“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 subsequent history of Mesa is a success story of almost fairy-tale proportions. In the oil field Mesa seemed to make all the right moves. It got involved in North Sea exploration, discovered a major field, and then sold out at the optimal moment. In the early seventies, Mesa was one of the smallest companies to bid on federal offshore leases in the Gulf of Mexico; today Mesa has a $1.5 billion investment in the Gulf, and its Gulf Coast division is its largest revenue producer. On Wall Street, Pickens pulled off a coup in 1969, when Mesa took over the Hugoton Production Company, a company with fifteen times Mesa’s reserves. That deal instantly made Mesa a much larger company and made possible much of Mesa’s subsequent success. Three years later, Mesa bought a second company, Pubco, in Albuquerque, which became the foundation for its Rocky Mountain and Permian Basin divisions. In 1969 Mesa’s stock was accepted on the New York Stock Exchange, where it rose and then rose some more. Not everything Pickens touched turned to gold, to be sure: Mesa’s cattle division took a $20 million bath in 1974 when the bottom fell out of the cattle market. But even that had a silver lining; it taught Pickens that the oil business was what he was good at and what he should stick with. Never again did he try to diversify.
And as Mesa prospered, so did Pickens himself. At the time of the Hugoton deal, he was drawing a salary of $44,167 a year; a decade later it was over half a million dollars. He owns outright about a million shares of Mesa’s stock, worth on a good day about $20 million, and has as-yet-unexercised options worth about $120 million. He also has stock in the Mesa Royalty Trust and money invested in cattle. In 1980, after exercising one of his stock options, Pickens was named in several business magazines as the highest-paid executive in the country that year, taking down $7,866,000.
If there was a flaw in the Boone Pickens success story, it was probably at home. Pickens-watchers in Amarillo like to say that while he was building up Mesa, the one thing he had left suffer was his family. Pickens hates to hear that, because he doesn’t think it’s true – or at least he doesn’t think that any problems at home stemmed from his work schedule. ‘I never missed a graduation, or a recital, or any of the other things fathers are supposed to do,” he says in his own defense. When he wasn’t on the road, he had dinner every night with his wife and four children, even if he had to return to the office later. “As long as any of the children had something to say, we would talk,” he recalls now. “But as son as they started some of that silly stuff, well, that wasn’t in the program.” Today, while he’s quite close to his two sons, one a young stockbroker in Houston and the other a student at SMU, he is distant from his two daughters, a fact that pains him.
In 1971 Boone and Lynn Pickens were divorced after 21 years of marriage, and the following year he remarried. His second wife, Beatrice Carr, was from Oklahoma; she and Boone knew each other as children, and for Pickens this was a much more compatible match. Bea Pickens loved being part of his world, and she was caught up in the excitement of watching Mesa grow. He could talk to her about Mesa. She liked to run the ranch. She had expensive tastes, but he was making a lot of money and could indulge her. At the time of the marriage, her youngest daughter was eleven years old. That daughter grew up adoring Boone Pickens, and she still does.
In 1974 Pickens built himself a little $2.5 million housing development. One of the houses there was for himself and his wife, and it was beautiful to behold. It was a spacious wood-and-stucco house, with glass panels along the main hall that went from floor to ceiling. Pickens’ favorite feature was the indoor tennis court, which was so well hidden that no visitor would ever guess it was there. The other eight houses in the development were built of the same materials, but they were much smaller. Pickens planned to sell them for $300,000 each, but for a long time they stayed empty. The word in Amarillo was that nobody wanted to live in a housing development where Boone Pickens’ house so clearly dominated the others. But finally he did sell the other houses, though for half the original asking price.
Back in the gymnasium on the morning of Mesa’s eighteenth annual meeting, Pickens was launching into a few closing remarks. After talking a little about the Mesa Royalty Trust, he turned to another topic dear to his heart. “We plan,” he said, “to take advantage of acquisition opportunities. There are only two ways a company like ours can grow: exploration or acquisition. Those are the only ways to expand the reserve base.” And then he opened the meeting to questions.
If Mesa had any disgruntled shareholders, they were not in evidence that morning. Only two stockholders took the floor, the second of whom rose to say, “Mr. Pickens, I’m a stockholder and I just want to applaud you and the company on the job you’ve done.” Everyone clapped at that, and Pickens replied, “Mr. Casey, we appreciate you coming here every year from Houston.” On that note, the meeting was brought to an end. Pickens stepped away from the podium and once again glanced at his watch before wading into the crowd. It was 10:45. Exactly.
