“It’s Time To Make a Deal”
Take a trip inside a world you’ve never seen before – the billion-dollar world of a Wall Street merger – with an Amarillo oilman who’s staking a 25-year career on one wild roll of the dice.
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The three men had let their hair down like this because they were sure that Friday would be an easy sign-the-documents-and-get-out-of-town day. And there was every reason to think they were right. The Gulf-Cities agreement was a monster transaction, surely the sort of thing the federal government was going to want to take a closer look at. Liberal senators like Howard Metzenbaum of Ohio were likely to start howling at the thought of a merger of two oil companies that size (in fact, he did); the Federal Trade Commission was bound to want to inspect the deal for antitrust implications. The last thing Gulf and Cities needed was someone else hovering around the edges of their deal, screaming antitrust. That was Mesa’s last card: if Cities didn’t drop its tender offer for Mesa, Mesa could run to the courts and attempt to break up the Gulf deal, claiming that it violated the antitrust laws. In 1981, when Mobil had tried to take over Marathon Oil, Marathon blocked the Mobil offer by getting an antitrust ruling from a U.S. district judge in its home state of Ohio. There was no reason Mesa couldn’t try to get a Texas judge to make a similar ruling. That was the logic arguing for Cities to drop its tender offer, and it was persuasive. But as Pickens was beginning to discover this Friday morning, Bruce Wasserstein had other plans.
Wasserstein, First Boston’s takeover specialist, is the acknowledged master of merger mania. He is a short, paunchy, 35-year-old who looks like he’s sweating even when he’s not – one of those people whose glasses are forever sliding down their noses. Like everyone on Wall Street, Wasserstein wears expensive pin-striped suits, but he has enormous difficulty keeping his shirttail tucked in. No one at First Boston, however, is about to tell Wasserstein to tuck in his shirttail: he and Joseph Perella, his codirector in First Boston’s mergers and acquisitions department, have turned what was once a lethargic division into the most profitable section First Boston has. They’ve done it by being the quintessential hardball players; corporations to them are little more than pawns on a chessboard, there to be captured by a clever tactician. At symposia, Wasserstein has been known to make a case that mergers are good for the economy, but it’s hard to believe that that’s what he thinks about when he’s at work. What Wasserstein likes to do is win, and what he especially likes to do is win in a deal that’s never been done before. And despite all the arguments against tendering for Mesa, that’s the opportunity he saw before him.
Wasserstein had done big deals before; First Boston had had a hand in both the U.S. Steel-Marathon deal (the largest deal in history) and the DuPont-Conoco merger (ranked number two). What he had never done before – what no one had done before – was a deal in which two companies fell at the same time. If he could persuade Gulf to let Cities sweep up Mesa even as Gulf was buying Cities, then he’d have it: the first double merger, one for the record books. The deal had other appeal as well. Gulf would get Mesa’s acreage and properties, which, though smaller than Cities’, were in prime locations; Cities would get to extract a measure of revenge against Boone Pickens; and Wasserstein would get an additional fee.
Pickens had his first clue that something was amiss soon after the stock market opened. Several analysts called to tell him than an arb rumored to be close to First Boston had been buying Mesa stock. Since Mesa’s stock was expected to take a big drop once Pickens got out of the deal, that didn’t make any sense . . . unless the arb knew something Pickens didn’t. Then, at nine-thirty, an investment banker called to tell Pickens that a First Boston oil analyst from the Denver office had flown in to make a presentation to financial officers of Gulf and Cities that morning. The subject of the presentation: Mesa Petroleum. “Wasserstein’s saying this deal will be a cinch,” the investment banker told Pickens. “They’re saying Mesa is worth $35 a share and that the $21 tender price is a steal. My sense,” the banker added,” is that they probably know it’s not in their best interest to go after you, but First Boston is trying to exploit the human emotion of people like Waidelich who want to stick it to Boone Pickens.”
Pickens was taken aback. “I can’t believe they’re really serious about this,” he said when they got off the phone.
“I believe it, all right,” said Joe Flom. “There’s a fee in this for First Boston – and a big one.”
Pickens knew there was something to that; the deal was now in the hands of the Wall Street merger industry, which has strong imperatives of its own that carry over from one merger battle to the next. When this deal was over, Pickens would go back to Amarillo and run Mesa Petroleum; Flom would stay in New York and work on another merger. Flom and Wasserstein and Martin Lipton (Flom’s legal counterpart on the Cities side) were all friends. Flom worked on as many deals with Wasserstein as against him and had lunch with Lipton once a week no matter how gruesome the particular battle they might be fighting. For Boone Pickens and Mesa Petroleum and Charles Waidelich and Cities Service, the past three weeks had been a battle for survival. For Flom and Lipton and Wasserstein, it had been another very lucrative job. This last-minute hitch was a lethal threat to Mesa and blood revenge to Cities, but to the merger pros it was just another day’s work.
