Unocal to Cut Capital Outlays, Hartley Says
Unocal has no plans to sell any assets to pay off the $4.15 billion in new debt that was the price of fending off takeover veteran T. Boone Pickens Jr., but capital spending plans will be scaled back, according to Unocal Chairman Fred L. Hartley.
Unocal, which has been Hartley’s employer for 46 of his 68 years, will “keep right on going” now that the investor group led by Pickens has agreed to end its three-month quest to take over the Los Angeles company, Hartley said in an interview last week.
Unocal, parent of Union Oil of California, is still evaluating how much it will need to reduce its future capital spending because of its increased debt expenses, but Hartley estimated that the 1985 investment program, originally set at $2.1 billion, will be trimmed by an estimated $200 million to $300 million.
“Oh, we’ll have to modify to some degree (but) you know there’s plenty of room for more success,” Hartley said, adding that if the company had to take on such a debt, he would rather have spent the money on a major acquisition. “But doing what we did was forced upon us as the result of this raid to destroy the company,” he said.
Hartley Still Angry
His anger at the attempted takeover is unabated. “It may be that this is a new day and if . . . the laws of the land are not enforced to the degree required to stop this kind of behavior of the financial community--of a segment of the financial community, only a small segment but a very virile sickening segment--then maybe maintaining high debt becomes a way of life,” Hartley said. “It would seem that we have a real failure in our capitalistic system and a real failure of our morals and manners and ethics and integrity in our society if one has to maintain a hell of a high debt in order to protect oneself from the financial barbarians.”
Last month, Unocal settled with Pickens and his investor group by agreeing to include 7.7 million of the group’s Unocal shares in an expensive stock buy-back plan that will increase corporate debt by $4.15 billion.
Hartley said Unocal will be able to pay the interest on its debt out of company cash flow, adding that the reduced number of Unocal shares outstanding will reduce the company’s quarterly dividend pay-out by about $70 million after taxes.
May Sell Some Stock
In a few years, presuming that the company’s stock price rises, Unocal may sell new common stock to repay some of its debt, he said. “It won’t be this year for dang sure” because Unocal’s stock price plummeted from $46 the day of the settlement to $33.25 on Friday.
A sale of any assets to pay off debt “would be the last thing to do,” Hartley said. “We do not have a lot of unsuccessful aspects of the company. We’re pretty highly focused in the energy and resource area.”
The blunt-spoken Hartley--who characterized Unocal’s battle with the Pickens group as “mad dog bites man; man bites back; man, with superior intellect, defeats mad dog"--is not tempted to forgive and forget.
“It was a waste of months of our lives in non-productivity . . . so there’s no reason to have a reconciliation,” he said. “In fact it would be an indication that you were stupid.”
And Hartley has no kind words for hostile takeovers and those who support them.
“The general attitude that has been taken in Washington has been that hostile takeovers are a marvelous invention, that they increase productivity and improve efficiency. And furthermore they get rid of bad management. And they’re just simply apple pie and motherhood.
“I think the facts speak to the contrary,” Hartley said. “If this kind of behavior continues . . . we’re going to see further deterioration in the ability of the United States to survive as a viable competitive society.”
Also in Unocal’s future is the formation of a master limited partnership, called Union Exploration Partners, that will acquire nearly all the Union Oil’s Gulf region oil and gas business, which accounts for nearly half of Union Oil’s domestic reserves. The master limited partnership was one of the defensive strategies developed by Unocal to thwart Pickens’ bid.
Union Exploration Partners filed a registration statement with the Securities and Exchange Commission on Friday saying that Union Oil will own about 96.6% of the partnership and the rest, about 7.5 million units, will be offered to the public. The price is expected to be $22 to $26 per unit, which would raise between $165 million and $195 million.
The sale is expected to be around July 1, to be followed by a distribution to shareholders of units worth $37.5 million. Unocal has said its board will make its “best efforts” to see that the units are distributed to shareholders at an annualized rate of $150 million both this year and next.