Texas-Style Takeover

A $3.8 billion bid shakes up Big Oil

One thing about T. Boone Pickens: nobody ever faulted him for thinking small. "We did not come to town on a load of watermelons," declared the chairman of Mesa Petroleum Co. of Amarillo, Texas (1981 sales: $408 million) from his 39th-floor suite atop New York's Waldorf-Astoria hotel. Pickens, 54, had come to New York loaded not with watermelons but with money, $ 1 billion in bank credits to be exact. He intended to use the money to buy up a company nearly 20 times Mesa's size. His target: Cities Service Co. of Tulsa, the nation's 20th largest oil firm, which had 1981 sales of $8.5 billion.

For Wall Streeters, the sparring between Pickens and Cities Service, headed by Chairman Charles J. Waidelich, provided a refreshing diversion from a miserable week. With the economy stubbornly refusing to show any convincing signs of improvement, Wall Street's five-week slide managed little more than a modest uptick with the 30 stocks of the Dow Jones industrial average ending the week at 809.74.

T. Boone Pickens was not about to let a little ole economic adversity spoil his plans. A former wildcatter who parlayed a $2,500 grubstake into a worldwide company with holdings stretching at times from Canada to the North Sea, Pickens had been gunning for Cities Service since 1979. His interest was sparked by the company's ownership of upwards of 10.6 million undeveloped acres of U.S. land containing an estimated 287 million bbl. of proven oil reserves as well as 2.7 trillion cu. ft. of natural gas.

Between 1979 and last year, Pickens acquired slightly more than 5% of the company's outstanding stock on the open market at an average price of $44.28 a share. Later, the price of Cities Service shares slipped sharply, as did those of most other oil stocks. By late March the company's shares were hovering in the low $20s.

At that price, Pickens decided that it was time to go for outright majority control, and two weeks ago he made his move. In a telephone call from his Texas headquarters to Waidelich in Tulsa, Pickens proposed, as a "friendly offer," that Mesa pay $50 a share, or $1.8 billion, for 46% of Cities Service stock, plus $1.9 billion more in promissory notes and Mesa stock for the remaining 49% of Cities Service shares. The startled Waidelich, faced with the prospect of seeing his company disappear into a firm a fraction of its size, fought back the next day with a counteroffer. Cities Service proposed to buy Mesa for $17 a share, or $1 above the market price, for 51% of the company. At that point, Pickens decided to cancel his weekend golf game over in Fort Worth and packed his bags for New York.

It is still too early to know who is ahead of whom in the struggle by the two companies to swallow each other. Cities Service's board of directors, meeting in company offices on Manhattan's Park Avenue, last week officially rejected the Mesa offer as inadequate and boosted its own counteroffer to $21 a share. Meanwhile, Pickens, huddling with aides across the street in his Waldorf command post, announced a revised and distinctly less friendly bid of his own. His offer: to acquire 15% of Cities Service stock at $45 a share on the open market whether Waidelich liked it or not, and thereafter to keep on buying more and more with financial backing from partners that reportedly now include Credit Suisse bank in Zurich, Switzerland, and Continental Illinois National Bank and Trust Co. More sparring between the two companies obviously lies ahead. qed

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