Armco Inc. and Cyclops Industries Inc. are hoping they can take their two money-losing companies, combine them and come out with one strong, profitable stainless steel business.
"They have to do these things to survive," said Louis Markatos, a partner at the Chicago-based stock brokerage firm of Abraham & Sons. While bullish on the combination, he warns that the company must endure some pain, including layoffs, for it to be successful.
The acquisition of Pittsburgh-based Cyclops by Armco was consummated yesterday after Armco stockholders approved the marriage at the company's annual meeting. With combined sales of $2.6 billion, the new company is the second-largest maker of stainless steel in the country and the 175th-largest industrial company.
The merger will affect more than 1,000 Baltimore employees of the two companies. The Armco operation is Baltimore Specialty Steels Corp. on East Biddle Street, which has about 455 employees working there. Cyclops is the majority shareholder of Eastern Stainless Steel, which has about 600 employees at its plant on Rolling Mill Road.
There are plans to link both stainless-steel operations to plants elsewhere to improve the quality of the product and reduce costs.
Management at Eastern Stainless says there will be no reduction in the local work force as a result of the changes. But Armco officials say they are studying the possible effects of combining its Baltimore operation with a Cyclops plant in suburban Pittsburgh.
Both Cyclops and Armco have lost money in the past two years. Armco lost $336.5 million last year and $89.5 million in 1990; Cyclops lost $41.2 million in 1991 and $3 million the year before.
The red ink has continued into this year with Armco recently announcing a first quarter loss of $30.5 million. Eastern Stainless, which continues to report its results separate from Cyclops, said yesterday that it lost $586,000 in the first quarter on sales of $34.7 million.
However, the two companies say they can achieve significant savings once they are combined because Armco has strong facilities for producing semifinished products and Cyclops has more extensive finishing mills, which produce the final product.
They say that should save the combined operation $17 million the first year and more than $70 million a year after full integration.
Spokesmen for both companies say those goals can be achieved without large-scale shutdowns or massive layoffs. Including a number of joint ventures Armco has with other companies, the work force at the combined operation is about 28,000.
"We do not anticipate any major shutdowns at this time," said Edward M. Romanoff, a Cyclops spokesman. Armco spokesman Jim Herzog agreed and said the savings will come from greater efficiencies.
For instance, he said, Armco's Butler, Pa., plant will be able to provide more raw steel to other operations, including Eastern Stainless, at a lower price than it had in the past.
Mr. Markatos of Abraham & Sons said the new combination needs a reduction in the "head count" but did say how much he thought the work force should be cut.
He warned that the company's progress could falter if it does not stick to its cost-cutting efforts and makes too many compromises.