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Breakup of USX gets shareholders' OK

U.S. Steel, Marathon Oil units to split by year's end

Friday, October 26, 2001

By Len Boselovic, Post-Gazette Staff Writer

USX shareholders yesterday approved separating the company's U.S. Steel and Marathon Oil units by the end of the year. The vote was one of the last hurdles to breaking up the diversified corporation created when U.S. Steel purchased Marathon nearly two decades ago.

The company said 98 percent of all shareholders voted in favor of the proposal. It will leave U.S. Steel stockholders owning shares of Pittsburgh-based U.S. Steel and Marathon stockholders owning shares of Houston-based Marathon Oil.

U.S. Steel acquired Marathon in 1982, hoping the energy business would provide a cushion for its cyclical steel business. By 1990, takeover artist Carl Icahn and other investors were complaining that USX's stock price was more a reflection of the steel unit's woes than the energy business' potential. So in 1991, USX created separate stocks for U.S. Steel and Marathon, arguing it would increase shareholder value.

Good intentions notwithstanding, that's not the way it worked out.

Investors who kept their pre-split USX shares over the next 10 years -- as the biggest bull market in U.S. history exploded, then imploded -- today hold stock certificates that are worth 5 percent less than they were in 1991. If dividends are included, U.S. Steel shares lost about 2 percent annually since the 1991 split while Marathon shares earned an average annual return of about 4 percent.

U.S. Steel shares closed yesterday at $15.40, up 23 cents. Marathon was up 17 cents, finishing at $28.04.

USX Chairman Thomas J. Usher, who will remain chairman of both companies after the split, will get a $6 million bonus from Marathon on the day the separation occurs. He'll get a $3 million bonus from U.S. Steel on the third anniversary of the divorce.

Usher has said the spinoff will create two strong, independent companies. Currently, each company is required to generate its own cash to invest in their business and pay dividends. But their assets and liabilities belong to USX, their corporate parent. The arrangement made Marathon shares less attractive to investors, but gave U.S. Steel better credit terms than it would have merited as a separate company.

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