Unocal Offers to Buy Half Its Shares in Bid to Thwart Pickens Plan
Unocal punched back at Texas oilman T. Boone Pickens on Tuesday by offering to buy roughly half of its own shares in a conditional bid designed to stymie Pickens’ attempt to acquire the other half.
The Los Angeles-based parent of Union Oil of California said it is willing to exchange up to $6.3 billion of new senior notes for 87.2 million Unocal shares, or about $72 per share.
Unocal’s offer is conditioned on Pickens’ Mesa Partners II investor group succeeding in its hostile tender offer for 64 million Unocal shares at $54 each. The Mesa group, which already owns 23.7 million Unocal shares, would hold slightly more than 50% of the oil company if its tender offer is completed.
Unocal called its offer an attempt to give its shareholders “a fair value” for their holdings and to make the bid by Pickens more difficult to complete. Unocal’s board has rejected the Pickens offer as “grossly inadequate.”
Analysts said the Unocal offer presents shareholders with the task of deciding whether to tender their shares to Mesa for $54 per share in cash or to wait and hope that Pickens receives enough shares to trigger Unocal’s offer, thereby giving the remaining shareholders $72 per share in debt securities.
Pickens attacked the exchange offer as “just another poison pill in a new bottle.”
“It’s an attempt to frustrate our offer,” said Warren Vieth, a spokesman for Mesa Petroleum, the Amarillo, Tex.-based oil company that is the primary partner in Mesa Partners II. Pickens is chairman of Mesa Petroleum.
“Our intention is to do whatever we can to keep our offer alive,” Vieth said.
If both Pickens’ and Unocal’s offers were successful, the Pickens group would end up owning all of the outstanding stock of a company heavily burdened with debt and whose assets would be pledged to former shareholders who received the new debt issues. Unocal’s long-term debt of $1.1 billion at the end of 1984 would be increased by $6.3 billion if the exchange is completed.
On the New York Stock Exchange, Unocal was the most active issue Tuesday as 4.3 million shares were traded. The stock fell $1 to close at $48 a share.
The Mesa group had been expecting this move. Sources close to the deal said the group’s defense could involve raising the price of its tender offer, attempting to buy the remaining 150.2 million shares that Mesa doesn’t own rather than limiting the offer to 64 million shares, or dropping the tender offer to concentrate on its proxy fight aimed at postponing Unocal’s annual meeting from April 29 to June 28.
Under Unocal’s offer, each share would be exchanged for $20 principal amount of 14% senior secured notes due 1990, $32 principal amount of floating rate senior secured notes due 1991 and $20 principal amount of senior secured extendable notes due 1997. Unocal said it will apply to list the notes on the New York Stock Exchange.
Unocal said it would begin accepting shares under the offer today, although it may not swap any shares for notes unless the Pickens bid is successful. However, the company said that condition might be waived. Unocal’s proration and withdrawal deadline is April 30. The withdrawal deadline for Mesa’s offer is April 26, and the proration period and the offer expire May 3.
In a filing with the Securities and Exchange Commission, Unocal said its board at a meeting Saturday discussed an exchange of debt for common stock but didn’t authorize it. At the same meeting, the directors had rejected the Pickens offer. A Unocal spokesman said he couldn’t discuss when the board authorized the move. A company statement said the authorization was unanimous.
The board also discussed issuing additional securities or entering into “other transactions with third parties,” the filing stated. Unocal has 86.1 million shares authorized but not issued beyond the 173.9 million shares outstanding.
“I call (Unocal’s offer) the ‘Boone bomb,’ ” said M. Craig Schwerdt, an analyst with the investment firm of Morgan, Olmstead, Kennedy & Gardner. “Its main intent is to deter the financing of Boone Pickens’ takeover attempt.”
Because the securities that Unocal intends to issue are senior debt secured by company assets, Mesa’s $3.9 million in financing would be subordinate to that debt, Schwerdt said.
“It really stymies you as to what you can do to restructure the company because every nut and bolt is collateralized to someone else,” he said. “The guys who are sweating the most are the ones under the collateralized debt, which would be the bankers of Mesa” and holders of Mesa’s “junk bonds,” high-yielding, low-rated debt issued to finance part of the offer.
Analyst Bruce Lazier of Prescott, Ball & Turben called the exchange offer “a pretty clever move” that forces the Mesa group to pay the equivalent of $63 per share for Unocal (the average of the $54 cash that it is offering and the $72 in notes that Unocal is offering).
