Thursday, 15 March 2012

Britain's Most Profitable Railway? - The Salisbury and Yeovil Railway

In 1857 the London and South Western Railway (L&SWR) made probably one of the worst agreements a railway company ever did. The company had been given authorisation in 1854 to build a line between Yeovil and Exeter. However, another independent company, the Salisbury and Yeovil Railway (S&YR), had gained permission to open a line between Salisbury and Yeovil. Therefore, to be able to run trains to the West of England the L&SWR would need that company's lines. So, in July 1857 it agreed to lease the S&YR for twenty years from its opening throughout (1 June 1860), giving it 57.5% of the gross profits. After this time the L&SWR could purchase or lease the line for a set yearly payment based on the apportionment of receipts at the end of the agreement.[1]

Little did anyone know that the agreement would make the S&YR possibly the most profitable companies in the land. As the years passed, and without the S&YR having many overheads such as track or locomotive maintenance, its dividend slowly rose as the traffic grew, as follows:

The Opening of the Salisbury and Yeovil Railway - 1860
1861 - £4 7s 6d
1863 - £4 12s 6d
1865 - £5 5s 0d
1867 - £6 10s 0d
1869 - £6 5s 0d
1871 - £6 15s 0d

Indeed, this gradually worried the L&SWR's management, as it was paying increasingly large amounts of money to the S&YR. Thus, in 1872 it attempted to buy the company. This first bid, which offered the S&YR shareholders £150 of L&SWR shares for every £100 of S&YR, was rejected by the proprietors; The killer blow being a letter to them from another S&YR shareholder, Louis Henry Ruegg. He stated that with the L&SWR on the verge of opening new lines, the traffic passing over the S&YR, and the possible profits, were bound to increase still further. Indeed, the rejection of the L&SWR's offer was the smartest move the S&YR proprietors would make.

The S&YR's dividend continued to rise to £8 5s 10d in 1873, £9s 15s 0d in 1875 and 12 10s 0d in 1877. While dividends this high were commonly paid by some earlier railways, this was an astonishing return in the 1870s. Faced with having to purchase the S&YR at a very high price or leasing it for an massive yearly fee, the L&SWR resolved to buy the company again. The eventual sale cost the L&SWR dearly, and in early 1878 it exchanged each £100 S&YR share for £250 (5% preference) of its own.[2] Thus, right until its end, the S&YR's shareholders profited hugely from their company's relationship with the L&SWR.


[1] Williams, R.A., The London and South Western Railway - Volume 1: The Formative Years (Newton Abbott, 1968), p.87-88
[2] Ruegg, Louis Henry Ruegg, (Sherborne, 1878), p.50-56

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