Icahn pulls ahead of pack of suitors for the hand of USX

Financier Carl C. Icahn's offer to buy USX Corporation (the former United States Steel) caps weeks of takeover rumors involving a veritable rogues' gallery of corporate raiders. USX is expected to reject Mr. Icahn's offer, which was disclosed this week in a Securities and Exchange Commission filing indicating that Icahn already holds 9.8 percent of the company.

A battle for control of the Pittsburgh-based steel and oil conglomerate is expected to ensue, with USX feeling increasing pressure to restructure itself. But market forces, and a 10-week-old work stoppage, may have more influence on the company than the Wall Street raiders.

The flurry of takeover bids was initiated during the summer by Australian investor Robert Holmes a Court, who announced in August he intended to acquire up to 15 percent of USX.

Interest picked up several weeks ago when reports leaked out that Icahn, who controls New York-based Trans World Airlines, was accumulating shares. Icahn was soon joined in the acquisition of stock by heavy-hitting investors T. Boone Pickens and Irwin Jacobs.

Their almost simultaneous interest was so visible it allegedly sparked an investigation by the SEC over the unannounced formation of an investor group whose holdings exceeded 5 percent. According to recent reports, Mr. Pickens and Mr. Jacobs have backed out of any takeover attempts.

Why the drive for USX stock?

As everyone knows, the domestic steel industry is on a downward slide, and ordinarily it would not be considered an investor's dream. Indeed, because of its current labor troubles, USX could be viewed as the least attractive takeover candidate among the steel companies.

Its steel division, a third of the company's $4 billion in quarterly sales and the nation's largest steel producer, has not rolled an ounce of steel since a dispute with the United Steelworkers of America halted production July 31.

Icahn may resolve the labor dispute, however. He says he is willing to exchange stock in the steel unit for wage and benefit concessions from workers.

But the real attractiveness of USX is its oil operations. USX owns Texas Oil & Gas and Marathon Oil. Both would be potential big money-earners if oil prices were to rebound. Oil accounts for more than half of the company's sales.

Also of value -- although more debatable -- is the USX pension, which is overfunded by some $2.5 billion. A restructured company that took advantage of these assets could reap substantial profits for outside investors, some analysts say.

But the potential for profits -- and the restructuring scenario -- are not at all clear.

``There's a belief there's a lack of information [among the investors],'' says Donald Barnett, an independent steel consultant. ``Other people I've talked to can't find the value.''

Only Mr. Holmes a Court among the investors has any knowledge of the steel business, this owing to his investment in an Australian steel and mining conglomerate, Mr. Barnett says.

Robert Decker, a steel analyst with Duff & Phelps Inc. in Chicago, expects three possible outcomes: a restructuring of USX without a buyout by outside investors; an acquisition, with a spinoff to shareholders of the steel unit, which has been suggested by Icahn (this might include creation of a limited partnership for the two oil divisions); a gradual rise in the price of the stock; and a forced buyout of some outstanding shares by the company.

Some analysts believe the investors are not interested in control; they simply want to make a killing on the stock.

One investment banker with holdings in steel speculates that the takeover is primarily a ``poker game'' designed to raise the price of the stock. Analysts question what these experts at financial legerdemain can do that USX chairman David M. Roderick hasn't.

``It's doubtful there's a buyer USX hasn't talked to,'' says Mr. Decker.

Nonetheless, Mr. Roderick has indicated his interest in selling off, or exiting, the steel business. The acquisition pressure may speed up a process already under way. That process is plant closings.

Three USX plants are guaranteed of survival, analysts say: the Gary, Ind., sheet plant supplying the auto industry; and the Lorain, Ohio, and Fairfield, Ala., plants. Facing an uncertain future is the Baytown, Texas, plate and pipe mill: If oil prices surge, pipe will be in demand, and this plant will have a decent market.

The Geneva, Utah, plant supplies unfinished steel to the Pittsburg, Calif., plant, but this steel could be easily furnished instead from third-world producers like South Korea, which is already a USX partner in a US facility.

Dr. Jay Agarwal, a 15-year veteran with USX and now an analyst with Charles River Associates Inc. of Boston, expects ``a major geographical coalescence to mining and inter-plant transfer of materials.'' In any case, as much as a third of the company's steelmaking capacity could be shuttered.

Acknowledging the pressure, Roderick of USX announced a restructuring study by Goldman, Sachs & Co. and First Boston Corporation. It should be released within the next couple of weeks. The results are unlikely to relieve USX employees walking picket lines. The study may do no more than buy time for a restructuring that appears increasingly inevitable.

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