How Big Is Too Big?

Like two huskies spoiling for a fight, Bethlehem Steel and the Justice Department have been circling each other for more than two years, each one daring the other to knock the chip off its shoulder. Last week both chips were knocked off. Fulfilling one of his dreams, 80-year-old Bethlehem Chairman Eugene G. Grace joined Youngstown Chairman James L. Mauthe in announcing a merger agreement between Beth Steel, second biggest

U.S. producer, with assets of $2 billion and ingot capacity of 20 million tons, and Youngstown Steel, sixth biggest producer (assets $574 million, ingot capacity 5.8 million tons). The Antitrust Division, which had already warned Beth Steel it would fight the plan, promptly filed suit under Section 7 of the Clayton Act.

The trustbusters did not charge that the merged companies would create a monopoly; they charged merely that the bigger company "may substantially lessen competition or tend to create a monopoly." Both sides were anxious for the first court test of a key legal point: just how big may business legally grow by mergers?

Flaw. The Government's case, as set forth in the complaint, was meager. It merely said that competition between the two companies would be eliminated in coke-oven byproducts, pig iron and semifinished steel products, but presented few specific details to show how, made no mention of the fact that even after the merger, Beth Steel would still be far smaller than U.S. Steel. Said a Justice man: "In this case you're losing the independent competing activity of the sixth biggest company in the industry. What more do you need than that?"

But the big flaw in the Government's case, said Beth Steel, is that the two companies are more complementary, both by geography and by the products they make, than competitive. Bethlehem has plants on the east and west coasts, while Youngstown is concentrated in the Midwest. Youngstown produces many products that Bethlehem does not, e.g., seamless weld pipe, while Bethlehem manufactures steel types not made at all or in any large quantity by Youngstown, e.g., structural steels, rails, castings, stampings, machinery, freight cars, ships. The merger would permit product and geographic expansion that neither company could finance in the tight money market.

Merger Argument. There was another argument for merging: creation of another giant steel company with a capacity of 25.8 million tons (13.4 million tons less than U.S. Steel) and assets of $2.6 billion ($1 billion below U.S. Steel) could actually increase steel-industry competition. For the first time there would be a real rival for U.S. Steel, the undisputed monolith (first in capacity in ten of twelve major steel-producing categories) whose wage and price decisions have hitherto set the industry pattern.

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