Sunday, May 9, 2010

USX-U.S. Steel Group

USX-U.S. Steel Group

Fact File:

Founders: Elbert H. Gary and J. Pierpont Morgan.

Distinction: When launched, it was the largest business enterprise of

all time.

Primary Products: Sheet, tubular, plate, and semifinished steel.

Annual sales: $5.380 billion.

Number of employees: 19,266.

Major competitors: Bethlehem Steel, LTV, Nucor.

Chairman and CEO, USX: Thomas J. Usher; President, U.S. Steel

Group: Paul J. Wilhelm.

Headquarters: Pittsburgh Pa.

Year founded: 1901

Web site:

Over the past hundred years, few companies have mirrored the ups and

downs of American industry better than U.S. Steel. Beginning under the

visionary guidance of an immigrant who once earned $1.20 a week, it

evolved into the largest corporation of its time…in less than two decades.

It helped build the railroads and other key enterprises that shaped a

growing nation, produced vast fortunes for those who founded and

expanded it, pioneered a variety of business and manufacturing

innovations, played a profitable role in both World Wars, and made an

economic powerhouse of the town in which it was headquartered.

At the same time, the firm has always been forced to scramble in a

consistently volatile industry. It suffered as foreign competitors usurped its

market share. Its product fell from favor when cheaper alternatives were

developed. It had to lay off workers, cut the wages of those who

remained, seek help from the government, and battle a hostile takeover

attempt. It ultimately regained its footing, though, by forging joint

ventures, launching foreign subsidiaries, acquiring companies that

provided diversification, updating its business and manufacturing

procedures, and even entering the world of e-commerce.

As result the company remains the top steelmaker in the United States

and a major global source of oil and natural gas. It now also fabricates

commodities out of tin, produces domestic coal and iron ore, provides

engineering and consulting services, and even develops real estate

projects. It has boosted its own exporting operations as well, currently

shipping more than 1 million tons of steel products to some 40 countries

each year.

Called the U.S. Steel Group today, it is now one of two publicly traded

units of the USX Corporation–a sprawling energy conglomerate that also

includes a company formerly known as Marathon Oil, which can trace its

roots back even farther than its sister. But despite such credentials and

the resurgence it enjoyed over the past several years, the firm's

significance is no longer near what it was when U.S. Steel was the 19th

century's Microsoft and its driving forces were the era's Bill Gates.

Andrew Carnegie was 13 in 1848 when his family moved from Scotland to

Allegheny, Pennsylvania. The industries younger immediately landed a

$1.20-a-week job as a bobbin boy in a cotton factory, and quickly moved

on when he heard about a better position at O'Reilly's Telegraph in

Pittsburgh. There, he rapidly worked his way up from messenger to

telegrapher. Most of the telegrams he handled were from businessmen,

who were the service's primary customers at the time, and by reading

them Carnegie soon grew very knowledgeable about the world of

commerce and industry. This would, of course, suit him well in the years

to come.

In 1852, Carnegie met Tom Scott, who at the time was head of the

Pennsylvania Railroad's western division. Scott offered the young man a

position as his secretary and assistant, and while it paid just $35 a month

Carnegie eagerly accepted for the opportunity to learn about the business

from one of its leaders. His intuition proved correct and over the next

several years he was integrally involved in several important industry

innovations, including the introduction of Pullman sleeping cars. When the

Civil War began, Scott was named assistant secretary of war and Carnegie

followed him to Washington to again serve as his aide. After its conclusion,

Scott offered his protégé the post of railroad superintendent. Carnegie

refused, however, deciding it was time to strike out on his own.

Carnegie had managed to save a little money and initially made

investments in several companies. Recognizing the increasing importance

of iron and steel, he ultimately sold most of them and in 1872 bought the

Homestead Steel Works in Pittsburgh–a city he was familiar with, and one

perfectly positioned to become the center of the growing industry by virtue

of its access to raw material and potential markets. By 1888 his business

was booming, becoming one of the first "vertically integrated" industrial

concerns to control cots at all levels of operation from the limestone

quarries and iron-ore mines to the steel plants and rolling mills. In 1899

he consolidated everything under the Carnegie Steel Company banner.

Steelmaking was a glamorous field at the end of the 19th century, and

magnates like Carnegie were famous as well as rich. It had advanced over

the years into a big-time business that attracted entrepreneurs and

financiers anxious to have a hand in the industry responsible for building

railroads and other important products like the newly introduced

automobile, and by the late 1800s some 20 major companies were vying

for the lead in production.

