Pickens Goes for the Gold in Latest Bid : Offers $20 a Share for Homestake Mining; Stock Advances 26%
T. Boone Pickens Jr. set his sights Monday on the nation’s largest gold producer, disclosing a $1.88-billion offer to buy Homestake Mining Co. of San Francisco, owner of the big McLaughlin open-pit gold mine in Northern California.
In what is beginning to look like a busy year for the Amarillo, Texas, corporate raider, Pickens couched the $20-per-share offer in friendly terms and proposed a negotiated transaction with Homestake management.
The news of the offer by Pickens’ Mesa Limited Partnership drove up the price of Homestake shares by $3.50 to $18, a gain of 26%, on the New York Stock Exchange. In a brief statement, the mining and oil and gas concern noted that the offer was unsolicited and said it “will consider and respond to the proposal in due course.”
It was Pickens’ second move on a gold-mining company in six months. In what would have been a far costlier undertaking, he proposed to acquire Newmont Mining Corp. for nearly $6 billion. Pickens’ group was rebuffed, but he still holds 5 million shares in the company.
Analysts noted that Pickens was not making a tender offer to shareholders, and they were unsure whether he would pursue a takeover if management turned down his proposal. The deal promises the current executives a chance to buy a “meaningful” piece of the firm.
‘Going Against Grain’
Jack N. Aydin, who follows Pickens as the oil analyst for McDonald & Co. in New York, said his principal need at the moment is a source of cash flow to cover Mesa’s dividend outlay of $301 million this year. He could come up about $30 million short, Aydin said.
His interest in gold, however, runs counter to prevailing Wall Street sentiment on the direction of gold prices. Gold prices have climbed steadily since early 1985, when bullion fetched just over $300 an ounce, to today’s $450 range. Many investors expect gold to drop.
“To get this deep into Newmont and now Homestake, he has to believe the price of gold is going to do well. He’s going against the grain,” said Rosario Ilaqua of Nikko Securities in New York.
In a statement, Mesa said it has acquired or arranged to buy 3.54 million shares, or 3.8% of the 97.3 million outstanding common shares in Homestake. It would take about $1.88 billion to buy all remaining outstanding shares, which is what Mesa proposed.
In a letter to Harry M. Conger, chairman and chief executive of Homestake, Pickens proposed negotiations with management and said Mesa “is prepared to proceed promptly to present the transaction to your shareholders.” It called $20 a “significant premium” on recent prices.
Chance of Equity Position
Over the past 12 months, Homestake shares have ranged in price from $12.50 to $24 per share, ending last week at $14.50. The company declared a 2-for-1 stock split on Oct. 1.
Pickens said he is “highly confident that financing can be obtained on a timely basis.” He told Conger that Mesa “would like to work with you to design a program whereby management and other key employees would be afforded an opportunity to acquire meaningful equity ownership in the company and thereby be positioned to benefit directly from the success of their efforts.”
The Homestake proposal adds to a full plate for Pickens, who last month asked federal approval to acquire more than $15 million worth of stock in bankrupt Texaco and announced he will seek a seat on the board of KN Energy Inc., a Lakewood, Colo.-based gas pipeline firm.
In January, Pickens’ group agreed to finance investor Paul Bilzerian’s $1-billion takeover of Singer Co. Pickens is also pursuing court action stemming from a Delaware court’s rebuff of his effort launched in September to acquire Newmont, where he still has $156 million invested.
Aydin said Pickens’ group within the past 10 days was seeking to raise its $850-million line of credit, but his intentions remain unclear.
“This guy is a master of the game; he disguises his intentions. It looks like he’s going to be very active this year,” said Aydin. Analyst Ilaqua said Pickens is deliberately “setting himself up with a tremendous amount of options. Meanwhile, everyone is off guard.”
Earnings Jump
Whatever Wall Street’s outlook for gold prices, an economist who specializes in precious metals noted that Homestake’s reserves are in the United States and Australia--stable economies compared to developing nations or such major producers as South Africa.
Homestake’s earnings rose nearly seven-fold last year to $146.4 million, although that included a $95-million gain from the sale of an interest in its Australia unit. Revenues jumped by 48% to $516 million, chiefly on higher gold prices.
Staff Writer Keith Bradsher contributed to this report.
