United States Steel: A Corporation with a Soul

by Arundel Cotter

Moore & Schley was deeply mixed up with the affairs of the Tennessee Coal, Iron & Railroad Co. One of the members of the firm was a member of the syndicate that controlled the company, and Tennessee stock constituted a considerable proportion of the collateral which it had put up to secure loans for itself and its customers. This stock, considered good collateral in normal times, failed to find favor with the bankers to whom Moore & Schley was heavily committed in the time of stress, and the brokers were called on to replace the securities with others of a more approved character—which they were unable to do—or to suffer the calling of their loans and consequent bankruptcy.

Only two courses were open to the brokers, either to borrow a sum large enough to meet their loans or to negotiate an exchange of the Tennessee stock for some other security which the banks would accept. They chose the latter and, realizing that the United States Steel Corporation was the only possible buyer of the Tennessee stock, approached Morgan through Ledyard to that end.

Suggestions that the Steel Corporation should purchase control of the Tennessee properties had been made in the past to the Corporation interests by one or more of the directors of the southern company. It does not appear, however, that these suggestions were authorized by the Tennessee syndicate as a whole. Be that as it may, they came to naught, as the directors in question seemed to have a very high idea of the value of the Tennessee stock, and the divergence of opinion on this question between them and the possible purchasers was so great that no middle ground was possible. Never did the tentative offers to sell reach a point where they were worthy of the term “negotiations.”

One of the reasons alleged for the Steel Corporation’s supposed fear of the Tennessee company’s competition was that the company was the potential basis for a merger of the steel concerns in the South which would not only be strong enough to offer a stubborn fight to the “trust” for business in the section below the Mason and Dixon line, but would have a distinct advantage over it in exporting steel to Mexico and Central and South America.

John A. Topping, head of the Tennessee Coal, Iron & Railroad Co. and of the Republic Iron & Steel Co.—dominated by the same interests—had actually taken steps for the establishment of a market on the Gulf coast. In the Rivers and Harbors Act of 1899 the construction of locks and dams and other improvements on the Warrior River so as to give slack water communication between Birmingham, Ala., near which city the mills of the Tennessee company were situated, and Mobile, was decided on. But the matter rested there until Topping, by his efforts, secured an appropriation to carry out the improvements, since completed. Not only would the water route have been important to the Tennessee company in regard to the markets mentioned, but it would have enabled the company to enter the markets on the northern Atlantic coast of the United States, from which it had been debarred by the high rail freight rates.

Reports that a steel merger in the South was contemplated or actually under way had been circulated from time to time. The three companies mentioned as constituting the consolidation were the Tennessee Coal, Iron & Railroad Co., the Republic Iron & Steel Co., and the Sloss Sheffield Steel & Iron Co. Other less important concerns were also suggested. The Sloss Sheffield company was engaged entirely in the manufacture of iron and was a rather small concern as compared with the steel giants of the day. But it was conservatively capitalized and managed and had at the time an unbroken dividend record in respect to its preferred stock. At its head was Colonel J. C. Maben, a veteran iron maker and one of the best known and most respected figures in the industry. Colonel Maben was approached by one of the Tennessee directors with a merger proposition, but refused to consider it because, as he has since said, he did not think the financial condition of the Tennessee company sound. If there had ever been any possibility of the merger going through Colonel Maben’s attitude would have effectually stopped it.

From this it would appear that the proposal to merge all the larger steel and iron companies of the South never developed beyond the nebulous stage. However, a consolidation of the two largest of these concerns, the Tennessee and the Republic companies, had been definitely decided on. The two concerns were controlled by the same financial interests and their managements were practically identical. While it is not unlikely that some of the directors of the companies, among whom were John Warne, or “Bet You a Million” Gates, looked upon their investment therein first and foremost as a speculation and would, in consequence, have regarded favorably the opportunity to sell out at a fair figure, there were others who had implicit belief in the possibilities for the expansion of the steel industry in that section and considered that they had in their hands the opportunity to build up a southern steel empire. The amalgamation of the two companies, naturally, would have been the first step to this end, and, as has been stated, it had been decided on and its consummation was being delayed only until what seemed to be a favorable time should arrive. But their dream of empire was doomed to disappointment.

Another reason advanced for the Steel Corporation’s supposed anxiety to get its clutches on the Tennessee Coal, Iron & Railroad Co. was that the latter concern owned ore mines estimated to contain some three quarters of a billion tons of iron ore, besides coal resources placed at two billion tons, as well as limestone and other raw materials necessary in the manufacture of steel. The company also enjoyed the undoubted advantage of having both its coal and iron in the ground within a twenty-five-mile radius of its ovens and furnaces—it was “sitting on its raw material”—whereas the steel mills in the North were great distances from their raw supplies—Pittsburgh, for instance, depending for its ore on the vast iron ranges of northern Minnesota.

The proximity of its mines is, of course, a material advantage to the Southern company, as transportation charges on raw material play a very important part in the cost of steel making. It is perhaps not so generally known that this advantage is to a large extent counterbalanced in other ways. Were it not for the saving thus gained it is questionable whether it would be possible to manufacture steel commercially in the South.

In the Hill lease the price which the Steel Corporation was to pay on the ore taken out of the Great Northern holdings in the Mesaba region was based on an iron content of 59 per cent. Northern ore averages well over 50 per cent. metallic content and that yielding much under 50 per cent. is not considered commercially available, although some of the lower grade ore is treated by a concentrating process and made so. Moreover, much of the ore of the Great Lakes region lies in immense bodies within a few feet of the earth’s surface and is mined by the simple process of removing the top layer of soil—technically known as stripping—and then putting a steam shovel to work.