War of Words Escalates in Unocal Bid : Pickens Calls Hartley ‘Arrogant,’ Says Firm Neglects Stockholders
Texas oilman T. Boone Pickens launched his bid Monday to buy control of Los Angeles-based Unocal Corp. by firing another barrage in the war of words with Unocal Chairman Fred L. Hartley, calling Hartley “arrogant” and contending that Unocal has neglected its shareholders.
“I see Unocal as really a one-man band, which is Mr. Hartley. I would say that he epitomizes the arrogance that I see in some (oil company) managements,” said Pickens, who started a $54-per-share tender offer to buy 64 million shares of Unocal, parent of Union Oil Co. of California.
Those 64 million shares, when added to the 23.7 million shares already owned by Pickens’ Mesa Partners II investor group, would give the Pickens group control of slightly more than 50% of Unocal. Pickens said the tender offer, if successful, will be followed by an exchange of each remaining share of Unocal stock for securities valued at $54.
Unocal is an “undervalued situation,” Pickens said in an interview at The Times.
“I believe it’s undervalued because the management of this company is not dissimilar with managements of Gulf, Phillips and Cities Service,” he said. Pickens has unsuccessfully attempted to take over those companies.
‘Selling at Huge Discount’
“They do not do enough for the stockholders,” Pickens said. “The only reason that the company’s vulnerable is because the price of the stock is selling at a huge discount to the underlying value of the assets. That’s it.”
Hartley declined Monday to be interviewed.
John S. Herold & Co., a Greenwich, Conn.-based firm specializing in oil company appraisals, set the value of Unocal’s assets at $76.45 per share at the end of 1983, the most recent appraisal available.
Unocal’s stock is undervalued because the company, like many in the oil industry, has not replaced its oil and gas reserves at the same rate that it has used them, Pickens said.
“The primary asset of stockholders . . . is the domestic oil and gas reserve base,” Pickens said. “Why are we interested in Unocal? Unocal is one of those that is in liquidation” of its reserves, having found new reserves equal to only 64% of the reserves it used from 1980 to 1983, he said.
Pickens essential argument is that, with such poor drilling prospects, oil companies might be better off distributing more of their cash flow directly to shareholders rather than investing in so much additional exploration.
Hartley, in a recent speech, said that Unocal, the nation’s 12th-largest oil company, is “among the best at reserve replacement.”
Hartley cited research by Merrill Lynch that said that Unocal is the fourth best among the 17 largest oil companies in replacing U.S. oil and gas reserves in the past five years. Unocal did that at the lowest total exploration and production costs per barrel in the industry, he said.
Hartley said that a $10,000 investment made in Unocal stock in 1960 would be worth $127,000 today. But Pickens said Monday that a $10,000 investment made in Mesa Petroleum stock in 1964, the year the Amarillo, Tex.-based company was founded, would be worth $330,000 today.
Golf Tournament Winner
Pickens and Hartley aren’t strangers, although they currently aren’t on the best of terms. When Hartley and Pickens met in a Capitol Hill hallway during a break in congressional testimony last week, Hartley refused to shake Pickens’ hand and told him to “go away.”
Pickens tells of meeting Hartley six or seven years ago at a rain-soaked golf tournament in Palm Springs. When told that Pickens was chairman of Mesa Petroleum, Hartley snapped: “Never heard of it.”
Pickens won the golf tournament.
The 56-year-old Pickens, who began his career in the early 1950s as a geologist at Phillips Petroleum, said the oil industry “has some real problems, and you’ve got some managements within the industry that have failed to recognize the problems.”
“The industry has not replaced its reserves in any one year since 1972,” he said. “I think those companies should be circled, or underlined on the New York Stock Exchange.
“I am not opposed to exploration. I’m for anybody drilling any well wherever they want to drill it,” he said. “But overall, it’s got to make economic sense.”
Pickens has been called a “corporate raider” more interested in short-term gain than in long-term prospects.
“What you have is you’ve got a bunch of these of CEOs (chief executives) running around saying, ‘Boone Pickens is a short-termer and I’m a long-termer,’ ” Pickens said.
“What does that mean exactly? IBM has great long-term potential and it’s done a great job in the short term,” he said. “Mesa Petroleum sells at 100% of its appraised value. We’re doing a good job for our shareholders also.
“If you’re doing a good job in the long term, you’re doing a good job in the short term.”
Pickens protested being called a “greenmailer”--an investor who buys stock in a company and threatens a takeover to force management into buying out his stake at a premium. Pickens said he and his partners were “sincere” in their previous four takeover attempts.
“We have not tried to put these companies into play (in a takeover bidding war),” he said. “We have actually come up with some pretty constructive ideas (for running those firms).
“But let me tell you, it turns them on. They get madder than hell at me.”
As for Unocal, Pickens said there are no current plans to sell any Unocal divisions or lay off any of the company’s 20,664 employees if his investor group gains control.
Move to Los Angeles
But when pressed on specific plans for the company, Pickens responded: “I don’t know the assets that well. I can’t tell you exactly what we’d do.”
He did say, however, that he would move his company’s headquarters to Los Angeles.
Pickens has criticized anti-takeover defenses--called “shark repellents”--adopted by companies he has tried to take over but does not see similarities in such measures contained in the bylaws of his own company.
Those defenses were adopted to prevent a counter-offer for Mesa by one of Mesa’s takeover targets, Pickens said. The defenses are not designed to block a takeover bid at a good price, he said.
“Anytime anybody makes a premium-to-market offer for Mesa, it will go to shareholders,” he said.
Pickens said federal regulation of corporate mergers and acquisitions would be “undesirable.”
“I don’t want to see anything taken away from the stockholders,” he said. “They’ve already had enough taken away from them.”
Pickens’ latest Target: Unocal
1982-Cities Services Co. makes a hostile bid to take over Mesa Petroleum, the company Pickens founded in 1964; Mesa counters with a tender offer for Cities and acquires 4.1 million shares. Gulf Oil makes a higher offer, and Mesa sells its Cities stake at a $31.5-million profit. Cites Services is eventually sold to Occidental Petroleum.
1982-Mesa offers to acquire 51% of General American Oil Co. of Texas. After Phillips Petroleum Co. makes a higher bid, Mesa withdraws its offer- but not before reaching agreement to sell its General American shares to Phillips in a deal that eliminates $76 million of Mesa’s debt and gives it a $42-million profit.
1983-After unsuccessfully bidding for Superior Oil Co., and investor group led by Pickens sells its stake in that company to the winning bidder, Mobil Corp., at a 32-million profit.
1984-Pickens group sells its stake in Gulf Oil, after bidding to take it over, to Chevron Corp., which made a successful higher bid, and Pickens reaps a $400-million profit.
Early 1985-Pickens group drops bid to take over Phillips Petroleum after encountering fierce resistance. It sells its Phillips shares back to company at a profit of $80 million.
February-March, 1985-Pickens group accumulates 13.6% of Unocal, at first calling the move an investment but later saying it may seek control.
April 8,-1985 Pickens group announcers offer to buy control of Unocal.
