Trustbusting Makes a Comeback

The Justice Department blocks the LTV-Republic merger

The Reagan Administration has approved some of the biggest corporate mergers in history: Du Pont and Conoco, U.S. Steel and Marathon Oil and, tentatively, Texaco and Getty. Last week, in a stunning reversal, it blocked the planned marriage of LTV and Republic Steel. Proposed in September, the deal would have created the second-largest steel company in America, behind U.S. Steel. Assistant Attorney General J. Paul McGrath, named two months ago to succeed William Baxter as the Justice Department's antitrust chief, said the merger would violate the Clayton Act, which bans excessive concentration in any industry.

McGrath feared that LTV and Republic would dominate the market for sheet stainless steel and for hot-and cold-rolled carbon and alloy sheet steel, products used in automobiles, small appliances, ranges and refrigerators. Together, the companies would have become the largest domestic producer of those types of steel. In the area of stainless sheet, the new firm would have controlled almost half of U.S. production capacity. Said McGrath: "We concluded that the increased concentration would be unacceptably high."

McGrath's position cast doubt over an even bigger steel merger. Three weeks ago, U.S. Steel announced the takeover of National Steel, which would have combined the largest and seventh-largest companies. Steel officials in recent months have been predicting that the business was about to undergo a series of such mergers, which would reduce the number of major steel producers from eight to as few as three. Executives contend that by combining resources, fewer rank-and-file steelworkers and middle managers would be needed, excess capacity would be reduced, and spending for raw materials to produce steel would be lessened. That consolidation would make U.S. firms more efficient and better able to compete against foreign steelmakers, which have captured one-fifth of the American market. Officials of LTV and Republic claimed that their merger would save $300 million a year in operating expenses.

The Justice Department, however, questioned whether the LTV and Republic merger would bring about that much increased efficiency. It also said that the threat of foreign competition in the kinds of steel most affected by the merger was not great enough to overcome the risks of domestic collusion to increase steel prices.

Import quotas, plus voluntary export restraints by European and Japanese producers, which the industry has been demanding, have already reduced foreign competition.

The protection from imports that steelmakers have won greatly weakened their position with the Justice Department. Even former Antitrust Chief Baxter, now a law professor at Stanford, agreed. Said he last week: "The steel companies can't have it both ways. They can't have protectionism on the U.S. market and then expect to be judged on merger questions as if they operated in a free world market."

Stunned industry leaders appeared at a loss as to what to do next. Said LTV Spokesman Julian Scheer: "We had no contingency plans. We expected to get approval." McGrath held out a slim hope that the Justice Department might approve moves short of merger, such as swapping plants or joint raw material purchases. But that is a long way from the corporate marriage that LTV and Republic wanted.