Introduction:
In 1901, the U.S. Steel was purchased by the business tycoon J.P. Morgan for $1.4 billion. The acquisition was the first billion dollar acquisition in the history of American business market. In the early stages of the company, the company was responsible for meeting the demand of almost two third of the total U.S. steel production. Furthermore, the company has very sophisticated transportation infrastructure which includes various shipping fleets and railway lines. At that time its production plants were considered one of the most advanced manufacturing plants.
Before World War II, the company enjoyed tremendous growth in its profits and revenues, however, after World War II, the company and the U.S. Steel manufacturing industry had to face the recession. The recession was mainly due to the increased peaceful environment of Germany and Japan, which lead to up to date technologies and better steel qualities of these countries has shifted the demand from U.S. market to these countries. After the domination of Japan and Germany in the Steel industry, there had been significant reductionin the share of U.S. Steel production.
Moreover, the plant facility of U.S. Steel was very old and due to this over age of the machines, the machines were not operating efficiently and the quality of the products was reducing, therefore, the machines required frequent maintenance and wastages were also increasing which resulted in increased overhead costs. As compared to this, the production plant of Germany and Japan weremodern and operating at their 100% capacity. In order to increase the market share and profits, U.S. Steel machineries needed to be updated and required high capital expenditures.
Usx Corporation Harvard Case Solution & Analysis
In 1982, the company made the diversification and acquired the Marathon Oil which is involved in the energy business; this acquisition was considered as the biggest acquisition in the history of the U.S. Steel. After this diversification the company changed its name to U.S.X. Corporation so that the diversification reflects from the name of the company. The primary reason of the acquisition was to achieve economies of scale, gain synergistic benefits and to hedge itself against the adverse performance of the Steel industry.
Some shareholders are very concerned about the performance of U.S. Steel and are continuously forcing USX to dispose of the holdings of U.S. Steel, the management is reluctant to divest from the U.S. Steel because in their opinion the diversification benefits will be lost. In order to cope with this situation the management is considering issuinginnovative securities called “Target Stock”. However, there is a severe conflict among some shareholders and management regarding the issue of the divestment.
Business Analysis:
Liquidity Ratios:
The liquidity ratios of USX Corporation appears to be worst, furthermore the liquidity ratios of its components also appears to be poor. The ideal current and quick ratio should be 2:1 and 1:1 respectively. USX as a whole and its components are way behind from the ideal level of liquidity ratios, particularly the liquidity ratios of Marathon Group, which are the worst as the group doesn’t have enough current assets to meet its current liabilities....................
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