Name Your Poison

As CBS plots its defense against Ted Turner, it will undoubtedly take a close look at a ploy that was set in motion last week by Unocal, which is trying to escape a take-over bid by T. Boone Pickens. A partnership led by Pickens, who is chairman of Texas-based Mesa Petroleum, has already bought 13% of Unocal, the twelfth largest U.S. oil company. The Pickens group is now seeking to acquire a majority of the company's stock by offering to purchase it at $54 a share. But Unocal has countered with a new variation of what Wall Street calls the poison-pill defense, in which a target company assumes a heavy debt burden to make itself unpalatable to corporate raiders. In this instance, Unocal said that if Pickens succeeded in buying 50.1% or more of its shares, the company would offer to buy the rest of the stock for $72 a share--a premium of 33% over the raiders' bid--with a newly issued package of debt securities worth up to $6.3 billion. Pickens could not block that move because even though he would have a majority of the stock, company bylaws would prevent him from quickly replacing members of the board of directors to gain control.

Unocal's offer is intended to discourage stockholders from selling to Pickens for $54 a share when they might ultimately be able to get $72 a share from the company. Even if Pickens took over Unocal, he would be choking on enormous debt. His partnership is planning to borrow more than $3 billion to buy Unocal shares, and on top of that the company would owe up to $6.3 billion to the holders of the new debt securities.

Late in the week Unocal announced a second strategy to persuade shareholders not to sell out to Pickens. The company said that its executive committee would recommend transferring ownership of 45% of Unocal's domestic oil reserves to a partnership made up of shareholders. That, said Unocal, would give the stockholders tax benefits and probably raise the annual return on their investment.

Wall Streeters expect Pickens to challenge Unocal's move in court and perhaps bid for 100% of the company. Meanwhile, Pickens admits, "we are back at the drawing board." Or maybe at the medicine cabinet, seeking an antidote for a poison pill.