Pickens Says He May Try Another Takeover
T. Boone Pickens said in Los Angeles on Thursday that he will probably attempt to take over another oil company, despite the fact that declining oil prices are making the petroleum business a less attractive investment.
The chairman of Mesa Petroleum Co., whose pursuit of big oil companies has become legendary, declined--as he always has--to identify his next target, most recently rumored to be Los Angeles-based Unocal Corp., parent of Union Oil Co. of California.
But he left no doubt that he thinks the stocks of most large U.S. oil companies are selling well below the value of the companies’ assets. And he blamed that on oil company executives, who he said have failed to make business decisions that enhance the value of their shares.
“Many oil company executives don’t know their assets well,” Pickens said. “They don’t see the potential value of the stock because they don’t see the potential in the company itself.”
A rumor Thursday that Pickens was lining up financing to make a bid for Unocal caused that company’s stock to jump $4 a share to close at $42.25 in heavy trading on the New York Stock Exchange. Analysts say the asset value of Unocal is about $75 a share, and the firm has often been mentioned as a potential takeover candidate.
Pickens was in Los Angeles primarily to speak to students at UCLA’s Graduate School of Management, but he worked in two speeches to investor groups, a press conference and some news interviews to deliver his gospel that stockholder rights have been taken away by hired managers.
In the last three years, Pickens has initiated efforts to take over at least four oil companies, each time with the intention of replacing management and running the firms. But he has thus far been thwarted, most recently in his bid for Bartlesville, Okla.-based Phillips Petroleum Co.
Three of his targets, Cities Service Co., Gulf Oil Corp. and Great American Oil Co., were bought out by other oil firms making higher bids than Pickens, while Phillips made a deal with the Amarillo, Tex. oilman that will result in his group receiving $53 a share for its 5.8% stake in Phillips.
The Phillips deal and some of his other forays have resulted in criticism that he is merely engaging in a form of corporate blackmail--called “greenmail” among merger specialists--that allows him to buy stocks low and sell high. But he insisted Thursday that he has never received more than other shareholders in any of his recent deals, and he disclosed that he resisted an effort by Phillips to buy him out at a premium.
Pickens said Phillips executives wanted to negotiate a “greenmail” buy-out shortly after the Pickens group filed a report with the Securities and Exchange Commission disclosing that it had acquired 8.8 million shares of the company’s stock. Pickens speculated that the company might have paid him more than $70 a share for his holdings, but he said no firm offer was ever made because he refused to negotiate with Phillips. Officials of Phillips made no comment Thursday.
Poor Performance Allowed
Pickens, characterizing himself as the “champion of small stockholders,” has been arguing for some time that the petroleum industry is going through a restructuring in part because oil company executives have allowed their firms to drift into unprofitable businesses. But at the same time, stockholders, particularly institutional investors, have been cowed by managers into not questioning the poor performance, he said.
“We need to get it back to where everybody understands who owns these companies,” Pickens said. “Many of these executives don’t see the urgency (facing the industry) because they aren’t substantial stockholders themselves. If they were, they would understand the loss that shareholders are suffering.”
He said top executives of the four oil companies he has tried to take over owned less than 0.1% of the stock in their companies, while directors of the firms, as a group, owned less than 0.3%. Instead of investing in their own companies, he said, many executives follow the advice of their personal investment counselors and put their money into Treasury bills and other safe havens. (Pickens owns a 2.2% stake in Mesa Petroleum and has stock options that would increase his holdings to 9.2%.)
Pickens said institutional shareholders should raise more questions about how companies are being run and should even make their decisions about proxy issues or takeover battles public so that smaller shareholders have some leadership in fighting what they regard as poor decisions by executives.
While admitting that employees of a company being taken over can often lose their jobs as a result of the merger, he said that the real cause of the industry contraction is economic conditions and that a merger only speeds up the inevitable.
“The oil industry is merely responding to an unprecedented period of expansion with a period of contraction,” Pickens said. “This is not going to be a painless process, but it is one that must take place.”
