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tion — latterly more than half — of the price paid by the mer-
chant for nails was turned over by the manufacturers into the
treasury of the association. A fund was thus created for the
carrying on of the association, for payment of rebate to jobbers,
for subsidies to outside makers, etc.

Another essential feature of the association's working was the
control of the jobbers, who were * * * prohibited from
purchasing nails made by outside manufacturers and from sell-
ing below the association prices. This involved the establish-
ment of an elaborate system of prices, perhaps more detailed
and comprehensive than was ever before attempted in the hard-
ware line.

Immediately after its organization the pool advanced the prices
of nails to an exorbitant figure. The " base " price was raised from
$1.20 per keg in June, 1895, to $2.55 by May, 1896, or in less than
twelve months. The real advance, however, was considerably greater
than these figures indicate, owing to certain changes made in the
methods of quoting nail prices. Thus, while the old base price
applied to certain sizes of nails, no sizes were sold at the new base
quotation, but instead large " differentials " were added for even
the cheapest grades of nails. This feature of the nail " card," as it
was called, was a source of acute irritation to customers of the pool.

The pool had a comparatively brief existence. About the first of
December, 1896, or some eighteen months after its organization, it
suddenly collapsed. Its failure was directly attributed at the time
to the great increase in competition which resulted from its policy
of exacting high prices. Such competition, as already pointed out,
was facilitated by the fact that only a very moderate investment was
necessary to enter the business on a commercial scale.

The steel-billet pool. — This pool was formed in April, 1896,
under the name of " The Bessemer Steel Association of the United
States." The agreement, which was along the same lines as that of
the steel-rail pool, provided for a definite allotment of tonnage among
the members, the maintenance of prices, the payment of penalties
for exceeding the tonnage allotments, and compensation, on the other
hand, to those members who did not make the maximum production
to which they were entitled.

The billet pool had a stormy existence from the start. This was
due partly to the fact that it failed to include several important



74 THE STEEL INDUSTRY.

manufacturers of billets, but more particularly to internal dissen-
sions. An especial source of weakness was that while some of its
members made nothing but the cruder steel products, such as billets,
slabs, etc., and were therefore dependent upon the outside market,
several of the larger concerns in the pool had their own finishing
mills, which thus afforded them an outlet for a large quantity of
their semifinished steel. The agreement as originally drawn up did
not cover billets thus used by pool members themselves in the manu-
facture of finished products. As a result, such concerns took advan-
tage of the situation by entering into heavy sales of finished material,
and at prices so low that outside finishing mills were unable to com-
pete and at the same time pay the pool price of billets. Consequently
there was a heavy reduction in the trade demand for billets, and
those members of the pool who were dependent upon this outside
demand naturally became intensely dissatisfied. As a result of these
conditions, the pool was apparently on the point of disruption during
the summer and fall of 1896. In November the arrangement was
amended by including in the tonnage allotment steel used by pool
members in the manufacture of finished material as well as that sold
in the cruder forms. This change, however, had hardly been accom-
jDlished when fresh difficulties arose over alleged bad faith of some
of the meml)ers. In the first week of December, 1896, one member
of the pool, the Bellaire Steel Company, formally announced its with-
drawal. This action was promptly followed by the collapse of this pool.

The ore pool. — This pool, which was called the Bessemer Ore As-
sociation, embraced the leading ore-producing interests in the Lake
Superior region. The keen competition which ordinarily exists in a
mining business where ownership of ore properties is scattered was
intensified by the commercial panic of 1893, and profits, for many
mining concerns, had practically disappeared. The pool agreement
contemplated a rigid control of the business. Aside from fixing
prices for ores, it also undertook to make a definite allotment of pro-
duction, both as to mining ranges or districts and also as to the in-
dividual mining companies included in its membership.

