United States Steel Corporation

600 Grant Street
Pittsburgh, PA 15219
(412)433-1121
www.ussteel.com

In 1901, some of the world's greatest industrial and financial leaders joined forces to create the United States Steel Corporation. The company dominated the steel market during the first half of the twentieth century, and for a time, U.S. Steel was the largest corporation in the United States, in terms of capitalization, or the value of its stock. As the steel industry changed, however, U.S. Steel had to adapt to survive. It sold off old businesses, added new ones, and struggled to keep up with foreign competition.

By the 1980s, steel was a much smaller part of U.S. Steel's interests, and the company changed its name to the USX Corporation. After 1991, the company sold shares in its two major groups, U.S. Steel and Marathon Oil. Finally, in 2002, the company split in two, and U.S. Steel Corporation reappeared as a separate company.

The Company That Morgan Built

United States Steel was built by combining ten different steel companies, including the two largest at the beginning of the twentieth century, the Carnegie Steel Company and the Federal Steel Company. The effort to unite these companies was led by J. P. Morgan (1837-1913), America's leading banker at the time. Morgan favored building combines, also called trusts. A trust is when different companies in one industry combine to reduce competition and increase profits. Trusts were popular in the late 1800s, and new ones emerged even after the U.S. government tried to limit them with the Sherman Antitrust Act of 1890. The law was hard to enforce, and many political leaders favored the economic power trusts created.

In the 1890s, Morgan combined several smaller steel companies to form Federal Steel. He hoped to expand his company by joining forces with Carnegie Steel, founded in 1873 by Scottish immigrant Andrew Carnegie. Successful in other businesses before turning to steel, Carnegie helped the United States become the world's leading producer of that important metal. Besides steel mills, Carnegie's holdings included iron ranges and coal mines. Iron is the raw material used to make steel, and coal is the source of coke, another important ingredient in the steelmaking process.

At first, Carnegie did not want to cooperate with Morgan, but by the end of 1900, Carnegie Steel's president, Charles Schwab (1862-1939), announced that Carnegie was ready to consider joining a steel trust. Morgan acted quickly, and in February 1901 he announced the formation of U.S. Steel. Schwab was named the first president, and Elbert Henry Gary (1846-1927) of Federal Steel became the chairman of the board. Gary had played an important role in shaping the organization of the company while Morgan handled the finances. Within two years, Schwab left and Gary took over the daily operations of U.S. Steel.

Growth of a Steel Giant

U.S. Steel was the first U.S. company that was worth more than $1 billion. In its first year, U.S. Steel made two-thirds of the country's steel. It was so successful because it was vertically integrated. This means that it controlled everything about the steelmaking process: it owned the materials that went into the steel, made the steel itself, then turned it into finished products. It owned the ships that carried iron ore, as well as other steel companies spread across the country.

The growth of U.S. Steel and changes in the country's political attitudes led to more than a decade of legal problems. President Theodore Roosevelt (1858-1919) was less sympathetic to trusts than previous presidents had been. In 1905, his Justice Department began researching whether U.S. Steel was an illegal trust. Gary argued that the company was merely trying to improve its place in the market, not control it. The antitrust investigation led to a lawsuit against the company in 1911. U.S. Steel finally won the case in 1920, ensuring it would not be broken up into separate companies.

During those years, U.S. Steel continued to grow. World War I (1914-18) spurred new demand for steel, as the United States built ships, tanks, and other military items out of the durable metal. Through the 1920s, annual sales were about $2 billion. Gary, according to his biographer Ida Tarbell, believed the company's success rested on 'careful management, great foresight in preparing for future financial needs, [and] never undertaking anything that could not be carried out."

U.S. Steel, however, was not always willing to share its good fortune with its workers. In 1919, employees went out on strike, demanding an end to their twelve-hour workday. Gary had once suggested all businesses should shorten the workday, but other corporate leaders did not act, so U.S. Steel did not change its practices. The strike lasted until 1920, and in the end, U.S. Steel did not meet the workers' demands.

