Marathon’s Run

U.S. Steel bids for an oil firm

The American steel industry has long been one of the periodic sick men of U.S. business, along with autos, housing and tires. Most steel plants are badly in need of modernization. Moreover, American firms are losing domestic markets to tough foreign competition. Only two weeks ago, U.S. Steel announced that it was going to court to block imports of low-priced foreign steel.

But despite those troubles, U.S. Steel last week announced that it was offering about $6.4 billion in cash and notes to acquire Marathon Oil, the 17th biggest American petroleum company. The deal ranks just behind last summer’s successful $7.3 billion bid by Du Pont, the chemical giant, to buy Conoco, the ninth biggest American oil firm. Critics immediately began charging that U.S. Steel should be using the money for its own development. Lionel Olmer, Under Secretary of Commerce for International Trade, said that the agreement “calls into question the seriousness of the steel industry’s efforts to modernize its steelmaking facilities.”

For Ohio-based Marathon, U.S. Steel’s offer amounted to a giant Rolaids tablet spelling relief. For the past three weeks, Marathon has been resisting a takeover bid by Mobil Corp., feeling that Mobil was offering far less for Marathon’s shares than they were worth. The firm has run full-page newspaper ads in protest and hauled Mobil into court to block the takeover move. Mobil had bid $85 a share for 40 million shares, 67% of the total, and proposed some other trimmings as well, pushing its offer to $5.1 billion. But that was nowhere near the $200 each that some analysts assigned to Marathon, considering the size of its proven oil reserves of 1.1 billion bbl. The U.S. Steel bid of an average $106 per share was still below those estimates.

Marathon’s executives were clearly worried that absorption by Mobil would destroy their company’s identity, a fear U.S. Steel sought to allay. Said Marathon President Harold D. (“Hoop”) Hoopman, 61, after the agreement was announced: “We’ve been assured by U.S. Steel that Marathon will remain a vigorous competitive force in the oil industry.”

Under the terms of the deal, Marathon’s management would be retained, and the company’s headquarters would remain in Findlay (pop. 36,000), where they have been almost since Marathon was founded in 1887 by 14 local oilmen. Hoopman got a hero’s welcome when his Lockheed JetStar touched down last week after the deal was concluded. Findlayites swarmed around him on the tarmac, shouting, “Hoop, Hoop, hurrah!” Said one Wall Street analyst: “People did not want big oil in their town.”

The U.S. Steel action fitted into the company’s broad diversification program of the past few years. The firm has invested more and more money in chemicals, manufacturing and engineering; and steelmaking now accounts for only 11% of total company operating income. U.S. Steel will pay for Marathon probably with the $3 billion in bank credit lines it has built up, and the $2.5 billion in cash on hand partly from the sale of coal and cement properties. U.S. Steel Chairman David M. Roderick insisted that the Marathon purchase would not “diminish U.S. Steel’s commitment to steel operations.”

Marathon investors had reason to be pleased. The value of their stock, which had traded as low as $45 in the past year, shot up to $104, helped by a single day’s rise of more than $27 after the deal was announced. Few observers, though, were totally convinced that Marathon’s fate has been sealed. Mobil could raise its offer and touch off a bidding war, other oil companies might try to get Marathon, or the Government could rule out any merger on antitrust grounds. The Marathon drama may go on for several weeks.