You have been asked by the USX management to evaluate the targeted stock proposal and more generally,
restructuring options for USX.
Targeted stock can be thought of as “middle ground” between the two extremes: remaining in a
conglomerate and a complete bust-up. There are, however, other alternative middle ground options. For
example, USX might perform a partial carve-out or a partial spin-off of the steel division. (The same could
also be done for the energy division). To do so, it would first create a new, distinct corporate entity out of
the steel division. It would then either carve-out (i.e. sell via IPO) or spin-off (i.e. distribute to existing
stockholders) a minority stake in this new entity, say 15% of the shares. Like targeted stock, this would
create a separately traded stock while at the same time keep the control of the two divisions under one roof.
1) Describe briefly USX’s businesses. How well is USX doing from an operational standpoint? Where possible,
report and assess the relevant key performance indicators.
2) Is USX trading at a discount or a premium? What is the magnitude of this discount or premium in
percentage terms? (See the case’s exhibit 1 but also the additional tables below).*
3) Evaluate the pros and cons of the following four options for the specific case of USX:
a) Status quo (no restructuring)
b) Targeted stocks
c) Partial carve-out or partial spin-off of one or both divisions
d) Complete spin-off of the steel division
Be detailed and specific in your answer.
4) Decision time: On balance, what would you recommend USX management do?
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