Depression, War, and New Competition

During the 1930s, U.S. Steel, like many American companies, struggled through the Great Depression. This economic downturn started in October 1929, forcing many businesses to cut jobs. In 1933, annual sales at U.S. Steel reached an all-time low of $288 million. During these tough times, however, the company prepared for the future. Starting in 1932, under the leadership of Myron C. Taylor, U.S. Steel began closing some of its old plants, modernizing others, and building a new one. The company also began to shift its focus, making more steel that could be used in consumer products, such as refrigerators and other appliances.

Like most industrial companies in the United States, U.S. Steel did not recover from the effects of the Depression until World War II (1939-45). Once again, the country needed steel

for its war effort. The demand for steel remained strong after the war, as returning soldiers and their families bought new cars and other goods. In 1949, the company began building a new plant in Pennsylvania. By 1951, annual sales were more than $3 billion. That year, the company began to reorganize, combining four partially independent units into one central organization. In 1952, the company faced another strike, as workers demanded more pay. (They had finally won an eight-hour workday during the Depression.) After several months, the steel industry reached an agreement with the workers.

During the rest of the 1950s, U.S. Steel's share of the market began to fall. By 1960, foreign steelmakers were also cutting into the company's sales. In 1962, U.S. Steel tried to raise its prices. The move brought harsh comments from President John F. Kennedy (1917-1963), and the company backed down. Two years later, U.S. Steel formed a new chemical division, the Pittsburgh Chemical Company. It marked the start of moving away from steel production and into other areas. That new focus increased in the 1970s, as the company sold off old or closed businesses relating to steel and mining.

New Directions

In 1982, U.S. Steel made its largest move ever into non-steel industries. The company purchased Marathon Oil for $6.4 billion. The purchase doubled U.S. Steel's size and made oil production a larger part of the business than steel. Four years later, the company changed its name to USX Corporation, to reflect that steel was no longer its main business. Profits from the oil business helped the company survive the wild swings of good and bad times in the steel business and the strong competition from foreign mills.

The success of Marathon Oil made USX a tempting target for corporate raiders. A raider's goal is to buy shares of a company, win control of the company, sell off businesses that don't do well, and make a profit before selling out. In 1986, raider Carl Icahn bought about twenty-nine million shares in USX, giving him about 11 percent ownership. He also talked about buying the entire company. Icahn backed off from his takeover bid in 1987, but for the next few years, he bought more shares in the company and urged USX to get rid of its struggling steel division. In 1991, he almost won a vote among shareholders to take USX out of the steel business. After the vote failed, Icahn sold his shares in the company.

By then, USX had boosted its productivity, using fewer workers to make a ton of steel. Wages, however, were still high compared to what foreign steel companies paid their workers. Steel made up just one-quarter of the company's $20 billion annual revenues. Still, chairman Charles A. Corry, who replaced David Roderick in 1989, assured Forbes that USX would not abandon its roots. "We're not running away from steel," he said. "We're making it a better business."

U.S. Steel Reborn

In 1991, USX announced that it was offering two classes of stock, one for its Marathon Oil Group and one for its U.S. Steel Group. (The company later offered a third class of stock, for its Delhi Group, which produced natural gas. That division was sold in 1997.) The move helped boost the total value of the stocks, and for a time, U.S. Steel shares commanded the higher price. Still, the U.S. steel industry was changing, with small "mini-mills" getting more business, and foreign companies selling their steel at low prices.

To survive, the U.S. Steel Group kept boosting productivity by introducing new equipment at its mills. It also worked

together with one of its mini-mill rivals to improve steelmaking technology. By 1995, profits had increased and U.S. Steel produced steel more cheaply than any other integrated steel company in the United States. Throughout the late 1990s, several dozen U.S. steelmakers filed for bankruptcy, but U.S. Steel survived.

On January 1, 2002, USX split into two separate companies: Marathon Oil and U.S. Steel. The great steelmaker was independent again. Its operations included steel plants in Gary, Indiana; Birmingham, Alabama; and just outside Pittsburgh, Pennsylvania. Abroad, it owned a plant in Slovakia. Although steelworkers have often clashed with USX management, Leo Gerard, the president of the United Steelworkers Union, praised the split. As reported in the Pittsburgh Business Times, Gerard said the new U.S. Steel was "a strong, healthy company focused on steel."