Hostile Bid Made for Prudential Funds : Securities: George Kaiser of Tulsa enters a surprise offer for energy interests that are now embroiled in a legal fight.
A wealthy Oklahoma investor Monday unveiled a surprise hostile tender offer for nearly all of a series of Prudential Securities oil and gas limited partnership interests that are the subject of a fierce legal dispute involving 137,000 small investors.
George B. Kaiser, 50, of Tulsa disclosed in a filing with the Securities and Exchange Commission that he is offering up to $173.5 million in cash for nearly all of the partnership interests known collectively as the Prudential-Bache Energy Income Funds.
Some analysts described the bid as low and said it may spark other offers.
The partnerships have made headlines recently because of allegations that Prudential was about to enter into a settlement highly unfavorable to its customers. It would have paid them just a few cents on the dollar for hundreds of millions of dollars in losses, and given them shares of undetermined value in a newly created company.
The settlement, which offered only $22 million in cash, was blocked at least temporarily in February by a federal judge in New Orleans. The judge said he had serious questions about its fairness.
Kaiser was included last October in Forbes magazine’s list of America’s 400 richest people. He owns Tulsa-based Kaiser-Francis Oil Co. and is known for buying distressed natural gas and oil properties and selling them later at a steep profit. He recently branched out into banking, in 1991 buying then-troubled Bank of Oklahoma for $61 million.
Several investors’ lawyers and an independent partnership analyst said the offer appears to be a shrewd move by Kaiser to gain control of the partnerships’ underlying oil and gas assets for a fraction of their value, most recently estimated at $680 million. They said many investors, weary of the legal fight and anxious to get at least some of their money back, may well take the offer.
Spencer Jefferies, editor of Dallas-based Partnership Profiles, which analyzes limited partnerships, said the amount Kaiser is offering seems low. He added that Kaiser “could be walking into a great situation where investors just want to get out” for whatever they can get.
Kaiser declined to be interviewed, but said through a spokesperson that investors “should just evaluate the offer and the tenders should stand for themselves.”
In the 1980s, Prudential heavily marketed the partnership interests as safe investments for retirees and small investors. Investors poured in $1.3 billion.
During the last couple of years, the market value of the partnership units has been zero, partly because of a decline in oil and gas prices and partly because of allegations of massive fraud by Prudential and Graham Resources, the Louisiana company that manages the partnerships. Both firms strongly deny any wrongdoing.
Kaiser said investors who tender their units will still retain their right to sue Prudential and Graham for alleged fraud and misrepresentation.
A Prudential spokesman and a lawyer for Graham Resources each failed to return repeated phone calls Monday seeking comment on the tender offer. Edward Grossman, the investors’ lead class-action lawyer, who helped engineer the settlement that is now being challenged, said Kaiser’s offer “appears very, very low to me.”
Lawyers said competing offers for the units or the assets themselves may now come forth. Parker & Parsley, a large independent oil and gas producer in Midland, Tex., said last month that it might make an all-cash offer directly for the partnerships’ oil and gas assets. But Parker & Parsley has contended in court that Prudential and Graham have refused to make available enough information on the company to value the assets.
Through a company set up to buy the partnership units, GBK Acquisition Corp., Kaiser is offering to buy directly from investors all of the units in 31 of the 35 Prudential Energy Growth Funds partnerships. The amount he is offering varies by partnership, ranging from $17.04 to $89.49 each. About half the units originally were sold for $500 each, most others for $250 each.
In the SEC filing, Kaiser said he would buy all units tendered provided that at least 50% of the units in an individual partnership are tendered. If less are tendered, he may elect not to buy any in that partnership. He said his intention is to replace Graham as the general partner and manager for each of the partnerships. The deadline for tendering is April 19.
