USX Bows to Shareholder Pressure to Split Up the Company
As one of the first firms to issue tracking stocks in the
mid-1980s, USX relented to ongoing shareholder pressure to divide the firm into
two pieces. After experiencing a sharp “boom/bust” cycle throughout the 1970s,
U.S. Steel had acquired Marathon Oil, a profitable oil and gas company, in 1982
in what was at the time the second largest merger in U.S. history. Marathon had
shown steady growth in sales and earnings throughout the 1970s. USX Corp. was
formed in 1986 as the holding company for both U.S. Steel and Marathon Oil. In
1991, USX issued its tracking stocks to create “pure plays” in its primary
businesses—steel and oil—and to utilize USX’s steel losses, which could be used
to reduce Marathon’s taxable income. Marathon shareholders have long complained
that Marathon’s stock was selling at a discount to its peers because of its
association with USX. The campaign to split Marathon from U.S. Steel began in
earnest in early 2000. On April 25, 2001, USX announced its intention to split
U.S. Steel and Marathon Oil into two separately traded companies. The breakup
gives holders of Marathon Oil stock an opportunity to participate in the
ongoing consolidation within the global oil and gas industry. Holders of
USX–U.S. Steel Group common stock (target stock) would become holders of newly
formed Pittsburgh-based United States Steel Corporation, a return to the
original name of the firm formed in 1901. Under the reorganization plan, U.S.
Steel and Marathon would retain the same assets and liabilities already associated
with each business. However, Marathon will assume $900 million in debt from
U.S. Steel, leaving the steelmaker with $1.3 billion of debt. This assumption
of debt by Marathon is an attempt to make U.S. Steel, which continued to lose
money until 2004, able to stand on its own financially.
Case Study Discussion Questions
1. Why do you believe U.S. Steel may have decided to
acquire Marathon Oil? Did this combination make economic sense? Explain your
2. Why do you think USX issued separate tracking stocks for
its oil and steel businesses?
3. Why do you believe USX shareholders were not content to
continue to hold tracking stocks in Marathon Oil and U.S. Steel?
4. In your judgment, did the breakup of USX into Marathon
Oil and United States Steel Corporation make sense? Why or why not?
5. What other alternatives could USX have pursued to
increase shareholder value? Why do you believe they pursued the breakup
strategy rather than some of the alternatives?