Smokestack America seeks strength through size
Only a decade ago such big deals would never have been seriously considered for fear that Government antitrust officials would stop them dead. But the merger plans announced last week by two pairs of leaders in the railroad and steel industries have a good chance of winning Washington's approval. With Smokestack America in a period of decline and retrenchment, the Reagan Administration tends to look favorably on consolidations that could make weak companies stronger. In addition, stiff competition from abroad has made the antitrust laws increasingly irrelevant for many important industries.
Trying to Survive in Steel
No part of Smokestack America is sicker than the steel industry, which lost $3.2 billion last year. Since the late 1970s, the number of blue-collar workers in the industry has plunged from 340,000 to 173,000. Formidable foreign competitors, led by the Japanese, have captured nearly 20% of the U.S. market. Doubts are rising as never before about America's ability to remain a major steelmaking power.
Two of the industry's biggest companies have decided that the only way to survive the slide is to get together and streamline their operations. Through a swap of stocks valued at $770 million, Republic Steel of Cleveland, the fourth largest U.S. producer, intends to merge with Pittsburgh's Jones & Laughlin, which ranks third in the industry and is a subsidiary of LTV Corp., a Dallas-based corporation that also manufactures aircraft parts and rockets for the military. Together, Republic and Jones & Laughlin control 15.9% of the steel market, and the combined company, to be called LTV Steel, will stand second only to U.S. Steel, which has 17.2%. The new firm will be particularly powerful in the market for steel used in oil-drilling equipment.
In a joint statement, LTV Chairman Raymond Hay and Republic Chairman Bradley Jones said that no antitrust problems should arise from Washington because the merger would create "a stronger, more efficient steel company, better able to compete in a new world-market environment." Jones will head LTV Steel, which will be headquartered in Cleveland. Some Republic employees suggested in jest that the new company be called Bradley Jones & Laughlin.
The marriage proposal is a triumph of hope over experience. Republic lost $239 million last year on sales of $2.7 billion, while Jones & Laughlin dropped $299 million on sales of $3 billion. In the first six months of this year, the two firms lost an additional $219 million. The new company will undoubtedly cut back and consolidate overlapping operations to save money. In Cleveland, for example, both Republic and Jones & Laughlin have plants that turn out flat rolled steel for cars and appliances, but LTV Steel will not need all the production capability of those two mills. Some industry experts estimate that 20% or more of the company's potential annual steelmaking capacity of 24.6 million tons could be shut down. Observed William Stephens, an analyst who follows LTV for the Rauscher Pierce Refsnes securities firm in Dallas: "This merger won't be one plus one equals two. It will be one plus one equals ll/2 or 1%." Stephens predicted, however, that a slimmed-down company would be able to return to profitability.