A 1969 internal Justice Department memorandum assessing the proposed acquisition of Youngstown Sheet & Tube Co. by Lykes Corp. predicted accurately what has happened nine years later: The merger has endangered Youngstown's "competitive visibility."
Lykes, whose merger with Youngstown was not challenged, announced last fall that it was closing most of its operations at the Campbell Works plant in Youngstown and has laid off nearly 5,000 workers. Now Lykes is seeking to merger with LTV Corp., the parent of Jones & Laughlin Steel Corp.
The newly proposed merger, which would combine the nation's seventh and eighth largest steel makers, is undergoing scrutiny by the Justice Department's Antitrust Division.
The 1969 memorandum, written by George Schueller, assistant chief of the division's trial section, recommended that the Lykes-Youngstown merger be challenged, albeit on grounds that were not and are still not conventional for antitrust cases.
Schueller concluded that the merger was subject to some conventional challenges - the two companies complete in the same lines of business - but only on a minor or even speculative basis. It was a conglomerate merger - one between two companies in primarily unrelated lines of business.
"Our principal argument, however, must be that the subject merger jeopardzies Youngstown's competitive viability, in terms of finances required for technological improvements and innovations in its steel production facilities," he wrote, admitting the argument would "chart novel and difficult paths."
Although Youngstown's profitability was low, it was in good financial condition in 1969, the memo pointed out Youngstown had a yearly cash flow of approximately $100 million, about the amount it needed annually for capital investments to retain its competitive position in the steel industry. "Ill that appears to be put in jeopardy by the merger with Lykes," the memo said.
It quoted Lykes' president, who said he would use the cash flow for moderizing the steel production facilities unless fields other than steel production turned out to be more promising.
The memo also noted that Lykes, the smaller of the two companies, had to borrow heavily in order to buy Youngstown, servicing the debt and meeting other new financial obligations were bound to reduce investment funds substatially from the amount that Youngstown would have available as an independent, the document concluded.
The merger also might be challenged on the grounds that it would contribute to the concentration of economic power, the memo suggested.
Sen. Edward Kennedy (D-Mass.), chairman of the Senate Antitrust and Monopoly Subcommittee, said yesterday it was "tragic" that the federal government didn't challenge the Lykes-Youngstown merger after its antitrust attorneys had predicted so accurately that it could lead to the loss of the company as a competitive factor in the steel industry.