Bad News for "Bessie"

As far back as most steelmen can remember, Chairman Eugene Gifford Grace of Bethlehem Steel Co. had a consuming corporate desire to merge "Bessie," the second biggest U.S. steel company, with Youngstown Sheet & Tube, the nation's No. 6 steelmaker. Grace first tried to turn the trick in 1930, only to be thwarted in court after a proxy battle with Cleveland Financier Cyrus Eaton, who then controlled 19% of Youngstown stock. This year, at 78, Bethlehem's Chairman Grace announced that Bessie and Youngstown were again planning to merge. Last week the Justice Department, which has been cool to the plan all along (TIME, Sept. 13), flatly said no to Bessie.

The bad news for Bessie was publicly delivered by Attorney General Herbert Brownell.* After careful consideration, said Brownell, "we concluded that the merger . . . would be in violation of the antitrust laws," specifically a 1950 amendment to the Clayton Act prohibiting mergers that might tend to reduce competition. At the news, stocks of both companies, which had been hopping up on merger prospects, slipped. Bethlehem dropped 1¼ to 77¼; Youngstown closed at 52¾, off 2½.

Swift Reaction. From the two companies came swift reaction. Noting that the 1950 amendment had yet to be tested legally, Youngstown's President J. L. Mauthe threatened to bring the case to court. (In 1948, before the amendment was passed, the Justice Department tried to block U.S. Steel's purchase of the West Coast's Consolidated Steel—TIME, June 21, 1948—but lost out in the U.S. Supreme Court.) Even if merged, steelmen noted, Youngstown and Bethlehem would still be second to U.S. Steel, with assets of $2.3 billion (v. Big Steel's $3 billion) and productive capacity of 24 million tons (v. 38.7 million tons). Said Bethlehem's Grace: "The merger would bring a great, new competitive force into the Midwest market."

Behind the Justice Department's decision lay weeks of work by its chief trustbuster, Assistant Attorney General Stanley Barnes, a hulking (6 ft. 1½ in., 248 lbs.), onetime football star (University of California) and presiding judge of Los Angeles County's Superior Court.* When Bethlehem and Youngstown lawyers came to Barnes with their merger plans, they found him a man hard to convince. One day they showed him a big map of the U.S. divided into zones to prove that Bethlehem's and Youngstown's markets did not overlap. Barnes took one look, then launched into a 15-minute speech pointing out that the map was gerrymandered and did not conform to market facts. The steel company lawyers then pointed out that Youngstown is the sole manufacturer of four categories of steel products, and Bethlehem of 20. Only in twelve of these categories, said the lawyers, do the two companies overlap. True, said Barnes, but on an industry-wide basis those twelve account for 80% of the steel business.