Owing to important changes in the ore industry in 1896, some of
which are noted later, the ore pool was threatened with disruption,
and in the spring of 1807 it seemed almost certain that no agreement
would be made for the coming season's business. An arrangement was
nevertheless entered into by some of the leading producers, but on
a very much lower basis as to price. Thus, whereas the standard price
for Gogebic ores in 1896 had been $4 a ton, the basis in the 1897 agree-
ment was about $2.75.'^

Other pools. — Among other similar agreements in the steel in-
dustry in the middle nineties was that in structural steel, which un-

1 Sec page 77.



UNITED STATES STEEL, CORPORATION. 75

dertook, in addition to the maintenance of prices, an allotment of
tonnage ; another important combination was the cast-iron-pijae pool,
which was eventually d^-clared illegal by the Supreme Court of the
United States.^

Gentlemen's acreejeents. — These organizations were so numerous
as to forbid specific description. It is safe to say that hardly any
branch of the iron and steel industry was entirely free from such
efforts to secure control of prices. The gentlemen's agreement proper
was distinguished from the pool in that no formal organization for
regulating output or prices existed, the efficacy of the agreement sim-
ply depending upon the faithfulness of the members in maintaining
informal pledges. Such gentlemen's agreements contained no provi-
sion for forfeits in case of infraction, or for the acquisition or subsi-
dizing of outside plants to prevent competition.

Section 5. Weakness of pool agreements a contributory cause of the or-
ganization of corporate consolidations.

Notwithstanding the various attempts at combination by means of
pools and other agreements, such as those described in the preceding
section, the statement holds true that -competition was the dominating
feature of the iron and steel industry in the early and middle nine-
ties. This is, indeed, really indicated by the great difficulty experi-
enced in maintaining pool agreements, which of course had no legal
sanction. "W^ith the exception of the steel-rail pool, most of these
organizations had a precarious existence, the agreements being sub-
ject to frequent violation. In the latter part of 1896, and the early
part of 1807 in particular, there was a rather general abandonment of
such combinations. Thus, the collapse of the wire-nail and billet
pools was soon followed by the disruption of the steel-rail pool itself;
a number of other similar agreements were also abandoned, at least
temporarily, about this time. (In many instances similar agreements
were again entered into at a later date. This matter will be dealt
with in a later part of the report.)

These experiments at combination, however, undoubtedly tended to
hasten the progress of the consolidation movement proper. The suc-
cess, even though brief, of some of these pool organizations in secur-
V. ing large profits for their members had illustrated the advantages of
concerted action. At the same time the low prices which followed
the disruption of these associations, coming as they did after several
years of acute depression in the industry, had a very discouraging
effect, and manufacturers were ready to listen to almost any plans
which promised increased profits. The failure of these pool agi'ee-
ments was, therefore, prom^Dtly followed by schemes for still more
comprehensive and more permanent organizations. Thus, on the col-

lAddyston Pipe and Steel Company v. United States, 175 U. S., 211.



76 THE STEEL INDUSTBY.

lapse of the wire-nail pool, several of the leading makers of wire
nails, together with promoters, planned an absolute consolidation of
the principal wire-nail interests of the country into a $75,000,000 cor-
poration. This project fell through just as it appeared to be on the
eve of consummation. However, about three Aveeks later a partial
consolidation of wire interests was effected, and in January, 1899,
practically the entire industry was concentrated in the hands of a
sin£i-]e company. (See p. 120.) Similar consolidation schemes were
taken up in various other departments of the steel industry. AVliile
these were not completed at once, the consolidation movement ac-
quired a distinct impetus in 1897.

This new tendency of combination efforts was clearly recognized at
Ihe time, as may be seen from the following excerpt from a review by
the Pittsburg correspondent of the Iron Age, published in the issue
of that periodical for December 30, 1897:

In writing under this head last year we said that there seemed
to be only one way to successfully carry on business, and that
was on the principle of " the survival of the fittest.'' Events of
1897 have confirmed this statement. The rail, beam, nut and
bolt, and other pools ha^'e been dissolved, and the business goes to
those concerns b^st equipped to take it. The rail pool was un-
doubtedly the most successful ever formed and made immense
sums of money for the concerns composing it. In time, however,
it became impossible to hold it together. Competition had
sprung up and the subsidies demanded by outside concerns were
so large that to pay them was becoming a burden.

The collapse of these pools showed very conclusively that
pools, even where there were penalties involved, were not always
successful, and another method of controlling certain lines of
manufacture is being tried. This is by outright purchase and is
now under way in the rod and wire trades. * * * Another
deal which has been on the carpet for some time is an amalga-
mation of the bridge-building interests.

