Shamrock Rejects Takeover Offer; Pickens Backs Off

An investment group led by Texas oilman T. Boone Pickens Jr. dropped its $2-billion bid to acquire Diamond Shamrock Corp. on Thursday only hours after Diamond Shamrock rejected the offer as inadequate.

Directors of Diamond Shamrock, a Dallas-based energy concern, “unanimously agreed that the long-term interests of our shareholders would be better served by an independent Diamond Shamrock pursuing its current strategies,” Chairman William H. Bricker said Thursday in a letter sent to the company’s stockholders.

The board also questioned the “uncertain value” of the Mesa Limited Partnership units that were to be exchanged for Diamond Shamrock’s common stock and questioned Mesa’s ability to continue making the proposed cash distributions, or dividends, to holders of the units.

On Dec. 3, Pickens’ group, which also included Alabama construction executive John M. Harbert III, offered to exchange one unit in Mesa, an Amarillo, Tex.-based energy partnership, plus a $2 annual dividend for each Diamond Shamrock common share.

The group also proposed to exchange various amounts of Mesa units for Diamond Shamrock’s preferred stocks. Thus, no cash was involved in the proposed acquisition.

“The Mesa proposal is extremely complex and could take at least two years to complete,” Diamond Shamrock said its letter. “If such a complex scheme cannot be completed, it is impossible to predict the consequences to Diamond Shamrock or its shareholders.”

Pickens, however, issued a statement charging that Diamond Shamrock’s executives rejected the offer merely to protect their jobs.

“They have adopted the standard approach of entrenched management--hire investment bankers and lawyers, reject and sue,” said Pickens, Mesa’s general partner. “This strategy is expensive and wasteful of shareholder money and is designed to prevent shareholders from making their own decisions.

“The merits of Mesa’s offer should have been evaluated by the shareholders of Diamond Shamrock, not its entrenched management,” he said. “We are disappointed, just like the other shareholders of Diamond Shamrock.”

After the announcements, Diamond Shamrock’s common stock fell $1 a share to $12.625 in New York Stock Exchange composite trading, while Mesa’s units edged up 12.5 cents to $16.125.

One industry analyst, Don Bustos of the securities research firm Duff & Phelps in Chicago, said Pickens’ decision to drop the offer was “a very big surprise” because Diamond Shamrock’s rejection was expected. But Bustos said he doubted that Pickens had completely given up his quest for the firm.

“I’ll have to see some elaboration before I’ll believe that they will abandon their pursuit,” he said of the Mesa group.

Diamond Shamrock has been restructuring its assets and cutting costs during the past two years in an attempt to bolster the value of its stock and to stem recent losses, which totaled $173.8 million from continuing operations in the first nine months of 1986.

DIAMOND SHAMROCK AT A GLANCE Diamond Shamrock, based in Dallas, is a diversified oil and gas company with production operations in the United States, Canada, Indonesia and the North Sea. The company is also involved in coal mining, geothermal energy and chemicals.

9 mos. Year ended Dec. 31 Sept. 30 1985 1984 1983 Revenue (billions) $2.0 $4.1 $4.5 $4.0 Net income (loss) (millions) (73) (605) 242 (60)

Assets: $4.6 billion Employees: 7,500 Shares outstanding: 117.6 million Book value per share: $13.77 12-month price range: $9.50 - $15.375 Thurs. close (NYSE): $12.625, down $1.00