LTV's steel consolidation proves an 'ideal marriage'

Being in the steel business isn't so tough. Just ask a former test pilot. The pilot is LTV Corporation chairman Paul Thayer, and when he welded LTV's shaky Jones & Laughlin Steel Corporation with the Lykes Corporation, parent of the faltering Youngstown Sheet & Tube Company, there were a lot of people who said the contraption would never fly.

When the deal was completed in 1978, LTV and Lykes had a combined debt of almost $1.7 billion and neither J&L nor Youngstown were doing very well.

"Most of the skeptics looked at the economic conditions of both J&L and Youngstown in the sense that they were second-tier companies in the steel business," Mr. Thayer said. "They both . . . had a lot of debt, and neither one had done as well as the competition in a down market and only really looked healthy in a strong market.

"People said, without looking any deeper, that putting those two companies together was not a marriage, it was a suicide pact."

Today, the skeptics have largely been silenced. And the LTV steel division not only promises to be an important profitmaker, but with heavy orders from the oil industry for tubular steel and from the recovering automobile industry, LTV's steel mills are operating at 95 percent capacity compared with averages in the low 80s for the rest of the industry.

"It's been a very successful marriage," commented Harvey Katz, analyst with the Value Line Investment Survey. A major reason for the success was the way in which LTV was able to integrate the strengths and weaknesses of the two companies. "The integration was quite close," Mr. Katz said. "One company had difficulty getting iron ore and coal, for instance, the other company had the iron ore and coal."

He added: "I wonder if even they [LTV] themselves could have known how neatly the pieces would fit together."

Noted Mr. Thayer: "The closer we looked and the longer we looked, there were some remarkable fits in almost all aspects of both companies." These fits included production capacity, raw materials, facility location, and transportation links.

The unexpected harmony of the marriage is given some of the credit for LTV's good performance so far this year. Meeting with analysts and investors in Boston this week, Mr. Thayer was able to tell them that, although it is not over yet, the second quarter of this year will be more profitable than both the first quarter and the second quarter of last year.

Earnings in the first quarter of 1981 were $62.8 million on sales of $1.75 billion, compared with $37.1 million on comparable sales of $1.39 billion in the second quarter of 1980. (Actual sales in that quarter were $1.91 billion, but the company has since sold its Wilson Foods division.) "The second quarter [of 1981] will be even better," a spokesman said.

Mr. Thayer, a US Navy fighter pilot in World War II, became a test pilot for the Vought division of Ling-Temco-Vought after the war. (The company was formally renamed LTV Corporation in 1972). In 1955 he was named vice-president and board member of the Vought division. In 1970 he was named chairman of LTV after the board of directors fired James Ling, who had built the company into one of the most prominent conglomerates of the 1960s conglomerate boom.

The board felt Mr. Ling's acquisitions had pushed LTV too far into debt, particularly the purchase of J&L in 1968, at a time when the steel industry was hurting.

Many analysts felt Mr. Thayer might be following in Mr. Ling's footsteps when he pushed for the Lykes merger and moved LTV from No. 8 to No. 3 in US steelmaking. Despite making the merger a success, he is not interested in advancing that ranking further.

"We have no desire to become No. 2," he said. "But we do have the desire to continue to upgrade and round out existing facilities and improve our productivity and yields."

Much of the credit for the J&L division's running at such a high capacity can be given to the energy industry. Some 28 percent of J&L production is devoted to making tubular steel, most of it sold to oil and gas exploration and development companies. Mr. Thayer expects this business to grow 12 to 15 percent in the next few years, "not the 25, and 35, and 45 percent growth rates that some elements of the industry have experienced over the past two or three years."

Even a 12 to 15 percent growth rate will be nice for another LTV division, Continental Emsco, an oil-field equipment and drilling rig supplier that was a subsidiary of Lykes and came along with the merger. Much of the boost in LTV earnings is attributed to this division, which has turned out to be the most profitable part of the firm.