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USX Makes Steel Division Separate Company

October 31, 1990

PITTSBURGH (AP) _ USX Corp.’s decision to make its steel operations a separate company came as no surprise to many analysts, who expect the energy and steel giant to sell its metals business eventually.

″Someday you’re going to see this company in two major pieces, two separate entities,″ said Greg Drahuschak, a steel analyst with Butcher & Singer in Pittsburgh. ″It’s the only way I can ever see that the shareholder is going to get the benefits of the two businesses.″

USX said its board of directors voted Tuesday to transfer the business carried out by the USS steel division to a wholly owned subsidiary. USX Chairman Charles A. Corry said the move ″will provide the flexibility for any steel restructuring undertaken by the company.″

USX also reported its third-quarter earnings dropped 6.8 percent from a year earlier, with gains in the energy segment but a 26 percent income drop from the steel division.

USX spokesman William L. Keslar said the move to separate the steel division was not prompted by takeover strategist Carl Icahn’s proposal to spin off at least 80 percent of the steel business in the form of a dividend to shareholders. The proposal by Icahn, USX’s largest shareholder with a 13.3 percent stake, was rejected by other shareholders May 7.

Icahn considers steel a drain on USX’s Marathon Oil Co. and Texas Oil and Gas Corp.

Keslar said the board’s vote ″simply puts USS on the same footing as Marathon, making it a subsidiary.″

″Somewhere down the road if you want to spin it off, it’s certainly easier to do it as a subsidiary than as a part of the company,″ he said. ″It’s simply providing the means to have that flexibility.″

Icahn said in a telephone interview from his Mount Kisco, N.Y., office that the change is ″a step in the right direction, but they have to take a lot more steps to separate the two companies.″

″So far, it’s lip service to what has to be done,″ he said. ″This does not really help to reflect the values of the stock.″

Charles Bradford, an analyst with UBS Securities in New York, said he expects USX to try to sell a small part of the company, perhaps 20 percent, in a public offering by the end of the year.

″That will establish what the company is worth,″ he said. ″They can sell a small piece now and sell the rest later on.″

Andrew V. ″Lefty″ Palm, chairman of the United Steelworkers of America’s chief negotiating committee, said the steel division’s new status raises questions that will be addressed in contract talks.

″Essentially, we’re not supportive of the idea of splitting up USX,″ said USW President L. Lynn Williams. ″We think the long-term best interests of our members are best served by the steel division remaining a part of USX and being provided the basic strength of an energy company.″

The union is negotiating a new contract for 18,000 union members employed by USX in seven states. The two sides have set a Nov. 10 target date for a new pact.

Earnings for the 1990 third quarter totaled $163 million, or 63 cents a share, compared with $175 million, or 62 cents a share, in the same quarter of 1989. Earnings per share increased mainly because of a significant reduction in preferred stock outstanding, USX said.

Quarterly revenues totaled $5.11 billion compared with $4.42 billion, up about 16 percent.

In the company’s energy division, operating income increased 47 percent to $278 million on sales of $3.7 billion, compared with $189 million on sales of $3 billion in the year-ago period.

The steel segment reported operating income fell nearly 26 percent to $63 million on sales of $1.3 billion, from $85 million on sales of $1.3 billion in the third quarter of 1989.

Corry said the latest results from operations actually outpaced the previous third quarter, which included $98 million in profits from asset sales and $179 million in favorable effects of special items. The 1990 third quarter included $5 million in pretax profits from asset sales.

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