Waterloo At USX: Carl Icahn meets his match

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For most corporate managers, the very mention of Carl Icahn's name is enough to cause shudders. But USX Chairman David Roderick may be tougher than most. Last week, after a three-month battle to gain control of the largest U.S. steelmaker, Icahn abruptly gave up, outmaneuvered by Roderick. The corporate raider and TWA chairman had been unable to raise the $10.5 billion needed to capture the company. Says Joachim Schnabel, investment officer for the College Retirement Equities Fund, which holds more than 2 million USX shares: "You have to credit USX management for not caving in."

It would have been easy enough for Roderick to submit, faced as he was with enormous pressures on all sides. For the past year the oil and gas business, which generates some 60% of USX revenues, has been hit by declining petroleum prices. USX has also been mired in a bitter five-month-old strike by 22,000 steelworkers. The firm, which earned $409 million on sales of $19.3 billion in 1985, is expected to report a net loss for 1986 of about $500 million on revenues of some $16.5 billion.

When Icahn first made an offer of $7.1 billion, at $31 a share, in October, Roderick resolved to save his company. The chairman knew that Icahn might sell off USX piece by piece, since the breakup value of the firm is estimated to be more than $61 a share, or $15.8 billion. USX announced that it would undertake a cost-cutting and restructuring program.

In the end, though, it was a relatively simple ploy that dashed Icahn's hopes. USX had borrowed $3.4 billion last year under terms that allowed the lenders to call in their loans immediately if the company were taken over. At the end of December, Roderick cleverly decided to use up these funds to pay off other debts. If Icahn had gained control of USX, the banks could have demanded repayment. That in effect raised the cost of taking over the company from about $7.1 billion to $10.5 billion.

At that price, the USX takeover would have been the second most expensive in U.S. history, ranking behind only the $13.2 billion acquisition of Gulf Oil by Standard Oil of California in 1984. But Drexel Burnham Lambert, Icahn's investment bankers, apparently could not raise all the money needed. Some Wall Street observers speculated that Drexel Burnham's ability to finance takeovers has been somewhat hampered by the fact that it has been subpoenaed in the widening Securities and Exchange Commission investigation into illegal insider trading.

In past forays, Icahn has sometimes walked away with hefty greenmail profits. In a greenmail deal, a raider sells his shares in a target company back to the firm for a premium not available to other shareholders. If that was Icahn's plan in this case, Roderick refused to play along. During his takeover effort, the financier paid an average price estimated to be somewhere between $22.50 and $26 a share for 29.3 million shares of USX. After climbing to 28 3/4 during the takeover battle, the company's stock closed last week at 22 7/8. That means that Icahn could have lost money on the deal so far. Though he said last week that he might mount a proxy fight for seats on the USX board, the investment community was skeptical about his odds of winning.