The merger of Trumbull Steel and Republic Iron & Steel in 1927 was the merger of the sixth-largest and nineteenth-largest steel manufacturers in the United States. Republic Iron & Steel, founded in 1899, had been in financial difficulty off and on between 1923 and 1927. The smaller Trumbull Steel went through a significant financial crisis in 1925. Both firms were targeted for consolidation by Cyrus S. Eaton, an industrial investor from Cleveland, Ohio. To prepare for the merger, Eaton also won control of and merged the Ohio-based steel firms Central Steel and United Alloy Steel.
The Trumbull Steel-Republic Iron & Steel merger created the fifth-largest steel firm in the United States, and set the stage for a much larger merger of several steel firms into Republic Steel in 1929.
Merger background The American steel industry had been undergoing consolidation since the creation of U.S. Steel in 1901. Most of this activity involved very small companies merging into larger ones. By 1920, the largest steel-making company in the United States (by annual tonnage) was U.S. Steel, followed by Bethlehem Steel, Republic Iron & Steel, Midvale Steel, Lackawanna Steel, Jones & Laughlin Steel, Youngstown Sheet & Tube, Inland Steel, Colorado Fuel & Iron, Wheeling Steel, and The Steel & Tube Co. of America.
The depression of 1920-1921 provided a powerful incentive for many steel companies to merge. In January 1922, there were strong rumors that Inland Steel, Lackawanna Steel, Midvale Steel, Republic Iron & Steel, The Sheet & Tube Co. of America, and Youngstown Sheet & Tube would merge with Brier Hill Steel (the 15th largest steel company), creating a giant half the size of U.S. Steel. The merger fell apart when Youngstown Sheet & Tube pulled out. Lackawanna Steel was purchased by Bethlehem Steel in May,; and in November Midvale Steel sold all of its properties except its Nicetown works to Bethlehem.; In December 1922, Youngstown Sheet & Tube absorbed Brier Hill Steel,; followed by Steel & Tube Co. of America in January 1923.;
A rapidly expanding economy in 1923 left little inducement for merger, but by 1927 excessive competition in the steel industry led to significantly lower profits and once again merger rumors were in the air. The Roaring Twenties had created an under-capacity in steelmaking and an over-capacity in steel finishing. The solution was to either spend tens of millions of dollars expanding basic steel manufacturing, with the risk of creating oversupply, or for steel makers and finishers to merge and rationalize the supply chain.
Eaton's interest in steel In 1901, John D. Rockefeller hired 18-year-old Cyrus S. Eaton as a telegraph room messenger boy. Eaton left after a year to attend McMaster University. Graduating in 1905, he worked as a cowboy in the American West for a year before returning to Cleveland. Rockefeller and others had formed a syndicate to purchase licenses to build electric power stations in the province of Manitoba, Canada. The syndicate hired Eaton, a Canadian citizen, to buy the licenses. When the Panic of 1907 began, the syndicate became disinterested in building the plants. Eaton purchased the licenses from the syndicate, obtained funding from a bank in Manitoba, and began building the power plants himself. The plants were highly profitable, and he soon built a number of others across Canada. He formed his first utility holding company in September 1912, and in November 1912 formed Continental Gas & Electric to purchase and hold natural gas and electric utilities in the American Midwest.
Eaton's net worth was more than $2 million () by 1913, and in April 1914 he joined the Cleveland investment banking firm of Otis & Company. He made millions investing in stocks, and was worth $80 million to $100 million by the late 1920s.; He was so notoriously wealthy that people in Cleveland called him "rich as Mellon".
At the urging of a friend, shipping magnate Harry Coulby, Eaton began an intensive study of the American steel industry in 1924. He became convinced that the industry was ripe for merger, and that a large, merged company would be highly profitable due to economies of scale and less susceptible to financial distress in the event of an economic downturn. He began looking for a weak steel company to take over.
Eaton's first steel investments were in United Alloy Steel, whose stock Otis & Co. began buying some time in 1924. By 1925, he had purchased significant amounts of stock in a number of steel companies.
Eaton's first step toward merger: United Alloy Steel Central Steel, based in Massillon, Ohio, was founded in 1914 and began operations a year later.; In 1916, J. P. Morgan Jr. refinanced the failing United Steel Company of Canton, Ohio, and renamed it United Alloy Steel.; ; Within a year, United Alloy had built a second steel plant in Canton.; Both companies manufactured alloy steel, nearly all of which was consumed by the rapidly expanding automobile industry.
In April 1923, the Cleveland-Cliffs Iron Co. purchased a substantial amount of stock in Central Steel, becoming its largest minority shareholder. Some time in 1924, Cyrus Eaton purchased a large block of stock in United Alloy Steel, becoming one of its largest minority shareholders. Together, Cleveland-Cliffs and Eaton began to work to merge their companies.
In May 1925, Central Steel and United Alloy began merger talks. The Central Steel and United Alloy reached agreement on everything except the ratio of exchange for their shares in the new company, and the merger talks collapsed.
