The USX Show Will Continue, So Stay Tuned

The once lordly United States Steel Corporation, which now calls itself USX Corp., responded Monday to threats from corporate raiders by announcing that it would study ways to “restructure.” When managements use that word restructure these days, it generally means they intend to sell parts of the company for immediate cash and then use the cash to buy off the raiders, rather like throwing meat to wolves.

In this case, the Pittsburgh-based giant that last year had $18.4 billion in revenue from steel, oil and gas and a grab bag of other businesses, including chemicals and construction, is said by Wall Street scuttlebutt to be pursued by not one but four raiders. Robert Holmes a Court, the Australian investor with the Norman name, told USX in August that he intends to acquire up to 15% of its 258 million shares outstanding. (Thus far, he has purchased $15 million worth, or 0.2%.

Then, last week, rumors flew that Carl Icahn, Irwin Jacobs and T. Boone Pickens, three U.S. corporate scavengers, were accumulating USX stock. Speculation about a takeover made USX the most actively traded issue on the New York Stock Exchange for three sessions last week, when it rose more than $5 a share, and again on Monday when it closed at $25.125, unchanged.

Had to Say Something

But keep in mind that it is usually unwise to jump to conclusions concerning USX, the steel company that both surprised and infuriated America in 1982 when it bought Marathon Oil. In its present excitement, there is both less than meets the eye, and more.

To begin with, note that USX only announced that it “has discussions under way” with investment bankers “to study and make recommendations with respect to a wide range of restructuring alternatives to enhance shareholder value.” It doesn’t take a linguist to see a mouthful of weasel words in that sentence. With the stock so active, the company had to say something. It said as little as it could.

Secondly, don’t believe everything you hear about USX’s possibilities for restructuring at this time. To be sure, the company’s two energy subsidiaries--Marathon Oil and Texas Oil & Gas--have long-term potential. But the long-term outlook for a recovery in energy is three to five years, not this week or next. This would be a lousy time to sell an energy company, even for raiders like Boone Pickens who seek a quick buck for themselves behind a lot of sweet talk about enhancing shareholder value.

Grab-Bag Division

Let’s concede that USX’s steel division--currently shut down in a dispute that management calls a strike and the United Steelworkers union calls a lockout--cannot be sold for anything like its asset value today. That leaves the chemicals and construction division as the obvious restructuring candidate. Edward Carroll, a securities analyst with the investment management firm of Gintel & Co., estimates that the grab-bag division could bring $1 billion to $2 billion in a sale of assets. The company could use the cash to pay down some of its sky-high $5.7 billion in debt; USX currently has $1.06 of debt for every $1 of equity.

There are also reports that USX’s pursuers have their eyes on $2 billion to $2.5 billion in so-called excess capital in USX’s pension fund.

Two things about that.

If there is apparent overfunding in this pension fund or any other, it is the result of the recent bull market bringing good returns on the invested pension assets. Such markets come and go. And there will be business downturns in the future when the company may have difficulty funding its pension contributions. Today’s seeming surplus should be seen as a reserve against such times rather than the shortsighted and imprudent way many financial types see it--as a pool of free capital available to buy in shares or otherwise reward shareholders.

In any case, the USX overfunding is more apparent than real. What seems to be extra money is actually pledged to pay the future pensions of the roughly 100,000 workers laid off in recent years as USX has closed 150 or so plants.

So what’s ahead? Are USX shareholders condemned to several years more of the management of Chairman David Roderick, a man so shrewd that he acquired Texas Oil & Gas on the eve of the greatest decline in oil and gas prices in two decades? Maybe not.

The Australian investor, Holmes a Court, appears to have supporters in the steelworkers union. USW headquarters in Pittsburgh drops heavy hints that contacts have been made between the union and the financier. That is, out of anger at Roderick, the devil it knows, the union is playing footsie with the devil it doesn’t.

Which only tells you that labor affairs are as tempestuous as financial affairs at USX, the one-company soap opera. Stay tuned.