A Dome Deal
Wednesday, June 2, New York, New York
It extremely important to Boone Pickens to be in control of events around him, but now events were in control of him. He had come to New York to take over Cities Service, but Cities seemed much closer to taking over Mesa. He had no partners, and thus no way of putting together a serious tender offer for Cities. The bear-hug offer was on the table, but how often did bear hugs work? Time as running out, too: on June 28 Cities’ waiting period would be over and it could buy Mesa. That would be the end of Boone Pickens and Mesa Petroleum.
At that desperate moment, Joseph Flom entered the picture. Flom, a lawyer, is one of the dominant figures in the small industry that has grown up on Wall Street around corporate mergers. He started doing takeover work a decade ago when most New York firms considered it unseemly. Today he is the most important partner in one of the fastest-growing law firms in the country: Skadden, Arps, Slate, Meagher & Flom. The merger in which Joe Flom is not working for one side or the other is rare indeed, and no matter how things turn out for the companies involved, they always turn out well for Flom. He has built his reputation up to the point where he does well even when there aren’t any mergers around, because companies keep him on retainer simply to prevent him from ever being on the other side of a deal they might do.
On Wednesday, the day after the partnership fell apart, Pickens and his entourage trooped over to Flom’s office and explained their predicament to him. Flom is a leprechaun – a short, white-haired, slightly stooped man whose pipe is never very far from his lips and whose expression is one of continual bemusement. He puffed on his pipe as he listened, asking questions but otherwise not saying very much. When they had finished, he looked up at Pickens and said, in a quiet voice, that yes, he did have an idea.
“Why don’t you do a Dome-Conoco deal?” he asked.
Of course! There were some embarrassed glances around the room – why hadn’t anybody thought of that before? What Flom had in mind was this: the Conoco-DuPont merger, which had dominated Wall Street the previous summer (and in which Flom had enlisted on Conoco’s side), had begun in earnest after a small Canadian company, Dome Petroleum, made a tender offer for 20 per cent of Conoco’s stock. Dome had no intention of taking over Conoco; all it wanted was enough shares so that it could swap that stock back to Conoco in return for a controlling interest of the American company’s Canadian subsidiary. However, instead of getting 20 per cent of the stock, Dome was deluged with stock – more than 50 per cent of Conoco’s shares ended up being tendered to Dome. That was a clear signal to Wall Street that dissatisfaction among Conoco stockholders was high and that the company was ripe for a takeover. Then several huge, acquisition-minded companies – most notably, Mobil and Seagram’s – jumped in with tender offers of their own, and the battle was on.
Flom thought that Mesa could do a variation on the Dome strategy. It could tender for whatever amount of Cities stock it could afford to buy without partners, say, 15 per cent. Then – and here was the variation – if a majority of the stock was tendered, Mesa would not back away as Dome had done. Rather, it would use the stock as a lure to attract enough new partners to be able to buy not 15 per cent but 51 per cent, and hence control, of Cities. Nobody had ever tried this before; from now on, the Pickens team would be flying without instruments.
The details were worked out: Mesa would make a tender offer for 15 per cent of Cities stock at a price of $45 a share. That was still about $10 a share higher than the stock was trading on the stock exchange. At $45 a share, 15 per cent of Cities would cost Mesa just under $600 million, and Pickens knew from previous discussions with his banks that this was probably the most he could borrow for a tender offer. The consortium of banks would still have to be lined up and the legal documents prepared, but everyone thought that could be done quickly. Before the meeting broke up, a launch date had been set. It was Monday, June 7, five days away.
A Night on the Town
Friday, June 4, New York
“This is supposed to be the best table in the house, you know.” Boone Pickens smiled when he said that, and so did the other who were with him, but it was true. They were seated front and center in New York’s fabled “21” club. If the Waldorf Towers is where the chief executive officers roost when in New York, then “21” is where they dine. It is not a great restaurant anymore (if it ever was), but its reputation remains oddly undiminished; it is still one of those places in New York frequented by well-to-do businessmen simply because other well-to-do businessmen go there. The food and service hardly seem to matter.
Pickens likes to go to “21” whenever he is in New York, but this was the first chance he’d had this time around. Most of his evenings since his arrival on Monday had been spent in strategy sessions, either in the Waldorf suite or in the legal conference room, and most of his meals had been eaten in haste. Tonight he was planning to relax a little and forget about the Cities Service deal for a few hours.
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