Raider Plans to Purchase 15% Interest in USX : Australian Holmes a Court Sets Sights on Battered Steel and Energy Company
Robert Holmes a Court, one of Australia’s richest men and perhaps its most feared corporate raider, set his sights on one of the biggest companies in America on Wednesday--USX Corp., the nation’s largest steelmaker.
In a brief statement, USX--formerly U.S. Steel--revealed that Holmes a Court--through a company he controls--has told the Pittsburgh-based firm that he plans to buy as much as 15% of its outstanding stock.
USX did not say whether any stock actually has been purchased yet by Holmes a Court or the companies he controls, and it refused to offer any comment beyond the announcement. Analysts said the company seemed to be viewing Holmes a Court’s action as a serious takeover threat.
Holmes a Court, who was reportedly in Perth, Australia, on Wednesday, could not be reached for comment. But Howard Staehr, treasurer of Holmes a Court’s Australian investment firm in Melbourne, insisted in an interview Wednesday night that Holmes a Court is acquiring a stake in USX simply because he felt the stock is a bargain now.
“We just looked at the stock, and we thought it was a good buy at that price,” Staehr said. “At this stage, we’re comfortable with the size of the investment we’ve got. We may acquire more or we may not.” Staehr added that the firm has purchased slightly more than $15 million of USX stock so far.
Under Severe Pressure
The move by the 49-year-old Holmes a Court against USX has come at a time when the big steel and energy conglomerate, the nation’s 15th-largest industrial firm, is under severe pressure on all fronts. Its steel division, already battered by imports, is now in the midst of a nationwide strike by its 22,000 union workers, while its recently acquired oil and gas operations have been devastated by declining energy prices.
In the second quarter, its earnings fell to just $14 million, down dramatically from the $180 million posted the year before.
As a result, Holmes a Court could be trying to pick up huge assets, especially from USX’s energy properties, at bargain prices. Analysts noted that USX’s $5-billion market value is still well below its breakup value.
The stock price, which rose sharply Wednesday and closed up $2.12 1/2 at $19.50 per share, is still well below a breakup value, estimated at between $30 to $40 per share.
Charles Bradford, steel industry analyst at Merrill Lynch, speculated that Holmes a Court’s strategy might be to force USX to sell him Texas Oil & Gas, the energy firm that it acquired last year, in return for ending his hostile bid.
But Holmes a Court, considered to be a brilliant strategist in takeover battles, probably will remain flexible about whether to go ahead with an acquisition or to extract “greenmail” from USX--by selling his shares back to USX at a premium, according to those familiar with his earlier takeover attempts in Australia and elsewhere around the world.
In fact, his unpredictability has kept opposing corporate managements off balance and has served as his greatest advantage in takeover campaigns, noted Tom Cameron, a financial analyst with Ord Minnett Inc., the New York unit of a large Australian investment bank.
While he has successfully received greenmail payments from some firms, he has also taken over others and is now locked in a 3-year-old battle for control of Australia’s largest company, Broken Hill Proprietary Co. Like USX, Broken Hill is in both steel and energy.
Holmes a Court, said to have a personal fortune of more than $200 million, controls 28% of Broken Hill, and his investment company is its largest shareholder.
“He’s the kind of guy who likes to have a lot of options open, and he never does something like this for only one reason,” Cameron said. “He has said he never buys shares in a company that he is not prepared to take over. But what he has done is probably bought a bit of stock, opened up some options and nudged USX management, and now he’ll sit back and see which way the wind blows. If USX goes out and gets squads of investment bankers, I’m sure he’ll be glad to take the greenmail.”
Similar to Broken Hill
But Cameron and other analysts speculated that his bid for USX could be tied to his long-running feud with Broken Hill, which is even larger than USX.
“If you look at what he’s done in the past, this is almost identical to the Broken Hill situation,” said Bradford. “USX is almost a clone of Broken Hill; they’re both the biggest steel firms in their countries, but they are also both very big in energy.”
Although USX is apparently taking Holmes a Court seriously now, few opponents did when he first burst onto the takeover scene a few years ago. A lawyer who grew up in South Africa and Rhodesia, he took over a failing Perth textile company in 1970 when he was 33 and quickly started building an empire. In 1979, he made a run at Ansett, an Australian airline, and later sold out his shares to his fellow Australian raider, Rupert Murdoch.
Later he took over Associated Communications Corp., the British entertainment firm run by Lord Lew Grade, then quickly sold the firm’s rights to the Beatles’ songs to singer Michael Jackson at an enormous profit. In many of his deals, his personal charm has been a big advantage; he reportedly persuaded Michael Jackson to appear on a charity telethon on his Perth television station as part of the payment for the rights to the Beatles’ music. But he is best known for playing hardball; after winning Grade’s confidence and taking over Associated, he forced Grade out of the firm.
Last year he accepted a greenmail settlement in his bid for Asarco Inc., his first major American target.
Holmes a Court delivered his message to USX through Weeks Petroleum, a unit of Bell Resources, the Australian investment company that he controls. Bell Resources is said to have credit lines of about $2 billion available for acquisitions.
Although that wouldn’t be enough to acquire USX, Bradford said there are reports in Australia of a possible settlement between Broken Hill and Holmes a Court, which could free much of his capital for an assault on USX.
USX’S BIGGEST STOCKHOLDERS There are about 257 million shares of USX outstanding, the largest chunk of which is held by the company pension fund. About half the company’s common stock is held by investment companies and institutional investors. Recent filings with the SEC show the following holdings to be the largest: U.S. Steel and Carnegie Pension 6.%7 National City Bank of Ohio 2.1% Barrow Hanley Mewhinney 1.6% Batterymarch Financial Mgmt. 1.4% Delaware Management 1.4% Wells Fargo Bank 1.3% FMR Corp. 1% Michigan State Treasurer 1% Shearson Lehman Bros. 0.9% J.P. Morgan & Co. 0.9% College Retirement Equities 0.9% Source: CDA Investment Technologies Inc.
