Mississippi Company Guide, Meaning , Facts, Information and Description
This company was set up in 1716 in France by Scottish businessman John Law. It initial goal was to trade and do buiness with the French colonies in North America, which included much of the Mississippi River drainage basin, and the French colony of Louisiana. In 1717 it was renamed as Compagnie d'Occident and was by the government granted a French monopoly on trade with the West Indies and North America. In 1719 the company acquired Compagnie des Indes Orientales, Compagnie de Chine, and other French trading companies and became Compagnie Perpetuelle des Indes (or just Compagnie des Indes). In 1720 it acquires Banque Royale, which was also started by John Law as Banque Générale in 1716.Law exaggerated the wealth of Louisiana with an effective marketing scheme, which led to wild speculation on the shares of the company in 1719. Shares rose from 500 to 15,000 livres, but by summer of 1720, there was a sudden decline in confidence, and the price was back to 500 livres in 1721. By the end of 1720 Philippe II of Orléans dismissed Law, who then fled from France.
The company share price looked like this:
- 1719 May: 500 livres
- 1720 February: 10,000 livres
- 1721 September: 500 livres
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2 Reopened in 1722 3 Financials 4 See also 5 External links |
Debt conversion
The number of outstanding shares of the company was probably around 500,000 in 1720. A stock price of 15,000 livres would give the company a market cap of 7,500,000,000 livres. Wihch subsequently in september of 1721 is worth 250,000,000 when the price collapse back to 500 livres. As a comparison the French government expenses was 150 million livres in 1700, while their debt in 1719 was 1.6 billion livres.
With the demand for company shares being high the government and John Law sat out to buy back the whole 1.6 billion livres government debt for shares in the company. The plan was successful and in 1720 the whole governmet debt was acquired by the company, before the company's market cap began to collapsed during 1720 and 1721. Compare this with the debt acquisition by The South Sea Company of England that aquired 80% of the 50 million pound governmet debt during 1720. The South Sea Company reach a highest share price of 1000 pounds in August 1720. A few months later than the Compagnie des Indes.
As the creditors bought shares with their bonds and debt papers, the whole government debt became property of the company. Which became owned by the former creditors, but effectively controlled by the government. Initially the government payed the company an annual 3% interest to the company, which amounted to 48 million livres. But it had sucesfully unloaded their whole gigantic debt of 1,000% the annual budget and was basically debt free at the end of the debt-for-equity conversion.
The company sought bankruptcy protection in 1721. It was reorganized and open for business in 1722. In 1723 it was granted fresh privileges by Louis XV. Among these were the monopoly of sale of tobacco and coffee, and the right to organise national lotteries. It could again tap the capital markets and raise capital by issue of shares and bonds.
From 1726 to 1746 the company flourished from its overseas trade and domestic business. It brought wealth to the port cities it was operating from in Bordeaux, Nantes, Marseille, and, in particular, its home port of Lorient (L’Orient). During this period it lost its trading rights for the western hemisphere but it kept trading with the east and could prosper from that business. Its main goods of trade during the period were porcelain, wallpapers, lacquer and tea from China, cotton and silk cloth from China and India, coffee from Mocha (Yemen), pepper from Mahé (South India), gold, ivory and slaves from West Africa.
After 1746 the spendthrift policies of the French Government began to hurt the Company, and the Seven Years War (1756-1763) brought severe losses. In February 1770 an edict required the Company to transfer to the state all its properties, assets and rights, then valued to just 30 million livres, while the King accepted to pay all the Company’s debts and annuity (rente) obligations. The company was officially dissolved in 1770, although its liquidation dragged on into the 1790s.
Reopened in 1722
Financials
When the whole debt was converted at the end of 1719 their 1720 financials may have looked like this: ([1])
| Period Ending | 31-Dec-1720 |
|---|---|
| Revenue | |
| Collection of indirect taxes | 15,000,000 |
| Collection of other taxes | 1,500,000 |
| Tobacco | 2,000,000 |
| The mint | 4,000,000 |
| Trading | 10,000,000 |
| Interest income | 48,000,000 |
| Total | 80,500,000 |
| Expenses | |
| ? | ? |
| Net Income | |
| ? | ? |
| Period Ending | 31-Dec-1720 |
|---|---|
| Assets | |
| Government bonds | 1,600,000,000 |
| Liabilities | |
| ? | ? |
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