Among the biggest players in the game were banker J. Pierpont Morgan

and industrialist Elbert H. Gary, who in 1898 had jointly founded the

Federal Steel Company. Setting their sights on controlling the entire

industry, the pair began purchasing scores of competitors including

Carnegie's firm–paying an astounding $492 million for the right–and

following up with acquisitions of other companies such as American Steel &

Wire, American Tin Plate, and National Tube. In 1901 they launched the

consolidated amalgamation as U.S. Steel, which, with a capitalization of

$1.4 billion, was then the largest business ever formed. Gary, whose name

would to on to grace the Indiana city where its main plant was located,

became the company's first chairman.

While Carnegie turned exclusively to philanthropy, donating over $350

million to various causes until his death in 1919, Morgan and Gray shifted

U.S. Steel into high gear. And in its first year, their new company

accounted for two-thirds of all steel production in the United States.

Railroads, automobiles, heavy machinery and construction projects utilized

most of it, and the need grew so great as the industrial age proceeded

that a few other large companies also found profitable niches in the field.

The demand for its product kept increasing through both World Wars, and

U.S. Steel remained at the top of the heap. By the 1950s, however, the

trend lines started moving the other way. Fledgling European and

Japanese competitors rebuilt their facilities with newfangled production

techniques known as basic-oxygen and continuous-casting, giving them a

leg up on U.S. companies still using the open-hearth method employed

since the previous century. This allowed the overseas firms to underprice

domestic producers on the growing world market, and the American share

fell from 57 percent in 1947 to 29 percent a decade later. Imports by then

also accounted for nearly one-fourth of all steel used in the U.S., while the

emergence of plastic and aluminum further trimmed demand.

Mills and foundries shut their doors, employment dropped, and

Pittsburgh's once-booming industrial parks were abandoned. The 1980s

proved the most painful time of all, as industry-wide losses reached $12

billion. Some 60 percent of its 428,000 workers lost their jobs, those who

didn't were forced to accept dramatic pay cuts, and American companies

sought government help in limiting imports. U.S. Steel itself responded by

restructuring, selling off several units (such as an oil field supply business

and a domestic transportation subsidiary), and entering joint ventures with

companies based both in America and abroad.

The biggest change, however, came in 1982 when the company acquired

Marathon Oil–a huge Texas-based firm, founded in 1887, which

immediately led to the doubling of U.S. Steel's size. Four years later the

company purchased another giant energy business called Texas Oil & Gas.

It then changed its name to the USX Corporation to acknowledge its new,

multi-phased direction.

The emergence of USX and the resurgence of profitability that followed

soon attracted noted corporate raider Carl Icahn, who tried and failed to

take over the company's steel operations in 1986. He did grab some 29

million shares, or slightly more than 11 percent of the firm, however, and

speculation raged in 1989 that he would try again. The slimmed down but

diversified company certainly warranted such attention at the time, as

profits from the steel operation along climbed to $501 million from $125

million the year before. USX had brought this about in part by pouring

millions into its facilities, replacing the open-hearth furnaces of old with

modern oxygen-fired designs long favored by foreign competitors. The

Reagan administration had also helped by implementing voluntary import

quotas, which pushed up prices. For the first time in decades, Big Steel

was back.

USX restructured in 1991 to make publicly traded units of its two arms,

which it renamed USX-U.S. Steel and USX-Marathon. It sold a number of

non-essential businesses during the following years, and entered new ones

like power generation. Additionally, it launched joint ventures in Europe

and Mexico.

Entering its third century, U.S. Steel proved it wasn't stuck in the past by

purchasing a stake in an Internet company called e-steel and announcing

plans to sell its products online. It also bought Slovakia's biggest

steelmaker, VSZ, and committed $700 million to modernize its operations

and make it the most significance producer in the emerging markets of

central and Eastern Europe.

A slow-down in orders in mid-2000 raised some concern throughout the

industry, even as profits were rising at U.S. Steel and other American

firms. But while no one realistically expected the business to ever

recapture the profitability of its hey-day, when people like Andrew

Carnegie and J.P. Morgan made millions from it, observers did expect the

field's leading company to continue making as significant an impact in it as

it had for the past hundred years.

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