When US Steel floated in 1901 it brought 265 steel plants and 168,000 workers under a single corporate structure. Organised by J Pierpont Morgan, funding this corporate colossus involved a combination of $200 million in public share subscriptions, equity swaps, and the issue of mortgage bonds. Morgan’s reputation as an industry consolidator began with the merging of electric utility companies into what became General Electric in 1892. During the same decade Morgan was a robust acquirer of rail companies that were dubbed “Morgan’s Roads.”
Indicative of Morgan’s stature, the US government took months to raise a similar amount of money to the share subscriptions three years earlier. This was towards the end of the “Long Depression” of the 1890s during which Morgan was very active on several fronts. Indicative of the brutality of mergers, the famed inventor Thomas Edison was evicted from his own company, Edison Electric. It was the purchase of a rail line by Thomas Carnegie that would force Morgan’s hand to buy Carnegie Steel at a price of the seller’s choosing.
In 1900 Carnegie formed the Bessemer and Lake Erie Railroad and signed a 99-year lease agreement with the Pittsburgh, Lake Erie Line; a consolidation of two lines in which Carnegie also had majority control [the Pittsburgh, Shenango and Lake Erie line and the Butler and Pittsburgh Railroad Company]. The purpose of the Bessemer and Lake Erie was to link the Carnegie plants, via an interchange with the Union Railroad, and bypass the Pennsylvania which had abandoned the 1896 détente struck upon Morgan’s Corsair yacht.
Morgan’s first response to Charles Schwab, the president of Carnegie Steel, was “Carnegie is going to demoralize railroads just as he has demoralized steel.” There was more at stake than railroads, however. Morgan had assembled the National Tube Company by amalgamating nineteen specialist factories. He had also amalgamated Illinois Steel Company and the Minnesota Iron Company into Federal Steel. These firms began cancelling contracts with Carnegie Steel. Carnegie’s retaliation was to threaten a to build a tube mill alongside Conneaut Lake, Ohio, and outcompete the specialists on price.
The reason for Morgan’s alarm was clear, according to Carnegie biographer Burt Hendrick. The National Tube Mill, with a pre-amalgamation value of $19 million, was capitalised at $80 million and would be worthless should Carnegie proceed; ruining thousands of investors and the bank that sponsored them. Unable to sell Carnegie Steel to his partners, due to the sheer size of the operation, and a failed attempt solicited through one of his partners, Carnegie remained in position to direct extract revenge on Morgan for the Corsair snub. When asked how much he wanted for Carnegie steel, Carnegie scribbled on a piece of paper that $400 million was his price. Morgan readily accepted.
Carnegie, whose share of Carnegie Still was around sixty-percent, stipulated payment in gold backed mortgage bonds. As a bond holder, and not a shareholder, Carnegie would be extricated from any management responsibilities. That may have suited Morgan as much as Carnegie. A year or two later when aboard the same steamship, Carnegie quipped that his only regret about the deal was not asking for an extra $100 million. Morgan replied that he would have happily paid it