1903. The IMM would be legal in Britain. In exchange, White Star and other British shipping subsidiaries would remain legally distinct entities controlled by British directors.


Ultimately, the IMM suffered the same difficulties which afflict so many ambitious mergers. In agreeing to preserve the autonomy of its British subsidiaries, Morgan forsook the opportunity to exploit the organisational synergies which economic theory suggests are crucial to merger profitability.


Instead of cost savings, the merger brought added complexity and bureaucracy. Moreover, the Salisbury Government pursued a second approach to undermining the IMM, agreeing to subsidise its competitor in the passenger trade, Cunard, in building the rapid superliners Lusitania and Mauretania.


To avoid being surpassed by its competition, the IMM developed new, luxurious vessels. Not only was this endeavour immensely costly, but it also culminated in a tragedy: in 1912, Titanic, the crown jewel of this building spree, sunk during its first ocean voyage. New ships failed to resolve the company’s inefficiency. Having never paid a dividend, by 1915 the company had little choice but to enter receivership.


While decreased competition and higher profits helped the IMM to stave off dissolution during the First World War, competitive pressure resumed during the 1920s. The IMM finally began to downsize in 1926, transferring its British holdings back to British ownership.


From the onset, the merger to create the IMM was a disaster: J.P. Morgan & Co. likely lost over a million pounds, and the bank incurred severe opportunity costs.


So where did it go so wrong? While the founders and Morgan himself deserve some criticism for neglecting political realities, the most damning failure of the IMM was that its central leadership persisted in their pursuit of Atlantic hegemony for so long.


They even doubled down through massive investments such as Titanic. Despite fundamental structural problems, partially inflicted by the legal arrangement with Britain, the IMM’s Directors continued to chase illusive monopoly profits. They knew that partition would hurt company pride and prestige, but were unwilling to face financial realities.


Although belated, downsizing was financially prudent.



Sources

  • Moody, J., The Truth about the Trusts (New York, 1904)

  • Navin, T.R. and Sears, M.V., ‘A Study in Merger: Formation of the International Mercantile Marine’, The Business History Review, Vol. 28/4 (1954), pp. 291-328

  • Vale, V., The American Peril: Challenge to Britain on the North Atlantic, 1901-04 (Manchester, 1984)

  • Williamson, J., The International Mercantile Marine Company, and the Global Politics of Merchant Shipping, 1916-1919 (Unpublished Thesis, 2020)

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