Louisville and Portland Canal - Government Buyout

Government Buyout

Business was slow for the company until the canal was completed in 1833. The initial toll of 20 cents per ton proved insufficient, and the company had to increase it to 40 cents in 1834 and 60 cents in 1837. By 1834 the canal carried 1,585 boats and 170,000 tons. An economic boom in the late 1830s brought profits to the shareholders, as the canal moved over 300,000 tons of traffic at its peak in 1839. The tolls, and the obsoleteness of the canal, proved unpopular, and Congress began urging the government to buy out private shareholders and reduce the tolls. The government buyout, although at times passed by the Senate, met with heavy opposition, especially from Indiana representatives, which was still attempting to build its own canal as late as 1842. Other opponents believed the move would be a violation of states' rights.

To solve the problem, the company's stockholders chose to buy themselves out—with the Congress's money. In lieu of receiving dividends, investors elected to use company profits to redeem their private shares at a substantial premium, until the government owned all remaining shares. The private shareholders would make a tidy profit, and the government would wind up owning the canal. Stockholders approved this policy in 1842 and the government took no part in the decision. The canal remained heavily profitable as the buyout continued, despite an economic depression, allowing the toll to be decreased to 50 cents per ton from 1842 to 1855, when the buyout plan was completed. The deal proved to be a windfall to investors.