Hartley Sees ‘Human Rights’ Victory, Pickens Cites Higher Value for Shareholders : Unocal and Mesa Reflect on Takeover Fight
Unocal Chairman Fred L. Hartley said Thursday that his company struck a blow for the “human rights” of the working person by stopping an attempt by T. Boone Pickens Jr. to take over the Los Angeles-based parent of Union Oil of California, while Pickens countered that he had created $2 billion in new value for Unocal shareholders.
What’s more, at the current market value of Unocal’s stock, Pickens’ Mesa Partners II investor group is already making a profit from its takeover bid and expects an eventual gain of at least $92 million, said David Batchelder, financial vice president of Mesa Petroleum.
Pickens is chairman of Mesa Petroleum, the Amarillo, Tex.-based oil company that owned about 90% of Mesa Partners II, which is being dissolved. Most analysts previously have predicted that the Pickens group would suffer a loss on its Unocal bid.
Meanwhile, Standard & Poor’s gave a BBB rating to the $4.15 billion in senior secured notes that Unocal will exchange for 57.7 million shares of its stock as part of an agreement reached Monday to end the Unocal-Mesa brawl. That is the lowest rating that a debt offering can receive and still be considered investment grade and is lower than many analysts had been expecting.
S&P; also lowered the senior debt ratings of Unocal subsidiaries Union Oil of California and Union Oil International Finance Corp. to BBB from AA+. The commercial paper rating of Union Oil Credit Corp. was lowered to A3 from A1+.
Standard & Poor’s said the downgrading reflects the high level of debt that Unocal will be taking on with the exchange offer.
In addition, Unocal said its suit against Security Pacific National Bank over loans made to the Mesa group has not been dismissed.
Under the agreement reached Monday to end the takeover fight, all lawsuits between Unocal and the Mesa group were settled, although one suit filed by a Unocal stockholder and employee and Unocal’s retirement plan also remains.
Although the Security Pacific lawsuit is still pending, “we’re not vengeful,” said Sam A. Snyder, assistant general counsel at Unocal.
Snyder said Unocal has never broken off business with its longtime banker. Unocal found during discovery proceedings for the lawsuit that top Security Pacific executives “tried to extricate themselves” from doing business with Mesa when they realized that the group was going to attempt a takeover of Unocal.
A Security Pacific spokesman had no comment on the lawsuit.
Unocal’s board on Monday approved a settlement with the Pickens group that allows the group to participate in an offer to exchange some Unocal shares for notes valued at $72 a share. Unocal ultimately will buy 7.7 million of Mesa’s 23.7 million Unocal shares on top of the 50 million shares that Unocal will buy from other shareholders.
As one of its defensive measures, Unocal sought to exclude Mesa from the lucrative stock buy-back, and the Delaware Supreme Court upheld the company’s right to do so last Friday.
Hartley, speaking to reporters in Washington, said the nation “makes a big fetish about human rights.”
“We think the human rights for the employees of a company are just as important in America as they are in South Africa, Nicaragua, the Soviet Union and everywhere else that we make these speeches about human rights,” Hartley said, according to a report by United Press International.
$2 Billion Richer
“This destruction of companies (by corporate raiders), if allowed to proceed at a very alarming rate, is destroying the human rights of the American working man, and I’m doing everything in my power to stop it from happening,” he said.
In an interview, Pickens pointed out that shareholders of Unocal are about $2 billion richer now than before he entered the scene. Pickens based that figure on the difference between the blended price that shareholders will receive for their Unocal debt and stock--in the neighborhood of $48--and the approximately $35 price of Unocal’s stock when the Pickens group first began buying it last October.
Mesa Petroleum’s Batchelder said reports that Mesa Partners will lose millions of dollars are incorrect.
To break even, the Mesa group must get between $33 and $34 each for its 16 million remaining shares. Based on Thursday’s $34.75 closing price of Unocal shares that were tendered to the exchange offer but will be returned to shareholders, the Mesa group already has made at least $12 million.
But once Unocal distributes units of its proposed master limited partnership, which will probably happen in July, Unocal has estimated that the stock price should rise by at least $5 a share, Batchelder said. If that happens, the Mesa group will make another $80 million, for a total gain of at least $92 million.
Unlike Unocal’s shareholders, whose stock price rose to as high as $53 at one point, Mesa’s shareholders saw the price of their stock drop to $15.375 on Thursday from $18.375 on Feb. 13, the day before Mesa Partners first announced its stake in Unocal, and $20 on March 29, the day after the group said it might try to take over Unocal.
Pickens said he met with his executive team Tuesday for several hours to “start working on some other ideas” to increase value for shareholders and to decide where the company will head now.
Among the options, he said, are possibly acquiring some properties and consolidating Mesa’s oil and gas production operations.
Batchelder and his assistant, Sidney Tassin, said a leveraged buy-out or a partial leveraged buy-out of Mesa Petroleum (such as the restructuring done by Phillips Petroleum, a previous Pickens target) and further takeover attempts of companies both inside and outside the oil and gas industry are also possible options.
Pickens said he and his strategists have also scheduled a “lengthy planning session” for the week of June 3 to “look at what we might do.”
Tassin predicted that those meetings will be akin to the soul-searching sessions the company did nearly four years ago at the height of the last energy boom, when Pickens called his staff together to say that the industry was about to go into a trough and that Mesa not only had to cut back drilling and get its costs down, it had to rethink its entire corporate strategy. Those meetings were the genesis of Mesa’s entry into the corporate takeover business.
“We have to count up our marbles and see what we learned,” Tassin said, adding that “it’s also time for another analysis on what we want the company to be.”
Tassin, noting that the company has been in various stages of takeover activities non-stop since October (when it began buying the stock of both Unocal and Phillips) and that “these things start to take their toll,” predicted that “we’ll keep a little lower profile” in the takeover arena for a while.
The Delaware Supreme Court ruling, which sanctioned treating shareholders differently, also is viewed as keeping Pickens away from corporate battles for a time.
Mesa Partners II is in the process of dissolving itself, the parties said in filings with the Securities and Exchange Commission. The partnership is composed of Mesa Asset, a subsidiary of Mesa Petroleum, and of companies owned by Texas oilmen Jack Wagner and Cyril Brown.
Under the dissolution agreement, Mesa Asset will pay Wagner and Brown each $40.53 million in promissory notes for 47.5% of each man’s interest in the partnership.
The assets of the partnership--primarily $554.4 million in debt from Unocal’s stock buy-back offer and 16 million Unocal shares--will then be distributed to the three members. Mesa Asset will receive 94.75% of the assets, and Wagner and Brown will split the remainder.
Mesa Asset agreed not to attempt to sell its shares until Wagner and Brown have sold their holdings, or until Nov. 1. The settlement agreement with Unocal allows the partnership to sell its stock this year under controlled circumstances.
