Court Raises Unocal Hopes Despite Delay : Judge Says Ruling Favoring Pickens Appears Appealable
Giving Unocal “strong reason to hope,” a Delaware Supreme Court judge Thursday put off hearing an appeal of a lower court ruling that favored Unocal’s suitor, T. Boone Pickens Jr., but noted in sending the matter back to the lower court that companies “may deal selectively” with their shareholders.
The case before the judge, Andrew G. T. Moore II, was whether Unocal could appeal a decision three days earlier that Unocal must extend its lucrative stock repurchase offer to an investor group led by Pickens, which is seeking control of Unocal.
Moore said he is “satisfied” that Monday’s decision by Delaware Chancery Court Judge Carolyn Berger “is an appealable order.” But he said that, before the state Supreme Court hears the appeal, Berger should be permitted to more fully consider the issue at a May 8 hearing on the Pickens group’s request for a preliminary injunction.
Temporary Restraint
Judge Berger on Monday temporarily restrained Unocal from proceeding with its offer until the court studies the matter more thoroughly and decides whether to grant a preliminary injunction. In making that ruling, she concluded that all shareholders of a Delaware corporation--which Unocal is--must be treated equally.
Moore indicated Thursday that he doesn’t necessarily agree.
“It is a well-established principle of Delaware law that, in the acquisition of its own stock, a corporation may deal selectively with its shareholders,” he argued, “provided the directors have not acted solely or primarily out of a desire to perpetuate themselves in office.”
That comment “gives us a strong reason to hope” that the Delaware courts will allow Unocal to exclude the Pickens group from its offer for 50 million Unocal shares at $72 each, said Louis Cohen, a partner with the Washington law firm of Wilmer, Cutler & Pickering, which represents Unocal.
A spokesman for Mesa Petroleum, Pickens’ Amarillo, Tex.-based oil company that owns 90% of the investor partnership, had no immediate comment because the company had not seen the ruling.
Earlier Thursday, Unocal said about 48.4 million Unocal shares had been tendered under its exchange offer as of Wednesday. Mesa said it has received about 520,000 Unocal shares under its offer to buy 64 million shares for $54 apiece.
Pickens has urged shareholders to tender to Unocal to take advantage of the more lucrative offer but to join with the Mesa group in voting to postpone Unocal’s annual meeting, now set for May 13.
Also Thursday, Mesa filed with the Securities and Exchange Commission a supplement to its tender offer as ordered last week by U.S. District Judge A. Wallace Tashima in Los Angeles. Tashima ordered Mesa to correct misleading statements about the intent of its Unocal investment and to disclose how it would repay debt incurred in its tender offer. Any plans to restructure the capitalization or operations of Unocal also were to be disclosed.
Tashima at the same time ordered Unocal to change a statement in its proxy materials that shareholders who want to bring up business or nominate directors at Unocal’s annual meeting must give notice at least 30 days before the meeting’s original date--even if the meeting is subsequently delayed. The Delaware Chancery Court ruled April 22 that Unocal’s interpretation wasn’t correct.
In its filing, Mesa postponed until May 23 the expiration, proration and withdrawal deadline for its cash tender offer, which had been set to expire today.
To deal with Tashima’s order that certain misleading statements be changed, Mesa simply included part of the text of his order.
Mesa reiterated that, if its tender offer is successful, it will try to merge Unocal with a subsidiary of the Mesa Partners II investors group through an exchange of each remaining Unocal share for securities worth $54 per share. Those securities would be subordinated to existing Unocal debt and to debt acquired by Mesa Partners during the takeover.
Mesa said that it doesn’t plan to sell any assets to pay off the debt but that “if the future financial performance of the company after the merger is not sufficient to make required payments on the securities and other obligations, the company might sell assets, incur additional indebtedness or issue debt or equity securities in order to generate sufficient cash to make such payments.”
The surviving company would be much more highly leveraged, and “capital expenditures and expenditures for exploration . . . would be significantly reduced,” Mesa said.
Mesa separately disclosed that two investors out of 139 individuals and corporations have withdrawn from its $3-billion financing package, while one investor was added and another nearly doubled its participation.
Alliance Capital Management Corp., which had agreed to invest $20 million, and Bank of Bermuda Ltd., which invested $3 million, both withdrew. Harbour Holdings Ltd. joined the group with a $3-million investment and S.S.C. No. 3 Corp. increased its investment to $100.05 million from $50.05 million.
Mesa said it has commitments for the financing to purchase shares under its tender offer but definitive agreements haven’t been reached for all of the financing.