Section 6. Consolidation movement hastened by change in policy of
Carnegie Steel Company toward ore supplies.

\ specific influence which hastened outright consolidation in the
steel industry was a radical change on the part of the Carnegie inter-
ests in their attitude toward ownership of ore reserves. The com-
parative indifference of the Carnegie concern in the early nineties
to the control of ore properties was abandoned in the latter part of
1896, when the company executed a contract with the Lake Superior
Consolidated Iron Mines (owned chiefly by Rockefeller interests;
see p. 147), providing for the lease, for a period of fifty years, of ore
properties capable of furnishing a large annual tonnage, at a royalty
of 25 cents per ton. An important feature of the contract was that
the transportation of this ore was to be over the Duluth, Missabe and



UNITED STATES STEEL COEPORATION. 77

Xorthern Railway (the stock of which was held by the Lake Superior
Consolidated Iron Alines) , and down the Lakes in the vessels of the
Bessemer Steamship Company, which was also a Rockefeller concern.
Indeed, the contract appears to have been entered into by the Rocke-
feller interests mainly because of the assurance of a liberal tonnage
for their rail and steamsliip properties thus afforded.

The circumstances which brought about this important deal are*
not definitely known. On the one hand, it was reported that the
Carnegie interests had threatened to secure their ore supi:)lies else-
where unless the Lake Superior Consolidated Iron ]\Iines agreed to
this arrangement. On the other hand, there had been rumors that the
Rockefeller interests were about to engage in the manufacture of
steel.

The announcement of this arrangement practically demoralized
the ore industry for the time being. Prices of iron-mining stocks
dropped sharply. In this connection it may be noted that Henry W.
Oliver, in a letter to H. C. Frick, chairman of the Carnegie Steel
Company (Ltd.), under date of July 27, 1897, said: ^

I desire to impress upon you the fact, that if it had not been
for our Rockefeller-Mesabi deal of last year, with the consequent
demoralization in the trade caused by the publication thereof, it
would not have been possible for us to now secure the other
Range properties I propose to acquire, either by lease or for any
reasonable price. We simply knocked the price of ore from $4
down to, say, $2.50 per ton. Now let us take advantage of our
action before a season of good times gives the ore producers
strength and opportunity to get together by combination.

In the steel industry the news of this transaction was very generally
accepted as a depressing influence and as equivalent to a declaration
on the part of the Carnegie interests that they proposed to put them-
selves in an impregnable position by effecting e^'ery possible economy
in manufacture. The Chicago correspondent of the Iron Age re-
ferred to the transaction as " another decidedly depressing influence
which is taken as portending much lower prices in the future."

The Carnegie interests were not slow to take advantage of this
situation, and they followed up this deal by the lease of a large num-
ber of other mining properties in the Lake region, until, a few years
later, they controlled an extensive reserve tonnage. The great bulk
of these acquisitions was through lease and not by purchase in fee,
so that only a comparatively small amount of capital was required
for this purpose. (See p. 216.)

These leases of iron-mining properties by the Carnegie concern
created a profound impression upon tlie trade. Statements were
repeatedly made that the Carnegie Steel Company (Ltd.) proposed

1 " The Inside History of the Carnegie Steel Company," hy J. H. Bridge. Mr. Oliver,
who was closely allied with the Carnegie interests, was at that time urging the purchase
by them of several important Iron mines.



Yg THE STEEL INDUSTRY.

to make itself the dominating factor in the industry.^ These acquisi-
tions of ore property by the Carnegie interests were generally taken
by other large steel manufacturers as a Avarning to strengthen their
own positions with respect to reserves of ore and coal. Predictions
Avere made by trade authorities at the time that the Carnegie pur-
chases would be followed by a similar expansion or merger on the
part of some of the rivals of that concern. These predictions proved
to be well founded. Thus, in the summer of 1898, or within about
eighteen months after the Carnegie-Rockefeller deal became generally
known, the Illinois Steel Company and the Minnesota Iron Company
AA'ere formally consolidated, together with some other properties, into
the Federal Steel Company. (See p. 117.) As already stated, the
OAvnership of the Illinois and Minnesota concerns had for some time
been in part in the same hands, but the formal merger of these prop-
erties appears to have been hastened by the aggressive policy of the
Carnegie interests. About the same time, moreover, several other
consolidations in the steel trade were seriously considered and, al-
though these projects Avere not then consummated, they well illustrate
a tendency which rapidly became general in the industry.

