Phillips Studies How to Handle Icahn Proposal
Directors of Phillips Petroleum Co. met in New York late Wednesday to consider whether to sweeten the company’s recapitalization offer to stockholders or to face the threat of a takeover by Wall Street financier Carl Icahn.
The board meeting broke up shortly before midnight without an indication of what had been decided, but a spokesman said the company would make an announcement this morning.
As a possible signal of the company’s intentions to fight Icahn, Phillips filed suit against him in U.S. District Court in Tulsa, Okla., alleging that he violated securities laws in his unsolicited $8.1-billion proposal to buy the company because he failed to file proper proxy materials with the Securities and Exchange Commission.
Icahn, who owns 7.5 million shares of stock in the Bartlesville, Okla., oil producer, has said he will launch a $55-a-share tender offer for the company unless directors match his proposal by paying that much to all stockholders. In disclosing his intentions late Monday night, Icahn gave the company until the close of business Wednesday to respond.
But the deadline passed before Phillips directors even began their 6:30 p.m. EST meeting. An official at Drexel Burnham Lambert Inc., Icahn’s investment banking representative in the deal, said no decision would be made on whether to go ahead with the tender offer until after the meeting of Phillips’ directors.
In its lawsuit, Phillips asked U.S. District Judge H. Dale Cook to issue an order blocking Icahn from making his proposed tender offer or soliciting shareholder support for his plan. Late Wednesday, Phillips said the judge issued a temporary order to block Icahn from filing a suit in the matter in any other court, but the judge stopped short of preventing Icahn from going ahead with his offer for Phillips stock.
“I haven’t as yet seen any papers, so I obviously can’t comment about the lawsuit,” Icahn was quoted by Associated Press as saying. “While I, of course, intend to comply with the law, I will not be deterred and intend to press forward.”
Speculation about the company’s future continued to cause heavy trading in its stock Wednesday. Phillips was the second-most-actively traded issue on the New York Stock Exchange, with 2.87 million shares changing hands. The stock closed at $49.75 in composite trading, down 50 cents.
Phillips came up with its recapitalization proposal in late December in response to a hostile takeover bid by Texas oilman T. Boone Pickens, chairman of Amarillo-based Mesa Petroleum Co. Pickens was offering $60 a share for the company but backed off when the company agreed to buy back his 8.9 million shares for $53 a share in cash as part of a proposal to put a large block of its stock into the hands of an Employee Stock Ownership Plan.
Under the deal, Phillips will buy back 38% of its stock by issuing debt valued at $60 a share, sell new stock to the employee thrift plan and spend $1 billion repurchasing its shares on the open market in an effort to support its price at $50 a share.
Wants $55 a Share
Phillips has valued the package at an average of $53 for all stockholders, but Icahn claims that it is worth only $42 a share. He has demanded that Phillips offer all of its stockholders $55 a share in cash and securities, financing the purchase by borrowing against or selling certain assets in the company, a procedure known as a leveraged buy-out.
Analysts have suggested that Icahn, known for investing heavily in companies and then selling the stock later at a premium, isn’t really interested in taking control of Phillips.
Icahn has declined to comment on his intentions, but sources close to the financier said that he would take over management of the company and run it as a going concern, raising no more money through the sale of assets than Phillips had already anticipated under its recapitalization plan. That plan calls for the company to sell about $2 billion in assets, although it has not yet specified what might be sold. Possible candidates for sale include its refining and marketing operations, its petrochemical business and geothermal energy assets.
