One Merger Stopped

The Justice Department won a major battle in its antimerger campaign. In Manhattan's U.S. district court last week, Judge Edward Weinfeld banned the merger of Bethlehem Steel and Youngstown Sheet and Tube, one of the biggest deals in industrial history. It was the first court test of a Government suit under the Clayton Antitrust Act since it was amended in 1950 to make it tougher.

The companies' chief argument was that a merger would actually increase competition. By combining Youngstown's Midwestern plants with Bethlehem's strength on the coasts, the companies said, they could better compete with U.S. Steel, which has about a third of the market. In its merger proposal, Bethlehem said it was ready to build new capacity in the Midwest, which Youngstown alone could not afford to do.

But Judge Weinfeld held that the proposed merger would eliminate substantial competition between Bethlehem and Youngstown, depriving steel consumers of alternate sources of supply. To the companies' arguments that they could not compete with U.S. Steel, Weinfeld replied that this was "not persuasive in the light of their prior activities, their financial resources, their growth and demonstrated capacity to meet the challenge of a constantly growing economy." Both companies, he noted, had bettered their position in the industry in the last five years: Bethlehem increased its capacity by 30.7%, Youngstown by 31.4%. Thus, both are financially able to expand further.

Permitting Bethlehem and Youngstown to merge as a challenge to U.S. Steel, Weinfeld ruled, "offers an incipient threat of setting into motion a chain reaction of further mergers by the other but less powerful companies in the steel industry." Other companies could then ask to merge as a challenge to the "Big Two," thus bringing even greater concentration to "an industry already highly concentrated" and "heading in the direction of triopoly."

Bethlehem's President Arthur B. Homer said that the company has not yet decided whether to appeal. Meanwhile, the decision may well cool some of the merger deals in U.S. industry. The Government has 27 antimerger cases pending, affecting acquisitions by such U.S. industry leaders as Continental Can, El Paso Natural Gas, Pillsbury, Gulf Oil. and Reynolds Metals. While each case will be decided on its own merits, the Justice Department's hand has been strengthened by the Bethlehem case. If Bethlehem appeals to the U.S. Supreme Court, a final decision is not likely before 1960.

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