Back to Basics

U.S. Steel buys National

It still makes more steel than any other American company, but investors would never know it from U.S. Steel's balance sheet. The firm last year made more than half its revenues from petroleum, a result of its 1982 purchase of Marathon Oil, and only 31% from steel. Last week, though, U.S. Steel took a giant leap back to basics. Directors approved the purchase of National Steel, the seventh-largest maker, for $575 million in cash and stock. U.S. Steel will also absorb some $460 million in long-term National debt, making the total buy-out worth $1 billion.

The news came as something of a surprise to Wall Street, and with good reason. The day before, the company reported 1983 losses of $1.16 billion, of which $634 million came from steel operations and the rest from a huge write-off for plant closings last year. In a meticulous facility-by-facility paring, U.S. Steel plans to shut down all or parts of 73 operations in 13 states, cutting its capacity by 17% and its payroll by 15,436, to 66,000. The National deal will just about restore the 5 million tons of capacity scheduled to be dropped. In addition, it will match one company's shortcomings with the other's strengths.

National lacks sufficient smelting capacity and steelmaking coke, while U.S. Steel has both in abundance. National is strong in production of flat-rolled steel, which goes into automobiles and appliances, but U.S. Steel's biggest markets are in capital goods like oil-drilling equipment.

William Hogan, a steel economist at Fordham University, called the combination a "good fit." Concurred Analyst Dick McClow of Duff & Phelps, a Chicago brokerage: "U.S. Steel kept saying it was committed to the steel business. I guess this shows the company meant it."

Lynn Williams, acting president of the United Steelworkers, chided U.S. Steel for using money to buy up-to-date facilities instead of improving its own. The union is worried that the merger will further erode its membership, now down to 250,000 from a postwar peak of 620,000 in 1953.

The deal continues a trend that accelerated last year when Republic Steel and Jones & Laughlin, a subsidiary of LTV, agreed to combine. While both mergers must still be cleared by the Justice Department, their approval is expected.