Franklin Mutual, With 5.6% Stake, Blasts Pennzoil Bid Stance

Franklin Mutual Advisors Inc., the mutual fund run by activist investor Michael Price, said Monday that it has taken a 5.6% stake in Pennzoil Co. and blasted the oil producer for opposing Union Pacific Resources Group Inc.’s hostile bid of $84 a share.

Houston-based Pennzoil has fought UPR’s $6.4-billion tender offer--announced in June and extended until Oct. 29--on the grounds that it fails to fully value the maker of motor oil and the owner of Jiffy Lube auto service shops.

Franklin Mutual said, “The striking flaw with the [Pennzoil] board’s reasoning is that, given the actual history of the [company], and in light of the UPR offer, the marketplace clearly does not believe that this company can best serve shareholders by remaining independent.”

The fund, a unit of San Mateo-based Franklin Resources Inc., made the statement in a filing with the Securities and Exchange Commission in Washington on Monday.

Pennzoil should “commence immediate negotiations with UPR for the benefit of all of the [company’s] shareholders,” the fund said.

“Mr. Price is certainly entitled to his opinion,” said Pennzoil spokesman Bob Harper. He said the bid is still inadequate, especially in light of UPR’s documents valuing Pennzoil at between $82.02 and $94.86 a share. A federal magistrate last week ordered UPR to release the documents.

Harper said the bid does not protect Pennzoil shareholders adequately if UPR’s stock price falls below $25. That’s the lowest price at which the formula adjusts in determining the exchange of shares for the remaining half of Pennzoil shares, if UPR completes its cash tender for the first half of shares.

On Monday, Pennzoil shares rose 19 cents to close at $77.19 on the New York Stock Exchange.

The SEC filing said Franklin Mutual bought 2.65 million Pennzoil shares for $207.3 million, an average of about $78.10 a share.

Most recently, the fund bought shares between July 7 and Friday for $72.75 to $78.04 each, the filing said.

The Franklin Mutual fund is now the second-largest shareholder in Pennzoil, SEC filings indicate. The only holder with more than 5% listed in the company’s March 21 proxy statement was State Farm Mutual Automobile Insurance Co., the largest U.S. property and casualty insurer, with an 8% stake.

UPR shares fell 13 cents to close at $25.56. Franklin Resources shares rose 6 cents to $80, also on the NYSE.