A Marriage in Weakness

Steel jobs saved, but obsolescence continues

The Justice Department was in no mood to be bluffed, even by troubled steelmakers, and talks dragged on and on in a months-long game of high-stakes political poker. Ever since last November, steel conglomerates LTV Corp. and Lykes Corp. have argued fiercely that the only alternative to their planned merger was Lykes' bankruptcy and the layoff of thousands of steelworkers. But antitrust officials objected that even the marriage of two money losers. LTV's Jones & Laughlin and Lykes' Youngstown Sheet and Tube, would reduce steel competition. In the end, it came down to a very close personal decision by Attorney General Griffin Bell. Last week, overruling his staff, he approved the deal by which LTV (sales last year: $4.7 billion) will acquire Lykes for about $200 million in stock.

The controversial decision to allow the joining of the nation's seventh (Jones & Laughlin) and eighth (Youngstown) largest steelmakers into what will become the third or fourth biggest clearly hinged on Lykes' doomsday prediction. That prophecy could have proved self-fulfilling, because customers, suppliers and creditors all began to abandon the company for fear it would collapse. Bell rejected his own in-house advice that Lykes could be saved and competition maintained by selling assets to raise cash. The weakness of the company, he said, "led me to conclude that Lykes faced a grave probability of a business failure in the near future."

That would have been particularly painful, because Lykes last September closed some facilities in and near Youngstown, Ohio, eliminating 5,000 jobs. Local church and civic leaders hope to reopen the mills by collecting funds from people in the area and getting Government-guaranteed loans, but their chances seem slim and will be unaffected by last week's decision.

Bell's announcement brought mixed reactions from the 15,000 workers remaining at various Youngstown Sheet and Tube plants in the U.S. While older men expressed deep relief that their pensions would not be washed out by bankruptcy, some younger workers were bitter that the Justice Department failed to attach conditions protecting existing jobs. This was discussed during the negotiation with the companies, but, said a Justice Department official, such conditions "would have got us into an area beyond our role."

LTV, which also is a major aerospace manufacturer and food processor, is keeping quiet about its postmerger plans, at least until after shareholders of both companies vote in late August or early September to approve the linkup. All LTV has said is that it will not close Youngstown's Indiana Harbor mill, near Chicago, which could feed raw steel to Jones & Laughlin's Hennepin, Ill., processing plant and give the enlarged combine a fully integrated facility in the Middle West. While the two companies are complementary in some ways, they also have redundancies. LTV has promised that the merger savings will lead to profits, and with that as an objective, most steel people expect as a consequence that there will be some plant shutdowns.

Even with extensive streamlining, two weak companies will find it difficult to equal one strong firm, and Bell's decision could prove to be shortsighted. It simply delays yet again long-overdue industry rationalization and perpetuates the old problem of obsolete, high-cost steel plants that require special help to compete internationally.

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