Icahn Proposes to Buy Out USX in $8-Billion Deal
In one of the largest corporate buy-outs ever proposed, Carl C. Icahn, the investor and corporate raider, offered late Monday to buy USX, the nation’s largest steelmaker, for nearly $8 billion.
Icahn’s move is the first formal bid to surface for USX, which is also one of the nation’s leading oil companies, although corporate speculators have been dabbling in its stock since the end of August.
In that time, the shares of the faltering company have been among the most heavily traded on the New York Stock Exchange, rising in price from just more than $17 to more than $26 a share. Meanwhile, the company--formerly U.S. Steel--has been afflicted by a two-month steelworkers’ strike.
Among the corporate raiders known to have held sizable stakes of the company are T. Boone Pickens, reknowned for his takeover raids on oil companies, and Irwin Jacobs, the owner of AMF and Bekins. The takeover speculation began Aug. 20 when USX disclosed that Robert Holmes a Court, an Australian raider, said he intended to purchase up to 15% of its stock.
But Pickens and Jacobs have been reported to have sold much of their holdings, and Holmes a Court may not have started buying.
In an interview Monday night from his New York office, Icahn said his plan would be to turn USX profitable by renegotiating at lower wages and benefits the union contracts under which its 22,000 steelworkers and many of its 55,000 other employees work. Icahn had earlier said that his hard bargaining with unions at TWA, the airline he acquired in January, had largely contributed to estimated annual cost savings of $600 million.
“We would attempt to talk to the unions and work something out, as we did with TWA,” he said.
‘Friendly’ Takeover
In documents filed with the Securities and Exchange Commission in Washington, Icahn said he proposed the “friendly” takeover at $31 a share in a letter to USX Chairman and Chief Executive David M. Roderick, dated Monday. The filing said Icahn and companies he controls now own 9.8% of USX stock purchased for $545.7 million, or an average cost of about $21.52 per share.
The filing also stated that Icahn would consider a hostile tender offer at a higher price if the USX board rejects his bid and fails to propose a restructuring plan designed to enhance stock values for all shareholders.
At USX headquarters in Pittsburgh, William Hoffman, a spokesman, said the company had no comment on Icahn’s offer. He noted that the company hired two investment banks on Sept. 22 and gave them 30 days to produce restructuring proposals to enhance USX’s value. Icahn said his offer would remain open during that period.
Borrowed Money
If Icahn succeeds in his offer, the deal would surpass the record $6.1-billion leveraged buy-out of Beatrice Cos., the consumer products giant, last April by the investment firm of Kohlberg Kravis Roberts & Co. In a leveraged buy-out, a company is acquired with borrowed money secured by the company’s assets.
Only two other corporate acquisitions would be bigger, both involving oil companies in 1984. Chevron Corp. bought Gulf Corp. for $13.4 billion and Texaco Inc. acquired Getty Oil Co. for $10.1 billion.
USX stock closed in Monday’s trading on the New York Stock Exchange at $26.50 a share, up 37.5 cents on extremely heavy trading of 12.7 million shares. More than 5 million of those shares were traded in multimillion-share blocks that may have reflected additional purchases by Icahn. His takeover offer was made public after the market closed.
Break-up Value
Wall Street analysts have been assigning USX a break-up value of between $30 and $40 a share, meaning that a buyer could expect to earn that much by breaking up the company and selling it piecemeal.
In the interview Monday, however, Icahn told The Times: “I’m not planning to pare down USX. I’m confident the steel business can be profitable. One problem with the steel industry is its labor relations.”
He added: “I think the company is very undervalued, obviously, or I wouldn’t have bought the stock.”
In the SEC filing, Icahn said he wrote Roderick that he planned to put up about $1 billion in cash and that his investment banker, the firm of Drexel Burnham Lambert Inc., had said it is “highly confident” of obtaining investors’ commitments to provide the balance of the roughly $8 billion the takeover would require.
Expert in ‘Junk Bonds’
Drexel is known chiefly for its skill at underwriting “junk bonds,” which are high-risk, high-yielding bonds often used to finance speculative takeover bids. Drexel helped float such bonds to aid Icahn in his TWA acquisition earlier this year.
USX has been staggered by three major problems: the declining market and prices for its major products of steel and oil, and the steelworkers’ strike, which has dragged on since Aug. 1 without any sign of resolution.
In the first half of this year, the company reported a loss of $235.4 million on sales of $8.8 billion. Industry analysts expect it to lose roughly another $250 million through Dec. 31.
Yet the company does have features enticing to potential raiders. Chief among them is an estimated $2.5 billion in cash held by USX pension funds that some industry analysts say is unneeded to meet pension obligations. That money would theoretically be available to help any successful buyer repay his debt. But USX officials dispute that analysis and insist that the pension programs are not overfunded.
Although oil prices remain depressed, USX’s oil properties, acquired as Marathon Oil & Gas in 1982 and Texas Oil & Gas last year, are among the nation’s most productive. Wall Street conjecture is that the corporate raiders were interested in spinning off USX’s oil properties and shutting down the remaining steelworks.