In the summer of 1925, Cyrus Eaton convinced William G. Mather, chairman of Cleveland-Cliffs Iron and a major steel company investor, to join him in consolidating various Ohio steel companies into a larger company that could compete with U.S. Steel and Bethlehem Steel. The Mather-controlled Cleveland-Cliffs began to assist in the endeavor.
By November 1925, Eaton and Mather were ready to try again to merge Central Steel and United Alloy Steel. They needed control of Central Steel, however. The two bought large amounts of Central Steel stock in the fall and early winter of 1925. This heavy buying forcing the share price sharply upward, and it reached an all-time high in early January 1926. Fortuitously, the chairman of Central Steel, C.E. Bibb, died on January 5, 1926. This caused a change in corporate governance favorable to the Mathers; Mather, already a member of the Central Steel board of directors, was now elected to its executive committee.
Eaton, meanwhile, had met with the 62-year-old founder and president of United Alloy Steel, Edward A. Langenbach. Langenbach could fight for control of his company, or, by selling most of his shares to Eaton, could retire a very wealthy man. Langenbach chose retirement, and stepped down on January 8, 1926.
Eaton began to make his move in April. On April 12, Eaton acquired all the United Alloy Steel stock of Edward A. Langenbach for $6 million (). The transaction was the largest one-time purchase of stock ever made on the Cleveland Stock Exchange, and one of the largest single purchases of stock anywhere in the nation in recent years. The same day, Langenbach and two other directors resigned from the United Alloy board. On April 19, Cyrus Eaton, Joseph O. Eaton, and Philip Wick were elected to the board of directors of United Alloy Steel. Eaton's friend, Harry Coulby, who was already a member of the United Alloy board, was elected chairman. Coulby, Cyrus Eaton, and Joseph O. Eaton were named members of the company's executive committee.
Eaton's takeover of United Alloy Steel sparked talk that it would merge with Central Steel and Trumbull Steel.; The Cleveland Press reported that Eaton was going to use the same strategy he had used to make millions in utilities: Amalgamation and rationalization.
Central Steel and United Alloy merge: Central Alloy Steel In April 1926, Otis & Co. formed a new investment company, Continental Shares, whose purpose was to acquire stock in various steel companies. Eaton owned half the company, the shareholders of the iron mining firm Cleveland-Cliffs Iron Mining the other half. Continental Shares had $140 million in 1929, making it one of the ten largest investment companies in the United States.
Merger talks between Central Steel and United Alloy began in June 1926. Eaton further strengthened his position at United Alloy to move the talks along.; On July 21, the two companies reached an agreement and announced their merger. The new company's name was Central Alloy Steel.; ;
When the merger was consummated in late August, Cyrus Eaton, Joseph O. Eaton, Philip Wick, William G. Mather, Harry Coulby, and Elton Hoyt II, head of the shipping fleet of Mather family-owned Pickands Mather, all served on the new 15-member board of Central Alloy Steel. The interlocking boards of directors of Otis & Co., Trumbull Steel, Central Alloy Steel, Cleveland-Cliffs, and Pickands Mather led to intense speculation that Trumbull Steel would be the next company to join the emerging Eaton group of steel companies, perhaps even as early as the fall of 1926.
While Central and United were coming together in the summer of 1926, Eaton approached James A. Campbell at Youngstown Sheet & Tube and offered to merge that company with Central Alloy, Otis, and Trumbull. Campbell tentatively agreed, but pulled out after he realized Eaton had no intention of allowing Campbell to be chairman or president of the new company. Without Youngstown, the merger collapsed.
Second step toward merger: Eaton wins control of Republic Steel It was no longer a secret in the summer of 1926 that Eaton wanted to merge a number of smaller, independent steel companies to create a large steel conglomerate based in the Midwest. The formation of Continental Shares was widely seen as a move toward achieving this goal.
Republic Iron & Steel, organized in 1899, had been in and out of financial trouble from 1923 to 1927. While nearly every other of the top ten largest American steel firms (in terms of tonnage) had grown since 1920 through merger, enlargement, or both, Republic was the only one to shrink: It lost 95,000 annual tons, and whereas it had once been the second-largest independent American steel company it had fallen to fifth. This made it a good target for Eaton. A Republic-Trumbull combination also made sense in terms of economic rationalization: Republic Iron & Steel primarily produced bars, pipe, and sheet steel, while Trumbull Steel largely made the strip steel and tin plate from which Republic's products were made. Trumbull Steel had more mill capacity than its blast furnace and open-hearth furnaces could provide for. Republic Steel, located just a few miles away, had excess blast furnace and open-hearth capacity.
In October 1926, Eaton formed a private syndicate of wealthy investors with the purpose of acquiring of Republic Iron & Steel common stock. Eaton purchased Republic Iron & Steel stock so quietly that company president John A. Topping remained unaware of it until Eaton informed him. Eaton's goal was to accumulate enough stock so that Topping would take him seriously as an investor and meet with him to discuss a potential merger. Topping either refused to meet or refused any offer of merger, even though by January 1927 The New York Times was reporting that Eaton wanted to build his steel empire around Republic Iron & Steel.