It is not intended to say that this cliange in the policy of the Car-
negie Steel Company (Ltd.) Avas a principal cause of consolidation in
the steel industry. Instead, the neAV policy of that concern Avas as
much a result of broad changes in underlying trade conditions as a
cause of such changes. This new departure on the part of the
Carnegie concern. hoAvever, unquestional)]y did tend to focus the
attention of the industry as a Avhole upon the groAving tendency
toward concentration and integration, and thus gave that tendency a
still further impetus. A special reason for this Avas the practical con-
sideration that these acquisitions of the Carnegie Steel Company
(Ltd.) gave it many strategic advantages Avhich tended to force a
similar policy upon its rivals in mere self-protection.

II. CONSOLIDATION MOVEMENT, 1898-1900l

Section 7. Phenomenal prog^ress of consolidation in all industries in these
years.
The rather general failure of pool agreements and the growing
tendency toward integration both favored the progress of outright

1 The Engineering and ilining Journal, in its issue of .Tauuary 2, 1S97. in reviewing
the iron and steel market for ISDO, said :

The situation in the steel market is now practically that the Carnegie company
controls its own supply of ore ; controls at a fixed rate all the I>ake transportation
which it needs ; has well advanced toward completion a railroad line of its own
from the nearest Lake port to its I'ittsburg mills, on which the cost of transpor-
tation will be reduced to a minimum, and finally, through its auxiliary, the II C.
Frick Company, controls the greater part of the output of the Connellsville coke
region. With its enormous plant, to which all the latest improvemeuts and econ-
omies have been added, and with its raw materials practically furnished at bare
cost, this company is not only in a position to make steel cheaper than any other
producer ; it is so situated as to be absolutely in control of the market, and make
the prices of steel what it will. Wc have had pools and combinations without
number in the iron market in this couutry, but never before a position like this in
which a single company could absolutely dominate the trade, and make any combina-
tion which can be formed simply the register of its own wishes. The situation is not
altogether a comfortable one, and many are looking anxiously for ttie result



UNITED STATES STEEL CORPOKATION. 79

consolidation in the steel industry. In the late nineties this move-
ment assumed phenomenal loroportions. It was not, however, con-
fined to the iron and steel industry, but was characteristic of prac-
tically all the leading industries of the country at that time. The
proportions of this consolidation " craze," as it is sometimes termed,
may be appreciated when it is stated that the authorized capitaliza-
tion of industrial consolidations, exclusive of consolidations of steam
railways, street railways, gas, electric lighting, and similar public-
utility concerns, exceeded for the single year 1899 a total of $2,000,-
000,000.^ This enormous figure, however, really gives only an inade-
quate idea of the extent of consolidation in that year, since other
similar projects, representing in the aggregate a capitalization of
over $1,000,000,000, were seriously undertaken, but finally abandoned
or deferred, largely owing to unfavorable developments in the stock
and money markets, which in turn were chiefly attributable to the
enormous congestion of securities created in that year.

Section 8. Extent of consolidation in the iron and steel industry in these
years.

The extent of consolidation in the iron and steel industry in the
three years 1898-1900 was such as to transfer to less than a dozen
concerns more than one-half of the steel-making capacity of the
country, so far as primary products are concerned. Three important
concerns — the Federal Steel Company (see p. 87), the Carnegie Com-
pany of New Jersey (a reorganization of the former Carnegie and
Frick interests), and the National Steel Company (a merger of
several crude steel manufacturers competing with the Carnegie and
P^ederal concerns, chiefly in Ohio) — together secured probably not
less than 45 per cent of the steel-ingot production of the country.
Over 90 per cent of the wire and wire-nail business was transferred
to a single concern, the American Steel and Wire Company of New
Jersey.^ A large percentage of the production of welded tubes and
bridge fabrication was acquired by the National Tube Company and
the American Bridge Company, respectivelyj while the American Tin
Plate Company secured a practically complete monopoly of its
branch of the industry. The greater part of the sheet-steel business
was similarly transferred to a single organization, the American
Sheet Steel Company, while a smaller combination, the American
Steel Hoop Company, merged the leading makers of steel hoops and
cotton ties. Mention may also be made of the Shelby Steel Tube
Company, a consolidation of practically all manufacturers of seam-
less tubing. Besides these consolidations which, as shown later, were

