Enter John D. Rockefeller
To fulfill their contract with Oliver, the Merritts needed a way to get the ore from the mines to an ore dock with access to Lake Superior, so they formed the Duluth, Mesabi & Northern Railroad. They struck a deal with Duluth & Winnipeg, which at the time ran from Deer River to Cloquet and had built a line to Superior’s Allouez Bay, where it was building an ore dock. The DM&N and the D&W entered into an agreement in April 1892 whereby the DM&N would construct a line from the D&W’s Stoney Brook Junction (now Brookston) 48 miles directly north to Mountain Iron; in return the D&W promised to complete their ore dock and purchase 750 railroad cars to transport the cargo.
The first ore from the Mesabi was shipped from Mountain Iron to the Allouez ore docks in October 1892, but there were two problems: the dock was not complete and the D&W reneged on their promise to purchase 750 rail cars. The Merritts reluctantly used the D&W line while they built a line of their own from Stoney Brook to Proctor and on to the foot of 33rd Avenue West in Duluth, where they began building an ore dock of their own, not far from where Lewis Merritt had helped establish Oneota 35 years earlier.
To finance their venture, the Merritts worked with bankers throughout Duluth and the Upper Midwest, some of which were in turn financed by Standard Oil President John D. Rockefeller. The American Steel Barge Company chipped in as well, with vice president Charles Wetmore making a deal that gave his company the rights to ship the Merritts’ ore. Wetmore was a friend of Rockefeller’s; in December, 1892, the oil tycoon purchased $500,000 worth of DM&N stock.
The Merritts thought they had found their biggest supporter in Rockefeller, one of the richest men in America. But Rockefeller was also known for showing no mercy to business rivals and partners alike. According to historian Maury Klein, “Standard Oil got the reputation as the most hated company in America. It became literally the symbol for big business evils.” One of Rockefeller’s more common tactics was to buy up all available oil barrels, which in turn caused a shortage that smaller companies could not survive. He would then buy the assets of his over-financed competitors at an under-valued price.
Rockefeller saw the Merritts’ holdings as an opportunity to get involved in direct competition with his chief rival, Andrew Carnegie. Like Rockefeller, Carnegie had made his fortune through shrewdness, but the Scot had a much softer reputation than Rockefeller. According to biographer David Nasaw, “Carnegie didn’t enjoy being the bad guy, being the villain.” Yet his tactics—and moreover those of his one-time business partner Henry Frick—could be just as ruthless as Rockefeller’s. For a number of years Rockefeller and Carnegie exchanged mock Christmas presents as petty digs at each other. One year Carnegie sent Rockefeller, a staunch Baptist who did not partake of alcohol, an expensive bottle of scotch.
Rockefeller was no stranger to Duluth. He had invested heavily in Captain Alexander McDougall’s American Steel Barge Company, producers of the “whaleback” steamers that would revolutionize Great Lakes shipping, particularly grain and iron ore. Once the railroad brought ore to the Lake Superior Shore, Rockefeller’s fleet—including the Frank Rockefeller, named for J. D.’s brother and known today as the S.S. Meteor—would stand to make a fortune shipping the ore east.
The first carload of ore to travel over the DM&N to the Duluth ore docks to be loaded onto one of those whalebacks didn’t arrive until July 22, 1893—and by then the nation’s economy was in a tailspin. On May 3, 1893, the optimism surrounding the Mesabi Range was lost along with many personal fortunes; the stock market had crashed, creating an economic depression known to historians as the Panic of ’93. Work came to screeching halt, not just in Duluth but throughout the nation. No one was buying steel, so no one needed any ore; the Merritts soon ran out of cash. Employees began showing up at the DM&N office demanding payment while brandishing pistols—revolt was in the air.
In June the Merritts asked Rockefeller for financing, and he loaned them $100,000. In order to get the money, Rockefeller forced the Merritts to put all their holdings under a new company, Lake Superior Consolidated Mines, which would include three mines Rockefeller owned in Michigan and Cuba. The move kept the Merritts’ creditors at bay, but it also gave Rockefeller some control over the Duluth family’s mining interests. While Rockefeller owned only a fifth of the Merritts’ stock, his mortgage bonds gave him final control if the company went into default. Rockefeller was now firmly in the iron-ore business, placing him in direct competition with Carnegie.
Leonidas Merritt demanded to see the man who saved his family from the brink and shake his hand, and in June he visited Rockefeller at his offices in New York City. The meeting lasted all of five minutes, with Rockefeller briefly mentioning the business venture before steering the conversation to Minnesota’s weather. This was typical of Rockefeller, who preferred to screen himself from outsiders. Frederick Gates, who served as Rockefeller’s proxy and handled his business in Duluth, later told Merritt, “In talking to me, you are talking to Mr. Rockefeller.” The Merritts never laid eyes on Rockefeller again. He would not visit Duluth or the Mesabi Range until years later, and only after he had gotten out of the iron-mining business.
In September 1893, Gates travelled to Duluth to visit the Merritts, who continued to struggle financially, and brought Standard Oil’s checkbook with him. By October, Rockefeller had loaned the Merritts over $2 million, but the low demand for iron ore meant they had few customers for their product. Rockefeller became anxious for a return on his investment.
During the first months of 1894, Rockefeller forced the Merritts to sell him 94,000 shares of their holdings at only ten dollars a share. The Merritts could well have survived the Panic of 1893 if the robber baron had just given them more time, but of course Rockefeller’s plan was not to help the Merritts succeed, but to gain as much wealth as he could. The move was signature Rockefeller, one that he used to create his fortune and empire; its by-product produced enemies. A year later Rockefeller forced the Merritts to forfeit another 55,000 shares, giving the robber baron complete control of the company. The Merritts’ savior had become their devil. By the end of 1894 the Merritts were essentially out of the mining industry they had in part created.
When the stock market had crashed in May, 1893, Joseph Cotton had gone to work for the Merritts as attorney of the DM&N as well as the Merritts’ Mountain Iron, Missabe Mountain, and Biwabik Mountain Mining companies. When Rockefeller took over the Merritts’ holdings in 1894, Cotton became the attorney for Lake Superior Consolidated Iron Mines. In 1895 Alfred Merritt sued Rockefeller for fraud over the creation of Lake Superior Consolidated Mines, claiming Rockefeller had severely overvalued his properties in Michigan and Cuba. Cotton served as Rockefeller’s lead attorney, essentially selling out the family that put him in the position to become chief counsel for Consolidated Mines in the first place.
The case received nationwide press coverage. Rockefeller did not appear in court, but he did fear negative publicity, so he hired a local journalist to spin his story and counteract reports that did not reflect well on him. He also increased his financial support of Minnesota’s Baptist missionaries and had stories written about that—after all, this was the man who once said, “Next to doing the right thing, the most important thing is to let people know you are doing the right thing.” The efforts did not sway the jury, which awarded the Merritts $940,000. Rockefeller appealed, and the case was eventually settled out of court. In the end Rockefeller paid the Merritts $525,000, but he refused to pay them until the Duluth family publicly retracted their claims against the robber baron. The Merritts used the money to not only pay off every one of their creditors, but to also start investing in mining properties in the western U. S.