Welcome to The Business Buying Academy with Sieva Kozinsky.

🔑 From Edison's Secretary to Billions in Assets

Let's talk about one of the wildest rises and falls in American business history.

He started as Thomas Edison's secretary.

Then he built his own utility empire - and quickly destroyed it.

Meet Samuel Insull, the guy who lit up the Midwest (and a bunch of other places), built one of the largest utility companies in the world, and then watched it all come crashing down in the Great Depression.

Insull was born in London in 1859 and came to the U.S. in 1881 as Thomas Edison's personal secretary.

He worked for Edison until the early 1890s, when he left to run his own utility companies.

He lived the American Dream.

Samuel climbed the ranks fast and eventually landed in Chicago, where he took over some local power companies.

He was all-in on alternating current (AC) (winning the "War of the Currents" against Edison's DC preference) because it made long-distance power transmission practical.

By 1907, he'd rolled a bunch of Chicago electric outfits into Commonwealth Edison (ComEd).

The guy loved scale: bigger plants, better transmission, lower prices, more customers. He pushed hard to get electricity into homes and businesses, like marketing appliances and extending lines to suburbs.

By the 1920s, ComEd was serving hundreds of thousands of customers with revenue around $40 million a year (about $800 million adjusted for inflation).

The Holding Company

Insull didn't stop with just Chicago.

He started gobbling up utilities, gas companies, and even electric railroads across the Midwest and beyond.

Here are a few of his notable deals:

• Mid-1890s: Acquires or consolidates roughly 20 independent electric companies in Chicago through horizontal integration, building toward a monopoly. By 1895, he controls enough to dominate Chicago Edison’s territory.
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• Late 1890s: Forms Commonwealth Electric Light & Power Co. to scoop up remaining independent plants outside the core Chicago Edison territory.
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• 1907: Merges Chicago Edison with Commonwealth Electric to create Commonwealth Edison Company (ComEd). This consolidated electric supply across Chicago. The new company was worth $45 million. Insull also bought out remaining competitors (like Cosmopolitan Electric) in subsequent years to achieve full dominance in the city.
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• 1911: Forms Public Service Company of Northern Illinois by buying and linking scattered small-town electric plants around Chicago suburbs. This expanded his footprint significantly beyond the city.
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• 1918 (or around then): Takes over the struggling People’s Gas Light & Coke Company (near bankruptcy). He rehabilitates it; stock reportedly rose dramatically (from ~$20 to $400 per share in some accounts). This added major gas utility operations.
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• 1920s (peak expansion era): Launches Middle West Utilities Company, a massive holding company to acquire utilities across the Midwest and build a broader “super-power” network.
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• Late 1910s: Acquires control of several electric interurban railroads, including the bankrupt Chicago & Milwaukee Electric Railroad (later Chicago North Shore & Milwaukee), plus lines like Chicago Aurora & Elgin, Chicago South Shore & South Bend, and others. He modernized many of them.
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• 1927: Forms Great Lakes Broadcasting Company and buys Chicago radio stations WENR and WBCN (paid $1 million for WENR). Merged them and later added early mechanical TV experiments. (Sold to NBC in 1931 as the empire crumbled)

To keep control and raise cash, he built this massive layered holding company setup.

By the late 1920s/early 1930s, the Insull group had:

• Over 95 holding companies and 255 operating companies
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• Operations in 32 states, serving ~15 million people across thousands of towns
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• Total assets peaking around $4 billion (making it one of the largest companies in the world).

He controlled huge amounts of assets.

But had little equity in each one.

Some estimates put the equity positions in various utility companies Samuel owned at just 1%.

Their creative deal structures became ticking time bombs.

Here's how they were the Middle West Utilities was structured:

• Operating companies (power plants, distribution networks) sat at the bottom. They generated steady cash flow from regulated rates.
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• Holding companies bought controlling stakes (usually the common/voting stock) in the companies below them.
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• Each holding company raised capital by issuing its own bonds (debt), preferred stock (with fixed/guaranteed dividends), and common stock.
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• Proceeds from selling these securities funded acquisitions of more utilities or additional layers higher up the pyramid.
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• Earnings flowed upward: Operating companies paid interest on their bonds and dividends on preferred stock first, then passed excess profits up as dividends to the holding company above. This supported payments at higher levels, with the biggest upside (and risk) going to common stockholders at the very top.

Key advantages to this structure (from Samuel Insull's perspective):

• He retained enough voting common stock at the top layers to maintain control with minimal personal capital outlay.
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• The structure created high leverage: Fixed obligations (bond interest + preferred dividends) were paid first, amplifying returns to common equity when things went well.
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• By the late 1920s/early 1930s, Insull reportedly controlled over $500 million in assets with roughly $27 million in equity at the top.

One highly-leveraged company became the collateral for another highly-leveraged deal, repeated over dozens of deals.

With this story headed towards the late 1920s, you can probably guess what happened next.

Hundreds of thousands of regular folks bought in. 600,000 shareholders and another 500,000 bondholders.

Utilities felt safe and reliable, right?

1929 hits, the market crashes, and the Depression drags on.

Revenues drop and debt becomes impossible to service.

The whole interconnected pyramid started collapsing in 1931 and '32.

Stocks tanked, investors got wiped out.

It was brutal for everyday people who trusted the "safe" utility stocks.

Insull stepped down, took a ton of heat (FDR even called out Insull during campaign speeches).

Insull bounced to Europe.

But the government extradited him back, and he faced fraud and antitrust charges.

The trial was a circus.

It was seven weeks long, but the jury took just two hours to acquit him on everything.

He wasn't found guilty of criminal wrongdoing; it was more bad timing and heavy leverage meeting an economic collapse.

Sieva

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.

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