“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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Suddenly Pickens had lost a partner that had been expected to contribute $500 million to the deal. No lead partner meant no bankers and thus no money to make a tender offer. Last summer, after Cities had chased away Freeport-McMoran and Louisiana Land & Exploration, Pickens had been able to get the deal cranked up again at his own pace. Now he didn’t have that luxury. That morning the Cities offer had begun; the twenty-day clock was running. Although the Cities offer, at $17 a share, was very low (Mesa’s stock had risen higher than that on the stock exchange that day), there was no doubt that a lot of Wall Street professionals holding Mesa stock would tender it to Cities, on the assumption that Cities would eventually raise the offer. That’s the way Wall Street plays these deals. Under the timetable of the offer, Cities would be able to buy the Mesa stock tendered to it at 12:01 a.m. on June 28. On that date, if enough stock had been tendered, Cities would own Mesa Petroleum – unless Boone Pickens could pull a rabbit out of his hat.
The Home Folks
Wednesday, April 28, Amarillo
For the past three years, the Mesa Petroleum Company has held its annual meeting in late April in the gymnasium of the T. Boone Pickens, Jr., Fitness Center. The center is one of Pickens’ favorite things; he is a health buff, and he built it because he wanted everyone at Mesa to be as healthy as he is. Located on the third floor of the parking garage adjacent to Mesa’s modern headquarters in downtown Amarillo, the center has, besides the gym, a weight room, a jogging track, four racquetball courts (racquetball is Pickens’ favorite sport), carpeted locker rooms, and a small staff in charge of ministering to the health needs of Mesa employees and their families. It is a great fringe benefit, and to show their appreciation, Mesa employees commissioned a bronzed, life-size sculpture of their boss, which stands at the entrance to the fitness center. It depicts a muscular Pickens, racket in hand, crouched in position to smash a backhand.
At promptly 9:45 a.m. on the day of this year’s annual meeting, the creator of the T. Boone Pickens, Jr., fitness Center walked past his statue on his way to the gym. He ambled down the hall with his hand stuffed in his pants pockets, but his eyes were alert and focused straight ahead, and his head was cocked in the direction of an aide who was whispering something to him. Pickens usually has an aide or two hovering nearby; that comes with the territory. For he is not only an oilman but also a member of that small and particular breed of American businessman, the chief executive officer. The schedule of everyone else at Mesa revolves around Pickens, and indeed his stamp is everywhere evident. Pickens dislikes large corporate bureaucracies, so Mesa gets by with only nine hundred employees. Pickens disapproves of interoffice romances, even when the two people are unmarried, so they almost never take place. Pickens hates smoking – he once fired the band at the company’s Christmas party because the bandleader refused to stop smoking – so it is rare to see a lighted cigarette in the Mesa building. As a chief executive officer, Pickens makes a lot of money ($892,129 in 1981), has homes in Palm Springs, Houston, and Amarillo and a ranch near Pampa, and lives a life relatively free of the little daily annoyances that the rest of us face. Perhaps in return, his life is an endless series of phone calls and meetings. This morning was no exception.
As Pickens made his way toward the gym, he stopped periodically to greet some of his local stockholders, many of whom were waiting n the corridor for a chance to say hello. This was a task Pickens handled with the skill and grace of a diplomat at an embassy reception, never lingering too long with one cluster of people but never giving anyone that brushed-off feeling either. As pleased as the stockholders were to see him, Pickens seemed equally pleased that so many of them had taken the time to come to his annual meeting. The decision to buy a stock is always to some degree an act of faith. In some fundamental way, Pickens is grateful to all the people who have shown enough faith in him to invest in Mesa – and he feels doubly grateful to the several hundred people in Amarillo who threw in their lot with him long before Wall Street had ever heard of T. Boone Pickens. Even now, he can usually remember how much stock they originally bought and how much that investment has appreciated. Mesa’s Amarillo stockholders are no longer very important to the survival and growth of the company, but Pickens still treats them as though they were.
