Icahn Shifts Tactics in Bid for Phillips : Financier Now Wants Only 30% of Stock; Firm Seeks Delay
New York financier Carl Icahn changed course Friday in his threat to take over Phillips Petroleum Co., offering $57 a share for enough of the company’s stock to give him a 30% interest in the oil producer.
Icahn called his offer an “antidote” for the “poison pill” defense tactic announced by Phillips on Thursday, and his bid created even more uncertainty about the recapitalization plan that Phillips stockholders will be asked to approve Feb. 22 when they gather at company headquarters in Bartlesville, Okla.
Icahn, who already owns a 4.85% stake in Phillips, declined to comment on why he wants to buy only another 25% of the company’s stock, rather than carry out his threat to buy it all.
But sources close to Icahn said he intends to trade each of his shares for a $62 debt security under the new provisions of Phillips’ recapitalization plan, a maneuver that could yield him a profit of nearly $300 million if his tender offer is successful.
Seeks Postponement
However, it became clear Friday that Icahn misunderstood Phillips’ intended terms of the new provision, and his attorneys began preparations to take the issue to court should the Securities and Exchange Commission approve the amendments that Phillips will file to its proxy material.
Phillips Chairman William Douce, in a letter to Icahn made public by the company, asked him to postpone his $57-a-share offer until after Icahn studies the new proxy material. Douce said the company’s new offer should pay Icahn enough for his stock “that you would not really wish to attempt to force the bust-up and liquidation of Phillips, and the resultant hardship to the thousands of employees who would be thrown out of work, all for the purpose of your making a few dollars more per share profit on the stock you bought during the past few weeks.”
Phillips stock was once again the most actively traded issue on the New York Stock Exchange on Friday, with more than 3.5 million shares changing hands. The stock edged up $0.125 a share to close at $50.125.
The battle for control of the oil company, which began last December with an unfriendly bid by Texas oilman T. Boone Pickens, has turned into a match of wits between the most sophisticated investment bankers and merger law yers on Wall Street. Fighting for Phillips are First Boston Corp. and Morgan Stanley & Co., along with the law firm of Wachtell, Lipton, Rosen & Katz. Icahn has engaged Drexel Burnham Lambert Inc. as his investment banker and, on Friday, hired Paul, Weiss, Rifkind, Wharton & Garrison as his legal counsel. At stake is the nation’s 10th-largest oil company that, if sold at the closing price of its stock Friday, would fetch $7.8 billion.
To ward off Pickens, Phillips came up with a plan to buy back 38% of its outstanding stock by issuing new debt in a package deal that the company valued at $53 a share, the amount that Pickens would be paid in cash.
The plan appeared headed for approval until Tuesday, when Icahn said he would launch a $55-a-share tender offer for the company unless Phillips management sweetened the recapitalization plan. So late Wednesday night, Phillips directors did just that, declaring a dividend of $3.32 a share to be paid in the form of a new issue of preferred stock after the recapitalization plan is approved.
Also Issued Warrants
In an effort to ward off further unfriendly takeover efforts, the directors also agreed to issue a warrant entitling stockholders to exchange each of their shares for a $62, one-year debt security, to take effect if a single stockholder accumulated at least 30% of Phillips shares. The warrants would be canceled if the recapitalization plan is approved.
Although the company didn’t explicitly say so at the time, Phillips sources said the warrants would only be valid for stockholders with less than 30% of the company’s stock.
Icahn was not aware of this provision when he informed the company of his new tender offer in a letter delivered to Morgan Stanley on Thursday night, sources said. But Douce, in his response to Icahn, said a stockholder with a 30% stake would not be eligible to receive the warrant under terms approved by company directors.
Later in the day, Icahn issued a news release calling the provision “flagrantly discriminatory” and said he intended to acquire both the stock and the rights to the $62 debt security with his tender offer.