By now, there were fourteen people in suite 39-F: James and Roby, Lovejoy, Stillwell and other assorted lawyers, Gaines Godfrey and several other Mesa financial people, and Bea Pickens. The room had become tense; people would pick up the newspaper and glance at it and then put it down, or stare at the floor, or look out the window. When the deal had been in full swing, the sense of isolation that came from being in the suite had added to the feeling of control: it was a place where you could hold your cards close to the vest. Now that isolation was debilitating: there were people out there plotting against you and you had no way of knowing what was going on. You were cut off. Pickens was sitting at the desk, manning the phones himself. He seemed less overtly nervous than the others, but occasionally he would bite his lip. “Boy,” he said, “you just know that they can picture this little scene over here and they’re loving it.”
There was nothing to do at the moment except wait, but Flom did have one idea. “I think you should call Tom Brown,” he said. “We ought to have him standing by, just in case.”
“Boy, I hate to get him cranked up again,” said Pickens, but he realized that Flom was right, so he put in a call to Brown. Brown wasn’t in.
Now it was Pickens with an idea. “I think I should call Jimmy Lee,” he said. (James E. Lee is the president of Gulf Oil.) “He’s a friend. He knows what he’s got at stake here. And I’ll just tell him, ‘We’re playing this like it’s a battle, and if we have ot come after your deal, we’ll do it.’”
“What’s the downside risk?” asked Flom.
“None,” said Lovejoy. “It’s a good idea, Boone.”
Pickens assumed Lee was in New York, but he didn’t know where to find him. So, like anyone else looking for the president of Gulf Oil, he called Pittsburgh and spoke to Lee’s secretary. “This is Boone Pickens,” he said. “I really need to talk to him.” She promised she would pass on the message. Pickens hung up and redialed Tom Brown’s number. Still no luck.
“I think he’s ducking us, Boone,” one of the lawyers said.
Then he called his office and got the latest stock and cattle futures prices. A few analysts called in, and Pickens tried to find out if they had any news about Cities’ plans. They didn’t. He was getting frustrated. “I would like to get out of New York,” he said. “This is just costing us money.”
“What can we do to make it tough for them now?” asked Lovejoy.
“We could get some congressional guys to say they want an investigation,” suggested Flom.
“I’ve never asked a politician for help,” said Pickens, “and I sure don’t want to start now.”
“At a minimum, Boone, we’ve got to stop talking to the press like it’s all over and maybe start making some antitrust noises,” said Lovejoy.
Just then the phone rang. Thinking it might be Lee, everyone immediately stopped talking to they could hear the conversation. Pickens grabbed the receiver. It was Tom Brown.
“Listen, Tom,” Pickens began, “this maybe not be over. First Boston is trying to go after us. They’re saying it’s a cinch deal and they should take over Mesa. So we really need your help now. Same deal as before.”
Pickens listened quietly for a moment. It was obvious from looking at him that the news he was hearing was not good. “What we might consider doing,” he said, “is putting out a press release saying you were lining up financing for us and you’re still considering a tender offer.”
Flom interrupted. “Can’t issue a press release,” he said. “You have to make a tender and you have to do it today. Monday’s too late.”
Pickens relayed this to Brown, after which the conversation ended. “He’s gone,” he announced to his somber team. “His lead banker is heading for Europe and all his people are dispersing every which way. He doesn’t think there’s any way he can get it going again.”
Pickens frowned. Mesa had just lost its ace in the hole. If Cities wanted to buy Mesa’s stock, there was no legal way Mesa could stop it.
It was creeping toward noontime. Still no word about the First Boston meeting. Pickens tried Lee’s secretary a second time. She said she had given him the message. The suite was very quiet.
From the back of the room, one member of the Mesa team suddenly broke the ice. “Boone,” he said, “maybe you ought to start thinking about a white knight.” The unthinkable had just been thought.
Everyone looked up at Pickens to see his reaction. “No!” he said angrily. “We’re not going to do that unless we run out of options, and we’re not near that point yet. Hell, I haven’t gotten in touch with Jimmy Lee. I’ve got confidence in Jimmy. Gulf is running this thing, isn’t it?”
“It’s their money,” said Flom.
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