It’s a Deal: Justice says yes to LTV Steel

Justice says yes to LTV Steel

The proposed merger of LTV’s Jones & Laughlin Steel subsidiary and Republic Steel was a relatively easy matter for the two companies to agree on six months ago, but in the past five weeks it has turned into a subject of sharp controversy within the Reagan Administration. J. Paul McGrath, the Assistant Attorney General for antitrust policy, first vetoed the agreement on the grounds that it violated Justice Department merger guidelines. Commerce Secretary Malcolm Baldrige then wrote an article in the New York Times calling McGrath’s decision “a world-class mistake.” President Reagan strayed into the fray by remarking that the merger would not “reduce competition to the point that it would constitute monopoly at all.”

Last week the acrimony ended when McGrath gave approval to a revised merger plan. Under the agreement, LTV, the third-largest American steel producer, and Republic, the fourth biggest, will sign a consent decree requiring the merged company to sell off two Republic plants in Gadsden, Ala., and Massillon, Ohio, within six months after the deal goes through. The Alabama plant makes hot-and cold-rolled carbon and plate steel, while the Ohio one produces sheet stainless steel. The Justice Department said that paring down the production capacity of the new company will put the agreement within its antitrust guidelines.

Some observers quickly suggested, however, that McGrath was just bowing before White House pressure, but he vehemently denied it. Consent decrees normally require properties to be divested before a merger takes place. McGrath defended the new decision by by pointing to the economic plight of the trouobled industry. Steel plants are operating at less than 80% of capacity, and imports have taken 26% of the domestic market.

LTV Steel, as the merged company will be called, will replace Bethlehem Steel as America’s second-largest producer, J. Paul McGrath behind U.S. Steel. After some inefficient operations are phased out, the new firm will have the capacity to produce 19 million tons annually and will concentrate on flat-rolled, bar, stainless and tubular steel. Its headquarters will be located at Republic’s Cleveland offices.

The decision earlier this month by U.S. Steel and National Steel to withdraw their merger plans helped LTV and Republic win Justice Department support. If both deals had occurred, the two new companies would have controlled 50% of the U.S. sheet-steel market. For now, though, the U.S.-National deal is dead.