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With Or Without Steel, Usx Is On A Roll


Inside Wall Street

WITH OR WITHOUT STEEL, USX IS ON A ROLL

Carl Icahn has been getting lots of attention in recent weeks from dealmakers, who have besieged him with offers to find a buyer for his 13.3% stake in USX. Since many raiders have recently thrown in the towel on their takeover targetsin part because banks won't finance any more buyoutsthey believe that Icahn, too, wants to sell his interest in the oil-and-steel company. But Icahn has spurned all offers. "I'm unequivocally not interested in selling my USX holding at this time," says the legendary raider.

One reason for Icahn's intransigence: USX may be close to striking a deal on the steel unit, which it has been trying to sell since last year. But rather than sell, predicts one big investor, USX will form a joint venture over the next month with either Saudi Arabia or a European industrial company with Mideast operations. This investor says the venture is designed to ensure USX's participation in Mideast reconstruction projects. Icahn declined comment. USX said it doesn't comment on rumors.

As a major producer of tubular steel, which is used primarily in oil drilling, USX could be a major beneficiary of the rebuilding of Kuwait's damaged oilfields, notes Alan Gaines, president of Gaines Berland in New York. Gaines says the gulf war has enhanced the steel unit's value, which "makes USX a tremendously undervalued company."

PEACE PACT. USX plans to split the company into two entities by issuing shareholders a new class of common stock representing the steel and diversified units. The shares will be listed on the Big Board. The old stock will represent the energy business, which accounts for 64% of earnings. The plan is to be submitted for shareholder approval on May 6. Part of the deal is a pact between USX and Icahn that bars him from buying more shares or staging another proxy fight. Icahn lost a proxy battle in 1990 that would have forced management to spin off 80% of steel.

Gaines thinks the stock, which trades at $30 a share, is worth $54 to $58. Based on cash flow, the company's Marathon Oil unit alone is worth $48 a share, he figures, with steel and diversified units valued at $8 to $10.

Fred Leuffer, a veteran oil analyst at C. J. Lawrence, also thinks USX is undervalued. He points out that its oil-and-steel operations are top-notch, so when a steel deal is struck, the share price is sure to climb. This year, Marathon Oil's production will rise 3.5%, to 204,000 barrels a day. And that will expand to 230,000 barrels in 1994, when the North Sea's East Brae field will be in full production, says Leuffer. He believes the steel unit is the most profitable of the large, integrated steelmakers because of its high-margin tubular products. "USX is one of my strongest pound-the-table recommendations," says Leuffer.Gene G. Marcial


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