After Decade of Success, Pickens Hits Hard Times : Energy: The raider from Texas made millions in the 1980s. But his firm now will stop paying dividends to some investors, plans to sell part of its gas holdings and could become a takeover target itself.
T. Boone Pickens Jr., the archetypal corporate raider of the 1980s, made millions while writing the book on hostile takeovers but has since seen his fortunes reverse as the tide turns against such tactics in the waning days of the decade.
These days, Pickens’ Mesa Limited Partnership gets most of its money the old-fashioned way--from oil and natural gas--rather than from high-profile corporate deals. And the resulting tight cash flow led Mesa on Thursday to eliminate its longtime dividend on common units and to announce the public offering of a $300-million interest in its valuable gas holdings.
Mesa’s predicament even makes it a possible candidate for takeover, observers said. That fact alone signals the shift in Pickens’ fortunes from the period when Mesa itself was the fearsome corporate wolf.
Strong stock market values, stiffened corporate defenses, dwindling credit and anti-takeover rules have made it harder to mount profitable raids, analysts said. But to hear Pickens himself tell it, he abandoned such takeovers in part because they were giving him a bad image.
“We said two years ago that we probably would never be involved in a hostile takeover again,” he said in an interview Thursday. “It isn’t worth the wear and tear. You go in and buy 5% of a company, you pay the expenses of a fight . . . more than any other shareholder--and you get lawsuits filed against you; it just isn’t worth it.
“And don’t call me a raider. Can you do that one thing for me?” he pleaded.
Whether one believes his protestations that he launched each takeover attempt with the sincere desire to run the target company, Pickens made big money even when he failed.
Pickens, described by one-time colleagues as crafty and aggressive, was one of the first takeover artists financed by junk bond king Michael Milken. In 1983, with Milken’s backing, Mesa made a play for Gulf Oil Co.
He failed to win Gulf. But he and Mesa made $214 million after taxes when white knight Chevron Corp. stepped in and paid more than $13 billion for Gulf in 1984--at the time, the largest corporate takeover ever.
In 1985, Mesa made a run at Los Angeles-based Unocal Corp. But Unocal’s then-Chairman Fred L. Hartley mounted a stiff defense, restructuring the company and spending $4 billion to buy back its own stock. Mesa netted about $83 million.
An unsuccessful run at Phillips Petroleum in 1984 netted about $75 million.
But it was not long before the returns began dwindling. In 1987, Mesa netted only about $3 million after an unsuccessful fight to acquire Diamond Shamrock Corp.
And Mesa is still waiting to see what will happen with its $70-million interest in Bicoastal Corp., formerly Singer Co., which includes the unpaid balance on a loan to a partnership headed by Paul A. Bilzerian, who was convicted of securities and tax fraud this summer after seizing control of Singer.
Mesa’s ability to mount hostile takeovers was crimped last year when it borrowed $715 million to buy natural gas properties from Tenneco Inc.
Without the windfalls that resulted from Mesa’s early ‘80s takeover activity, the partnership has found itself at the mercy of natural gas prices. Pickens said Mesa’s gas prices fell from $2.68 per thousand cubic feet in 1985 to $1.65 this year.
As a result, Mesa’s guaranteed dividend policy, which engendered strong loyalty among unit holders, ended up being a huge cash drain: The partnership has paid out $1.1 billion in dividends since 1985.
On Thursday, Mesa eliminated the dividend on its common units after payment of the fourth quarterly distribution of 37.5 cents on Feb. 15, 1990. Mesa preferred shares will retain a 37.5-cent quarterly payout, which is guaranteed for six quarters after the end of the year.
Pickens had earlier cut the annual dividend on common shares in March to $1.50 from $2 per share, the level it had held since the partnership was created in 1985.
On Thursday, Mesa also announced that it would form a trust to market $300 million worth of interests in its valuable natural gas holdings in the Hugoton Field in Kansas, the nation’s largest gas field, to help pay down $1.2 billion of net debt.
The Hugoton Royalty Trust would sell interests in “substantially all” of Mesa’s Hugoton Field holdings, which include 230,000 net producing acres with the equivalent of 1.2 trillion to 1.4 trillion cubic feet of natural gas. The interests would be sold on the open market in early 1990.
For Pickens, who has been fighting for shareholder rights in Japan as a shareholder of Koito Manufacturing, Thursday’s actions must have been tough to swallow--particularly since he personally holds 4.3 million units of Mesa.
But in the telephone interview, he denied that he was embarrassed by the need for such actions. “I feel disappointed that the price of gas has not come up as fast as I’d hoped it would. . . . But I don’t feel bad about it.”
Analysts suggested that Pickens would be amenable to an offer for Mesa, whose common shares dropped $1.25 to $7.625 after Thursday’s announcements. But he dismissed that. “We’re not interested in selling to anyone out there,” he said flatly.
Pickens has not withdrawn from securities markets entirely. Mesa had a gain of about $50 million at midyear on a portfolio of about $200 million, he said.
Recent reports have observed that Mesa’s portfolio includes several likely takeover stocks, such as Avon Products, Campbell Soup, Tambrands, Eastman Kodak, Lin Broadcasting and others.
Pickens said Thursday that Mesa’s holdings are simply for investment purposes. “We don’t have the financial muscle to get into it now, even if we wanted to,” he said.
But observers of the feisty investor predicted that Mesa will bounce back once natural gas prices rise as expected. And should market conditions change, Pickens could resume his old ways. “I wouldn’t count him out,” one observer said.
