U.S. Steel Firms Consider Merger

There is a significant amount of talk between a number of U.S. steel companies about merging operations to improve their operations and compete more effectively against foreign produced steel.

Various reports state that at least five of the nation’s largest steel companies are exploring the possibility of merging into a single company.

U.S. Steel, the largest steel company in the United States, as well as Bethlehem Steel, presently in bankruptcy protection, are two companies taking the lead in the merger talks. Another steel company, Wheeling-Pittsburgh Steel, is reportedly involved in the merger talks. Other steel companies that may be brought into the merger, according to various reports, include Weirton Steel and National Steel.

One issue that the combined group of U.S. steel companies needs to have address is the federal government assist in picking up the legacy costs for the retired workers at all the companies.

Already, the United Steelworkers of America, representing about 140,000 steelworkers, has thrown its full support behind the plan, viewing it as a way to shore up the country's fragmented and failing domestic steel industry.

Disclosures of the discussions came as LTV Corp., the nation's fourth largest steel company, told a federal bankruptcy judge Tuesday that even a $250-million federally guaranteed loan would not be enough to stave off the company's financial woes. LTV is seeking permission to liquidate its assets, including its plants in Hennepin, Ill., and East Chicago, Ind.

Companies involved in the merger discussions said that one giant steel company could respond more effectively to foreign competition and, with the government's help, support the tens of thousands of retired former steelworkers now receiving pension benefits from the beleaguered industry.

Some analysts note that any merger deal would likely require major concessions from the union representing steelworkers and substantial government assistance, including both assumption of benefit costs for retirees and protection from foreign steel imports. Steelmakers long have blamed their problems on "dumping" of steel by Asian and other manufacturers in the U.S. market.

For all its complexity, a merger may the only option left that will save the U.S. steel industry, some experts said.

On a global scale, large-scale steel mergers aren't unprecedented. In Europe, three big steelmakers have proposed a merger -- France's Usinor, Luxembourg's Arbed and Spain's Aceralia.

In particular, the developing merger plan here in the U.S., as outlined by U.S. Steel, would require the implementation of President Bush's three-part program, announced June 5, to stem the excessive imports of steel that have been depressing the U.S. steel market.

Bush's program includes negotiations with foreign governments seeking elimination of inefficient, excess steel production capacity worldwide; negotiations with foreign governments to establish rules that would govern steel trade in the future and eliminate subsidies and import relief.

Finally, the plan would call for labor concessions that would enable the new company to reduce operating costs.

Bethlehem Steel said that it began negotiations with the United Steelworkers on the end of October, making what officials called "significant progress" toward the framework of an agreement that could become the labor piece needed for industry consolidation.

Combining the top two integrated steel companies isn't expected to raise antitrust issues, at least in the U.S., because the industry is so fragmented and the combined company would probably control less than 25% of domestic steel production.

On Friday, the U.S. International Trade Commission, which has already ruled that the domestic industry needs protection from foreign competition, is expected to recommend to President Bush that he restrain imports.

And both the industry and the Bush administration have argued that because it is vital to the U.S. defense establishment, steel can't be left to die as other American industries have.

The consolidation plan, if completed, would likely lead to plant closings and a loss of both management and blue-collar jobs as the new company makes efficiency moves.

Nothing has been decided about the structure of a new company, although U.S. Steel, as the strongest American participating company, is expected to have a leading role in it. The new company's workers are expected to be unionized.

The world's steel industry, unlike that for aluminum, is highly fractionalized, with no one company controlling a significant percentage of steelmaking production, which totals about 800 million tons a year.

U.S. Steel and Bethlehem, if combined, would produce 20 million tons. Additional steel producers could add another 10 million tons of total production.