Business
Merge Ahead
Thirty years after he was ousted from Dallas-based LTV, James Ling is still searching for the next big thing. Should we be bullish on his latest deal?
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It was a price Ling would never see again. In 1968 the Justice Department slapped an antitrust action against LTV. Investors became nervous, debts came due, and cash grew tight. Despite a new Master Game Plan, which included selling off companies to satisfy the regulators and raise cash, LTV's stock sank to as low as $7.125, and Ling was forced out in 1970 through a palace coup. (LTV staged a brief resurgence in 1974 under new management and merged with steel-centered companies Lykes and Republic, but it filed for Chapter 11 in 1986. It has since emerged from bankruptcy and still operates today.)
Since then, Ling has tried several times to make a comeback. He attempted to build another conglomerate called Omega-Alpha, buying up a number of companies. But many of his deals proved to be duds, and in 1974 he lost control of it. Five years later he made a run at Texas International Company, an Oklahoma City- based oil and gas concern that also owned a cemetery, a hospital, and several foundries. He lost that company too but ended up netting $8 million to $10 million in a Carl Icahn-style buyback of his shares. In 1980 Ling and a group of investors wrote a $240,000 check to Eugene Anderson, who said he had developed a fuel additive that would double gas mileage in cars. Anderson turned out to be a crook, and the fuel additive was a scam (see "The Big Con," Texas Monthly, September 1983). Ling lost all the money he had put into the deal. "If it had really worked, it would have been one of the greatest scientific innovations in American business history," Ling says pragmatically. "It was a good throw of the dice."
Ling then formed his own oil and gas exploration company called Matrix Energy in 1980. Its raison d'être: to buy up struggling oil and gas companies. It managed to acquire just one major property: LG Williams Oil, a cash-poor independent with an estimated $100 million worth of undeveloped reserves. But a year later Ling developed Guillain-Barré syndrome, a nerve disease that paralyzed his hands and feet. He ended up in the hospital for more than four months and didn't walk for two and a half years. Before he recovered, the bottom fell out of the energy market, and oil prices went into the toilet. So did Matrix.
Bad luck and bad business weren't enough to keep Ling out of the game, however. He bounced back by becoming the president of Hill Investors, a consulting company that also held oil and gas investments. But he was antsy to get his hands dirty, so he founded Empiric Energy in 1992. It currently owns wells in the Panhandle and South Texas as well as Mississippi, Indiana, and Pennsylvania. Ling took the company public in 1994, and it now trades on the over-the-counter bulletin board. While Empiric has drilled a few promising wells, it has hit its share of dry holes too. Last year the company bled red ink, losing $968,000 with only $200,000 in sales. Empiric's stock recently traded at around 53 cents. Because of Empiric's size, marginal assets, and penny-stock price, Ling hasn't been able to generate much interest from investors or financiers. "I've been treading water here for about four or five years, trying to get this thing on deck," he says. "I'm not the least bit interested in promoting people to drill in the oil and gas business. I'm interested in getting programs [such as J Consulting] to drill thirty, forty, or fifty wells that are producing."
Clearly, some observers have their doubts whether he can make Empiric fly. Alan Gaines, an independent oil analyst and consultant, says he met with Ling more than five years ago about doing a reverse merger of Empiric and coming on board as a consultant. "His properties were all—I'll be kind and say they were marginal," he says. "I felt there was just nothing I could do for him." Russell Weinberg, a managing director in corporate finance at Dallas investment firm Dain Rauscher Wessels, says he looked at the company a couple of years ago and thought it had a tough row to hoe. "They're trying to make a go of it," he says. "But it's really challenging [in such a] competitive business to be a supersmall public company."
Ling had hoped that the acquisition of J Consulting would change that. In a proposed $12 million deal, Empiric would have gained roughly 2.6 million barrels of proven reserves and 3 million barrels of potential reserves. But more than a year after he announced his intentions, Ling decided to set his sights a little lower. In July he announced a plan to buy a subsidiary of J Consulting called Confed Oil and Gas for $7.3 million plus 3 million shares of stock. In exchange, Ling will pick up 576,000 barrels of proven reserves plus 2.4 billion cubic feet of gas.
As for raising the cash to buy Confed, Ling, predictably, has an answer. The key may be through a complicated stock swap with Daedalus Building Systems, which is based in Alexandria, Virginia. The company, which builds low-income shelters with recycled plastic and metal, needs to raise money to start two housing developments in Peru. But so far, it hasn't been able to come up with the financing. Ling and Daedalus' chief executive, Edward McCulloch, met in Dallas last spring through a mutual associate and hatched a deal: Daedalus would exchange 1.5 million of its shares and 750,000 of its warrants for 1.5 million of Empiric's convertible preferred shares and 750,000 of its warrants. Both companies would benefit: Daedalus would become a public company, able to tap the public markets to raise cash to begin construction in Peru, and Empiric could sell its Daedalus shares to buy up more oil and gas concessions. The deal is textbook Ling: create value from nothing. Now the two just need to get the U.S. Securities and Exchange Commission to sign off on the deal. In April Daedalus filed a second registration statement with the agency; it's now waiting for the final go-ahead. "It would be our intent then to go into the marketplace afterward to raise additional funds," McCulloch says.
Ling insists he's not interested in taking Daedalus under the Empiric umbrella; he says his conglomeration days are over. Indeed, what does he think of the mergers of today—ExxonMobil, SBC-Ameritech, and El Paso-Coastal, just to name a few? "Extraordinary," he says. "In my day the Justice Department would be all over them." But aren't conglomerates dead? "No, they're not dead," Ling insists. "Every day there's a form of conglomeration, all these dot-dot companies spinning out more dot-dot companies spinning out yet another. As long as there are values, perceived or imagined, you'll have people trying to cash in on those values." What does he think of those values today? "That end of it, I don't know," he admits. "But I do know that there are values in what we're doing." Only time will tell if he is right.
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