1 Journal of Commerce and Commercial Bulletin of December 30, 1899.

2 This concern, as pointed out on page 91, was preceded by a smaller, but Important,
consolidation, the American Steel and Wire Company of Illinois.



80



THE STEEL INDUSTRY.



acquired by the United States Steel Corporation, several others were
formed in the iron and steel industry at this time.

Some idea of the extent of the consolidation movement in that
industry, as well as the enormous issue of securities which accompanied
it, is afforded by the following table, which gives the leading iron
and steel consolidations and their stock and bond issues. For con-
venience, the concerns given in the table are segregated into those
which were later merged into the United States Steel Corporation
and those which were not. The authorized instead of the issued
capitalization is given. In most cases practically the entire amounts
of stock authorized were actually issued. A conspicuous exception
occurred in the case of the Federal Steel Company, which issued
only about one-half of its $200,000,000 stock. About $4,500,000 of
each class of the stock of the American Bridge Company was unissued^
and several millions in the case of the American Tin Plate Company,
the American Sheet Steel Company, the Eepublic Iron and Steel
Company, the United States Cast Iron Pipe and Foundry Company,
and a few others. The exact amounts of stock issued by most of
these concerns appear elsewhere in the report.

Table 1.— LEADING CONSOLIDATIONS IN THE IRON AND STEEL INDUSTRY, 1898-1900.
A. Consolidations later mcrrjcd into the United States Steel Corporation. ^



Name and year of organization.



Preferred
stoclt.



Common
stoclc.



Bonds.



1898.
American Steel and Wire Company of Illinois 2.

Federal Steel Company

American Tin Plate Company



1899.
American Steel and Wire Company of New Jersey.

American Steel Hoop Company

National Steel Company

National Tube Company



1900.

American Bridge Company

American Sheet Steel Company

Carnegie Company of New Jersey 6.
Shelby Steel Tube Company



Total.



812,000,000
100,000,000
20,000,000

40,000,000
14,000,000
27,000,000
40,000,000

35,000,000
26,000,000



6,000,000



$12,000,000
100,000,000
30,000,000

50,000,000
19,000,000
32,000,000
40,000,000

35,000,000

26,000,000

160,000,000

9,000,000



3 $30,217,179
8 273,000

3 130,656



»< 2,561,000



a 156,000

3 2,000,000

6 185,081,813



320,000,000



513,000,000



220,419, 648



1 As noted in the te.xt, in most cases practically all of the authorized securities Avere actually issued. The
most conspicuous exceptions in this list were the Federal Steel Company, which issued rather less than
$100,000,000 of stock; the American Bridge Company, which issued originally about $30,500,000 of each
class; and the American Tin Plate Company, which retained in its treasury about $2,000,000 preferred and
$2,000,000 common stoclc.

2 This Illinois company was in 1899 merged into the New Jersey concern of the same name.

3 Underlying bonds.

i Does not include $6,418,700 indebtedness incurred shortly after the organization of the company.

6 This company was a consolidation of interests, most of which were previously afflliated and not com-
peting.

« Including, in addition to the $160,000,000 bond issue of the Carnegie Company of New Jersey, $25 081 813
of underlying indebtedness, this including purchase-money obligations, and not merely bonds'.



UNITED STATES STEEL CORPOEATION.



81



Table 1.— LEADING CONSOLIDATIONS IN THE IRON AND STEEL INDUSTRY, 1898-1900—

Continued.

B. Consoliilutions not subsequenllii merged into the UiiUed States ,Stcel Corporation.'-



Name and year of organization.



Preferred
stooli;.



Common
Btoclc.



Bonds.



1899.

American Car and Foundry Company

American Iron and Steel Manufacturing Company !. . .



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