In a case that could provide a potent new weapon for takeover targets to defend themselves, representatives of Unocal and Texas oilman T. Boone Pickens Jr. returned to Delaware Chancery Court on Wednesday to argue whether the Los Angeles-based oil company can exclude Pickens’ investor group from a lucrative stock buy-back.
Unocal lawyer A. Gilchrist Sparks III argued before Vice Chancellor Carolyn Berger that previous court decisions allow a company to exclude a predatory stockholder as a defense mechanism to protect itself from a takeover.
But Charles Richards Jr., who argued for Pickens’ Mesa Partners II investor group, said that Unocal’s actions were a breach of its fiduciary duties and discriminatory against Mesa.
At issue is Pickens’ efforts to seize control of Unocal, parent of Union Oil Co. of California, the nation’s 12th-largest oil concern.
Mesa Partners owns 23.7 million shares, or 13.6%, of Unocal stock and is making a $54-per-share offer to increase that stake to 50.1%.
Unocal is trying to block the takeover by making its own offer to buy back 50 million of its 173.9 million shares for securities worth $72 each. Unocal is excluding the Mesa group from the offer.
Berger had ruled that Unocal must include the Mesa group in its offer, but a Delaware Supreme Court judge sent the ruling back to the lower court and told Berger to consider several issues, including whether a board’s duties include protecting the company from “perceived depredations of others, including persons who may own stock in the company,” and whether the Mesa group’s intent “is to achieve selective treatment for itself.”
Berger is not expected to rule until Friday or Monday.
According to Sparks, it has been proven that Pickens has been given “selective treatment” in past takeover bids, such as with Gulf Oil Corp.
Richards likened the so-called discrimination to that leveled against blacks in the 1960s.
“We’re not going to be invited to the corporate lunch counter. That’s a violation of our civil rights, just as it was a violation of their civil rights,” he said.
Berger asked Richards if the standards of fairness should apply to a stockholder attempting a hostile takeover.
“Does their right to resist go so far as to fail to observe Mesa’s rights?” Richards asked, adding that Unocal could try to defeat the takeover bid but that it still had a fiduciary duty to Pickens’ group.
In other developments, U.S. District Judge John M. Duhe Jr. in Lafayette, La., refused to block the Mesa group’s offer to buy Unocal shares. Duhe told the companies on Tuesday that he was denying a preliminary injunction in the antitrust case filed by Unocal but hadn’t filed an opinion by late Wednesday.
Unocal on Tuesday amended a suit filed in U.S. District Court in Los Angeles that accused the Mesa group of violating securities laws. Judge A. Wallace Tashima had ordered both Unocal and Mesa to correct what he ruled were misleading statements made in materials sent to shareholders.
In the amended suit, Unocal charged that the Mesa group in a new offering circular didn’t adequately address the points that Tashima raised. A Mesa spokesman had no comment.