United States v. Republic Steel Corporation, 5152.

• Decision Date: 02 May 1935
• Docket Number: No. 5152.,5152.
• Citation: 11 F. Supp. 117
• Parties: UNITED STATES v. REPUBLIC STEEL CORPORATION et al.
• Court: U.S. District Court — Northern District of Ohio

11 F. Supp. 117

UNITED STATES v. REPUBLIC STEEL CORPORATION et al.

No. 5152.

District Court, N. D. Ohio, E. D.

May 2, 1935.

Russell Hardy, Walter L. Rice, and J. William Fulbright, Sp. Assts. to Atty. Gen., and Emerich B. Freed, U. S. Atty., of Cleveland, Ohio, for the United States.

Frank H. Ginn, Grover Higgins, and W. B. Cockley (of Tolles, Hogsett & Ginn), all of Cleveland, Ohio, and John S. Brookes, Jr., of Washington, D. C., for Republic Steel Corporation.

William P. Belden and George B. Young (of Belden, Young & Veach), both of Cleveland, Ohio, and Livingston Platt, Frank A. Fritz, and Roswell P. C. May (of Platt & Walker), all of New York City, for Corrigan-McKinney Steel Co., Newton Steel Co., and N. & G. Taylor Co.

Sterling Newell and Clan Crawford (of Squire, Sanders & Dempsey), both of Cleveland, Ohio, for McKinney Steel Holding Co.

William P. Belden and George B. Young (of Belden, Young & Veach), both of Cleveland, Ohio, for Cleveland-Cliffs Iron Co.

RAYMOND, District Judge.

This suit was brought February 7, 1935, under sections 7 and 15 of the Clayton Act (sections 18 and 25, title 15 USCA) to enjoin consummation of a merger agreement entered into August 27, 1934, by officers of Republic Steel Corporation and the Corrigan, McKinney Steel Company, subject to approval of stockholders. The contract is alleged to involve acquisitions of capital stock of defendants engaged in the iron and steel industry by various of the defendants engaged in the same industry, contrary to certain provisions of section 7.

Hearing upon the order to show cause why a temporary injunction should not issue was continued by stipulation until trial of the case on the merits, and it was agreed that in the meantime no steps would be taken to transfer stock or assets under the merger.

The government rests its case solely on that portion of section 7 (15 USCA § 18) which provides that: "No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital of another corporation engaged also in commerce, where the effect of such acquisition may be to substantially lessen competition between the corporation whose stock is so acquired and the corporation making the acquisition. * * *"

No claim is made that the proofs establish acquisitions of stock in violation of other provisions of the section found in the remainder of the sentence, viz., "* * * or to restrain such commerce in any section or community, or tend to create a monopoly of any line of commerce."

For convenience, the defendants will be hereinafter designated as follows: Republic Steel Corporation as Republic; the Corrigan, McKinney Steel Company as Corrigan; the Newton Steel Company as Newton; the N. & G. Taylor Company as Taylor; McKinney Steel Holding Company as Holding Company; and the Cleveland-Cliffs Iron Company as Cleveland-Cliffs.

Republic is a New Jersey corporation, organized in 1930. Its principal office is in Youngstown, Ohio. Republic is the third in size of the steel companies in the United States and produces and sells in interstate commerce large quantities of pig iron, semifinished steel, merchant bars, reinforcing bars and tube rounds, hot and cold rolled sheets, and tin plate. Its principal steel plants are located in Ohio, Pennsylvania, New York, and Illinois. It owns and operates iron mines, coal mines, coke ovens, blast furnaces, and finishing plants, and produces an almost complete line of finished steel products. Its ingot capacity is 5,013,000 gross tons, or about 7.2 per cent. of that of the entire industry. Republic's capital structure consists in round figures of $4,400,000 par amount of preferred stock of subsidiary companies, guaranteed by it; $59,500,000 par amount of its own preferred stock; and 2,000,000 shares of no par common stock. It has assets of approximately $270,000,000 and indebtedness of about $61,000,000. In 1933, its annual sales were $80,000,000 of the total sales for the industry of approximately $1,200,000,000. Its total losses for the years 1930, 1931, 1932, and 1933 were approximately $28,000,000. Republic does not have sufficient raw materials for its needs in the manufacture of pig iron. It is therefore a purchaser of large quantities of iron ore and coal.

Corrigan is an Ohio corporation, organized in 1916, with principal office in Cleveland, Ohio, where it owns and operates its only steel finishing plant. It is twelfth in size of the steel companies in the United States, and produces and sells in interstate commerce large quantities of pig iron, semifinished steel, and merchant bars. It has large reserves of iron ore in Michigan and Minnesota, and of coal in Kentucky. Its most important product is semifinished steel. Its ingot capacity is 1,040,000 gross tons, or about 1.5 per cent. of that of the entire industry. Its capital stock consists of 1,396,445 shares, par value $1 each, of which 1,120,086 are voting and 276,359 are nonvoting. Its principal stockholder is Holding Company. It has assets of approximately $54,000,000. In 1933, its annual sales, including subsidiaries, were $20,800,000. For some years its facilities for producing finished steel have been deficient.