When Pickens finally reached the entrance to the gymnasium, he took a quick glance at his watch. It was 9:55. “Ol’ Allan Cecil says that his meeting should last about forty-five minutes,” he mumbled, referring to Mesa’s chief public relations man. By ten o’clock Pickens, visibly anxious to begin, was standing at a podium that had been set up at the back of the gym. “Let’s get started here on time,” he said. Everybody sat down.
When Boone Pickens first started out, he couldn’t have foreseen that someday he would be chairing the annual meeting of a major exploration and production company. All he knew was that he wanted to break into the oil business and made some money at it. The year was 1955, and Pickens was 27 years old, just four years out of Oklahoma State University’s geology program. His father, though trained as a lawyer, had spent most of his adult life in the oil business. In 1944 he moved his wife and only son from Holdenville, Oklahoma, to Amarillo because he had taken a job as a landman for Phillips Petroleum.
By the time he graduated from college, Pickens had a wife and child to support, so when Phillips offered him a job as a geologist he took it. For four years he worked for Phillips, and although he was learning his trade, he was never content there, as his father had been. One day, during one of his increasingly frequent harangues directed at the incompetence of his supervisor, a Phillips district geologist, his wife, Lynn, said, “If you don’t like working for Phillips, why don’t you quit?”
She hadn’t meant it to be a serious remark, but the light bulb immediately switched on in Pickens’ head – and two days later he was either self-employed or unemployed, depending on which way you looked at it. He had $1300 in a Phillips thrift plan and, by then, two children.
With most of his savings Pickens bought a sturdy station wagon, which was probably the smartest investment a young man trying to get into the oil business could make; to get work, he had to spend most of his time on the road. Pickens would hear of a hot oil play in, say, Oklahoma, and off he would go to get whatever piece of the action he could find. He would do geological work. Or he would try to do small deals. Or he would do some well completion work. Sometimes he did all of those things at once. “I remember being up in Canadian, Texas, sitting on a well, and spending my time in a telephone booth trying to do some other deal,” he says. “It’s a hundred and ten degrees outside, and I’m about to get blown away in a windstorm, and all I can think about is that well ten miles away that I should be catching samples from.” You could make a living like this, but it was a scramble.
Within a year Pickens had gained a reputation as being both honest and talented. One of the men who was impressed with him was his wife’s uncle, a wealthy Amarillo businessman named John G. O’Brien. Together with another well-to-do Amarilloan, Eugene McCartt, the owner of a small grocery chain, O’Brien proposed to Pickens that they form a small oil company. This was exactly the break Pickens had been hoping for, and by September 1956 his first company, Petroleum Exploration, Inc. (PEI), had been formed.
Now he needed people who would invest in PEI, so he began knocking on the doors of businessmen in and around Amarillo who were known to do small-time drilling deals. He and a small staff put together one investor group after another, each with its own multiwell drilling program. As each group succeeded in avoiding too many dry holes, more people lined up to get into one of his investor groups. In 1959 Pickens took $35,000 and headed for Canada for the first time; good, cheap acreage was to be had there, and he formed a second company, called Altair, to get in on the play.
By 1964 both PEI and Altair had outgrown their original purpose. From 6 employees in 1956, the companies now had 26, and the drilling groups had multiplied to the point where three hundred outside investors owned four thousand separate properties in which the companies had an interest. Keeping track of their dealings had become impossibly complicated. To Pickens the obvious solution was to end the drilling groups and take the companies public. Looking back, it is obvious that going public was the right call; one man who put $80,000 in several PEI drilling groups says that today his investment is worth about $1.5 million. And John O’Brien’s original investment in 1956 has probably made him in the vicinity of $5 million. But it wasn’t so obvious then, particularly because investors who traded their interest for stock would lose the tax breaks that came with doing individual drilling deals. To persuade his investors to swap their drilling interests for stock, Pickens once again had to knock on doors. By May 1964 he had 239 investors signed up. That month PEI went out of business, replaced by a newly formed public company, Mesa Petroleum, and Altair became a wholly owned subsidiary of Mesa. Mesa issued 420,052 shares of stock to its new stockholders.
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