Unocal Foils Pickens’ Bid at Takeover : Aborted Duel May Be First Money-Loser for Texas Investors
Yielding to a bold and labyrinthine takeover defense and a precedent-setting court decision, Texas oilman T. Boone Pickens Jr. and his partners Monday aborted their three-month battle for control of Unocal and conceded that this may be their first money-losing corporate duel.
Emissaries for Pickens and Unocal Chairman Fred L. Hartley reached agreement early Monday after working through the night in negotiations that resumed late Sunday, according to sources close to the negotiations. The tentative agreement was then sent to Unocal’s board, which gave its approval late Monday.
Pickens, speaking with reporters after giving a speech in Scottsdale, Ariz., said the agreement “would take us out” of the fight for Unocal, the Los Angeles-headquartered parent company of Union Oil Co. of California.
Stay Away for 25 Years
Unocal said that in exchange for a promise that Pickens and his partners will drop their offer for Unocal and stay away from the oil company for at least 25 years, it will ultimately buy back 7.7 million of Pickens’ 23.7 million Unocal shares for $72 apiece. They must sell their remaining Unocal stock on the open market, but not before the end of this year. In the meantime, they agreed to vote the shares with the majority of other Unocal shareholders.
The final step forcing Pickens’ withdrawal apparently came Friday when a court in Delaware, where Unocal is incorporated, ruled that the oil company need not include the Pickens group in its lucrative stock repurchase plan--the cornerstone of Unocal’s anti-takeover strategy. Unocal has been offering $72 each for up to 50% of its shares, which are currently selling on the New York Stock Exchange for $46. The Pickens group had argued that it should be included just as any other stockholder, but the court decided that Unocal could exclude a dissident group that was seeking to take it over.
‘Changed Dynamics’
In an interview, Pickens said the court decision “changed the dynamics of the whole picture” and made the withdrawal necessary. “Until then, it was a good contest.”
Under the settlement agreement announced Monday, Unocal will add Pickens’ shares to the pool of stock that is eligible to be acquired in the $72 offer. But, apparently seeking to avoid the appearance of “greenmail,” Unocal agreed to buy back 38% of other shareholders’ stock and only about 32% of the shares owned by the Pickens group. (Greenmail refers to the payment by companies of a premium price to corporate raiders in order to eliminate the threat of a hostile takeover.)
Unocal, which had been waffling on its commitment to proceed with the offer regardless of what became of Pickens, said Monday even before the agreement was struck that it definitely would complete the stock repurchase deal.
Pickens will be forced to sell the remainder of his shares on the open market over a period of several months beginning next year. If he dumped them all at once, the company’s stock price could plunge.
The group’s investment banker, Drexel Burnham Lambert, agreed not to line up financing for a hostile attempt to take over Unocal for at least three years.
Asked whether his investor group would lose part of its investment, a prospect Pickens never faced in any of his five previous corporate frays, Pickens said: “We very well could.”
Since his entry in the takeover game, with an unsuccessful bid for Cities Service in 1982 and subsequent bids for Superior Oil, Gulf Oil and Phillips Petroleum, Pickens and his partners, by their own reckoning, have made about $598.5 million in pre-tax profits by “drilling on Wall Street,” the investment community’s term for attempted takeovers of oil companies. Oil companies such as Unocal are perceived as vulnerable to takeover attempts because their stock price is considered low in relation to the value of their assets.
Walked Away Richer
Pickens has never succeeded in taking over a company he has pursued, but until now has always walked away richer than he started. His investor group made about $400 million and $89 million on its last two fights (Gulf and Phillips) alone.
If he were to sell all of his Unocal stock now, the Pickens group would lose something on the order of $40 million to $60 million. That assumes that Unocal’s stock price will drop to about $34 per share after it completes its stock repurchase offer and the threat of takeover ends. (Trading in Unocal stock was suspended Monday pending the settlement announcement. Jefferies & Co., a Los Angeles brokerage firm that makes a market in shares that aren’t trading on the major exchanges, said Monday that it had traded some Unocal shares at a bid price of $34.)
The two sides also agreed to settle all litigation between them, and Pickens agreed to vote with Unocal on all matters as long as he owns the stock. Unocal also agreed to maintain its current rate of paying cash dividends and said it definitely will proceed with its master limited partnership, announced earlier. Shareholders will be allowed to profit from the limited partnership through dividends, which Unocal set at the annualized rate of $150 million both this year and next.
Separately, Unocal briefly resumed its annual shareholder meeting Monday, which had been adjourned for a week to announce the results of the proxy fight waged by Pickens. But Hartley said the vote was still incomplete, in part because “the Pickens proxies came in in terrible order.” The meeting was adjourned again--to May 29.