Newton is an Ohio corporation, with its principal office in Youngstown, Ohio. It has cold rolled sheet producing plants at Monroe, Mich., and Newton Falls, Ohio. The latter has been operated for only a brief period since June, 1931. Newton's capital stock consists of 26,065 preferred shares, of which Corrigan owns 20,138, or 77.9 per cent., and 261,550 common shares, of which Corrigan owns 212,389, or 81.20 per cent. Corrigan acquired its stock in Newton in 1932 when Newton was heavily indebted to it for purchases of semifinished steel. The acquisition was for the purpose of preserving Newton as a customer for semifinished steel. Corrigan has since been compelled to make large advances to Newton to keep it in operation, and as of December 31, 1934, Newton owed Corrigan $1,995,000, secured by pledge of $1,000,000 principal amount of Newton's 7 per cent. bonds and $556,000 face amount of assigned accounts receivable. All of the bonds of such issue, aggregating $4,000,000 in principal amount and which are secured by a mortgage on Newton's entire plant and properties, matured January 1, 1935, and are now in default. Newton has gross assets at book value of $12,434,000. Its current assets on December 31, 1934, amounted to $1,496,000 and its current and overdue liabilities amounted to $5,430,000. In the years 1930 to 1933, Newton's losses were as follows: 1930, $100,000; 1931, $891,000; 1932, $999,000; 1933, $1,027,000.

The mills of both Republic and Newton are what are known in the industry as old-fashioned hand mills; a type being currently superseded by new so-called "continuous" mills, which make sheets in larger volume and at reduced cost. The automobile trade is increasingly demanding wider sheets. Republic cannot make cold rolled sheets wider than 62 inches, whereas nearly 10 per cent. of Newton's cold rolled sheet business in 1933 and more than 20 per cent. in 1934 was in sheets wider than 62 inches. There are in the United States at least ten continuous sheet mills in operation, and at least one other is now under construction. One of these can produce more than 50,000 gross tons of sheets per month.

Taylor is a Maryland corporation, with its principal office in Cumberland, Md. Its only plant consists of a tin plate mill at that place. It has gross assets of $823,000 at book value. Its capital stock consists of 3,000 shares of first preferred stock, of which Corrigan owns 100 per cent.; 2,911,63 shares of second preferred stock, of which Corrigan owns 878.74 or 30.08 per cent.; and 3,500 shares of no par common stock, all owned by Corrigan. For the fiscal year ending April 30, 1934, Taylor's loss was $159,000. Corrigan's acquisition of Taylor stock occurred in 1929, in connection with the adjustment of a bad debt incurred in the purchase of semifinished steel from Corrigan. Corrigan's investment in Taylor was made for the purpose of preserving Taylor as a customer for semifinished steel. Since the acquisition of Taylor stock, Corrigan has from time to time made advances to Taylor to enable it to carry on business.

Holding Company is a holding corporation organized under the laws of Delaware, with its principal office in Cleveland, Ohio. It owns 48.113 per cent. of the total voting and nonvoting common stock of Corrigan (including 55.02 per cent. of the Corrigan voting common stock and 20.13 per cent. of the Corrigan nonvoting common stock).

Cleveland-Cliffs is an Ohio corporation, with its principal office in Cleveland, Ohio. It owns and operates iron ore mines in Minnesota and Michigan and sells substantial quantities of iron ore, coal, and charcoal pig iron. It owns 7.832 per cent. of the total voting and nonvoting common stock of Corrigan (including 1.31 per cent. of the Corrigan voting common stock and 34.25 per cent. of the Corrigan nonvoting common stock). Cleveland-Cliffs owns all the common shares of Holding Company. Holding Company has outstanding 72,500 shares of 6 per cent. cumulative preferred stock, of which Cleveland-Cliffs owns 38 shares. Dividends on this preferred stock are unpaid, and have accumulated, as of March 31, 1935, to the extent of $18 per share. The preferred stock is retireable by call at the option of the company at $105 per share plus accrued dividends.

By the merger agreement, Corrigan agrees to sell and convey to Republic all of its business, property, assets, and good will, including the controlling stocks of Newton and Taylor now held by Corrigan; to distribute Republic securities received therefor pro rata among its stockholders; to dissolve and go out of business within 30 days after consummation of the purchase agreement, but not earlier than 21 days after the closing date. In consideration thereof, Republic agrees to pay to...