Mellon Bank Pulls Out of Consortium Backing Pickens Bid for Unocal
Mellon Bank, bowing to pressure from some members of its board, has withdrawn as one of two lead banks in a 12-bank consortium that helped to finance T. Boone Pickens Jr.’s bid to win control of Unocal, it was learned Monday.
The big Pittsburgh bank’s defection comes on the heels of withdrawals by three other Pickens bankers--Security Pacific, Citibank and Swiss Bank. But the loss of Mellon is considered especially significant because Mellon is one of two lead banks--the other is Texas Commerce Bank--in the lending pool and had supplied about $150 million of the $1.1 billion in credit. The other three provided a combined total of about $200 million.
Mellon, citing bank policy, said it could neither confirm nor deny whether it has dropped out of the credit agreement.
But sources close to the bank confirmed that Mellon, a longtime lender to Pickens’ Mesa Petroleum, has decided to drop out of the agreement rather than risk losing more directors. In December, a Mellon director and an advisory director resigned their posts, citing Mellon’s lending policies on hostile takeover attempts.
Key Gulf Executives
The resignations--by former Gulf Oil Chairman Jerry McAfee and Gulf Executive Vice President Harold H. Hammer--came during Mesa’s unsuccessful bid for Phillips Petroleum, for which Mellon and Texas Commerce Bank were also the lead Mesa bankers. Gulf, an earlier target of Pickens, agreed to be acquired by Chevron rather than fall victim to Pickens.
Several Mellon directors are said to have criticized the bank for setting policies on hostile takeover financing without board approval and for lending money to Pickens, who has used some of the money to buy stock in Unocal--and in Phillips last autumn.
So adamant are some of these directors, the sources said, that at least three threatened to resign from the board unless Mellon pulled out of the credit pool.
The actual withdrawal from the loan agreement is expected to take at least two months while Mesa, one of Mellon’s biggest customers, searches for a replacement.
‘Disappointing’ Report
Pickens, who in congressional testimony has asserted that Los Angeles-based Unocal and other big companies are putting pressure on his lenders to sever their banking relationships with him, called the report of Mellon’s withdrawal “disappointing” and further evidence that “the link between big business and big banks is getting tighter all the time.”
He said that Mellon is “still with us today. But if they are dropping out,” he said, “it’s disappointing to have that happen.”
The defection began in March after Unocal sued Security Pacific, which has been lending money to both Unocal and Mesa for many years.
Security Pacific, like other banks in the credit agreement, lent Mesa money for general corporate purposes based on the value of the Amarillo, Tex., company’s oil and gas properties. But as Mesa became better known for its forays into the corporate takeover game than for its oil and gas business, and as the bank realized that many of the remaining oil and gas targets were Security Pacific clients, some bank officials began to re-examine Security’s relationship with Mesa.
Sources close to the case say Security Pacific was in the process of withdrawing from its loan agreement with Mesa when Unocal sued.
“If you can’t trust your banker, who can you trust?” Unocal Chairman Fred L. Hartley demanded in a speech shortly after the suit was filed.
Subsequently, Security Pacific did withdraw from the loan agreement, and Mesa sued Unocal, charging that the Los Angeles oil company coerced Security Pacific and other Mesa lenders.
As part of an “intimidation campaign” aimed at sabotaging Mesa’s relationship with other banks, Mesa alleged at the time, Unocal sent copies of its lawsuit and a letter from Hartley to Paul A. Volcker, chairman of the Federal Reserve Board, in brown paper wrappers to the homes of directors and officers of other Mesa lenders.
Since then, Pickens said last week in congressional testimony, Mesa has been unable to get bank financing from New York and Chicago banks that it has relied on in the past. Moreover, he confirmed, Citibank and Swiss Bank withdrew from the 12-bank credit pool.
Mesa says it has lined up other banks to replace Security Pacific, Citibank and Swiss Bank but declines to identify them out of concern that they, too, will come under heat from corporations and others who don’t think banks should be in the business of financing hostile takeovers.
Asked during a recent interview at The Times for the name of Mesa’s lead bank, Pickens replied, “we haven’t revealed that--the reason being . . . that they’ll go right in and attack our banks again.
“Unocal will eventually find out, I’m sure,” he said, “but there’s no use giving them lead time.”
