It is a hulking giant, mired in two of the most depressed industries in America--oil and steel. It has been hit with the first major labor dispute in the steel industry since 1959, with no settlement in sight. And it is almost certainly going to post a big loss for the third quarter.
So why have four of the world's most feared corporate raiders suddenly swooped down on troubled USX Corp.? That was the question being asked all over Wall Street late last week as raiders Carl C. Icahn, T. Boone Pickens Jr., Irwin L. Jacobs and Robert Holmes a Court separately but suddenly converged on the energy and steel conglomerate.
In a rare display of like-minded thinking, all four were reportedly buying up huge blocks of USX stock late last week, making USX by far the most heavily traded issue on the New York Stock Exchange on Friday.
While Icahn, who already controls Trans World Airlines, reportedly has acquired nearly 5% of USX, Texas oilman Pickens may have already bought as much as 3% and Australian Holmes a Court has said he plans to buy up to 15%. None of the raiders would comment on the reports, however, and it was unclear how much Minneapolis investor Jacobs may have acquired.
Still, the reasons behind this novel surge of interest by so many reputedly clever market manipulators in a deeply troubled company appear to be surprisingly simple: oil, gas and cash. Wall Street observers believe that USX, formerly U.S. Steel, has suddenly come into "play"--become a takeover candidate--because its enormous oil and gas assets, as well as access to the big pool of excess cash in its overfunded pension plans, could be obtained at bargain basement prices through an acquisition of USX.
With estimates of the breakup value of its assets ranging between $30 and $40 per share, analysts say USX remains a bargain, even after the run-up in the price of its stock last Friday, when USX closed at $24.625 a share, up $1.75.
"It was Mr. Holmes a Court's assessment that the stock price was not reflecting the underlying value of the company," noted one attorney for Holmes a Court, the wealthy Australian who was the first raider to touch off investor interest in USX last month.
Analysts add that the four raiders, who appear to be acting independently of one another, also may believe that the very problems that have made USX so sick may have left it too weak to fight back. They may believe that USX could be easily pressured into spinning off energy assets--or could be forced to pay "greenmail" by buying back the raiders' stock at a premium--in order to fend off a takeover. USX has refused to comment on last week's hectic trading.
The strike by 22,000 union workers against USX's steel operations, which began Aug. 1, also is certainly crimping USX's financial health. And the additional pressure of an onslaught by four of the best raiders may be too much for management.
"These people may think this is a good time to attack, when USX is caught up in a strike," said Charles Bradford, steel industry analyst with Merrill Lynch. "They may figure they can break off the energy assets or get some greenmail out of the company to get rid of them."
Clearly, however, the raiders are most interested in USX's two major energy subsidiaries, Marathon Oil, acquired in 1982, and Texas Oil & Gas, purchased last year.
13th-Largest U.S. Oil Firm
Combined, they make USX the nation's 13th-largest oil company, with major operations in oil production and refining and gasoline retailing, as well as natural gas production and transmission.
Texas Oil & Gas also operates one of the nation's most productive oil tracts, the Yates Field in Texas, and there were reports on Friday that Pickens, general partner of Mesa Limited Partnership, an Texas energy firm, was acquiring USX shares primarily out of an interest in taking over the Yates oil operations.
Meanwhile, Holmes a Court has long had an interest in energy targets; he has just settled a prolonged takeover feud with Broken Hill Proprietary Co., Australia's biggest company, which, like USX, has major energy holdings.
The raiders also may be gambling that oil prices are about to recover and that this may be the best time to pick up cheap oil assets, before higher crude prices increase their market value. "Implicit in what they are doing is a belief in the fact that oil property values are about to rise," says Fred Fletcher, an analyst with Chase Econometrics.
At the same time, Bradford and other analysts noted that USX's pension plans have about $2.5 billion more than they need to meet their liabilities and that some of the raiders may hope to tap into that cash by taking control.
Cost of Plant Closures
Yet what doesn't interest the raiders about USX--steel--also raises some intriguing and ominous questions.