“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.
(Page 7 of 12)
Lovejoy emerged a few moments later with his report. “Barry Allardice at Morgan Stanley says this was the perfect play for us, the best move we could have made right now. All the arbs think we’ll get over 50 per cent of their stock.” The problem, Lovejoy continued, was that although the arbs might admire Mesa’s move, they still saw Cities as being out in front. The reason was the time difference: the expiration date on the Cities tender offer for Mesa was Monday, June 28; for the Mesa tender offer for Cities, it was Friday, July 2. Thus even if each side were to get 51 per cent of the other’s stock, Cities would be in front because it could take over Mesa four days before Mesa could take it over. Although Mesa had finally launched its tender offer, it still had one more mountain to climb. It now had to find a way to eliminate Cities’ time advantage; otherwise everything it had done up to this point would be for naught. For the people in the suite, that was the new priority.
The suite was filling up now, as it typically did late in the morning. The earliest arrivals were Lovejoy and Bush, who had breakfast with Pickens. Lovejoy had been up all night Sunday overseeing the preparation of the offering documents. But he still looked fresh and alert, and when he came in for breakfast he brought a bag of Granny Smith apples, which Pickens loves. Bush was now sitting at the desk, handling a blitz of phone calls coming in on the two phones there. Stillwell, who had just awakened, was sipping coffee at the table. Bea Pickens made her first appearance of the day before heading off for lunch with a friend; she had flown in from Texas over the weekend. Sitting on the sofa was a rumpled man named Richard Cheney. He was another charter member of Wall Street’s merger industry, vice chairman of the public relations firm of Hill and Knowlton who specialized in “takeover and proxy fight PR” and had recently been brought into the deal by Pickens. Others on the Mesa team also wandered in and out of the room during the morning: Gaines Godfrey and his people, who were working out of a second suite in the Waldorf, and various and sundry lawyers who were working under Lovejoy and Stillwell.
Although objectively nothing of significance as happening, you could sense that the people in the suite were getting wound up. The doorbell rang frequently; most of the time it was the bellhop delivering envelopes for Pickens. Some of them contained telegrams of support from friends; others, wire service clips compiled by Hill and Knowlton; and still others, résumés from job seekers. The people in the suite paced around the room, changed seats, talked in small snippets of conversation, and, most of all, talked on the telephone. In the three weeks Pickens spent in New York, the ringing of the telephone was the sound he heard most often, and in some ways it was the most reassuring. The constant phone calls – from reporters, from Wall Street investment bankers passing along rumors, from stockholders, from his own office – gave Pickens, and everyone else in the room, the sense that suite 39-F was at the very center of the universe. During the time Pickens was there, Menachem Begin arrived New York to address the United Nations and stayed in the Waldorf Towers. Also, 500,000 people from all over the country demonstrated in New York’s Central Park against nuclear power. Pickens, completely absorbed by his own deal, scarcely noticed either event.
Around three o’clock, just after a speak phone had been delivered to the suite, courtesy of Lovejoy, Pickens got a call from one of Mesa’s investment bankers. Somebody turned on the speaker so everyone could listen.
“Oxy (Occidental Petroleum Company, the nation’s twelfth-largest oil company] had a meeting with analysts today,” the man reported. “There were about two hundred people there and the only thing they wanted to talk about was Mesa-Cities. There was a lot of enthusiasm. A couple of people said that our tender really put the pressure on Cities to raise the price of their offer.” (At $17, Cities’ offer was now nearly $2 below Mesa’s market price.)
Now he turned to more serious business. “I talked to Bob Abboud. [A. Robert Abboud is the president of Occidental Petroleum.] He said, ‘All of us would like to be involved, but the Doctor’” – meaning Dr. Armand Hammer, Occidenetal’s octogenarian chairman – “‘is worried about an unfriendly deal.’ The way to do this is to get Flom to talk to the Doctor. You have to have the Doctor understand how this is different from an unfriendly deal if 51 per cent of their stock is tendered to us. [What this meant was that if a majority of the stockholders favored the transaction, the deal would not necessarily be considered unfriendly.] Flom has a long-standing relationship with the Doctor, so he’s the one to do it. Anyway, Boone, I think there’s a live interest here.”
“Great,” said Pickens. “I think this deal will be easy to sell if you’ve got 51 per cent in your pocket.”
“Right. But we still need to get Flom to sprinkle his holy water on it. And also, Boone, Abboud said if you’re in a defensive mode and you need a white knight, they respect you and would be interested in being your white knight.”
To this last remark, Pickens made no reply.
Pickens had planned a late-afternoon strategy session, and by five o’clock all the key strategies except Flom – who had a dinner engagement elsewhere – had assembled in the suite. Cities stock had closed at 36 1/4 , down 1 ¾ from the opening price. The trading volume in Cities had been extraordinarily light for a company that had just been hit with a tender offer 25 per cent above its market price.
Pickens slumped into one of the oversized chairs. He looked tired and discouraged. “Except for the papers this morning,” he muttered, “this has been a zero day.”
Everyone sat down around the coffee table. “I don’t know what to say,” Pickens said. “I thought we would be getting our presentation ready for the Cities board at this point.”
Before he could go on, he was interrupted by a hone call. It was from a large Cities Service stockholder. Because of his holding, he could get through to some Cities directors, but he was unhappy with Cities’ management, and for that reason, every time he had a conversation with someone at Cities, he immediately leaked what he had been told to Pickens. He as one of Pickens’ main sources of intelligence in the deal; no doubt Cities had sources doing the same for it.
“He says he talked to Waidelich,” said Pickens after hanging up the phone. “He said, ‘I’ve got an awful lot of stock and I’m worried. What are you going to do at the meeting tomorrow?’ Waidelich told him to hold on to his stock, because there would be no surprises at the board meeting. He complimented Chuck, said he was absolutely cool and rational. There wasn’t any panic in his voice at all.”
“You know,” said Lovejoy, “they could delay this thing for a month. They could say it’s too complicated, it needs further study. That would be the smartest thing they could do.”
The phone rang again, and Pickens walked over to the desk to take the call. Two of his own employees were calling in from Tulsa. On Pickens’ instructions, they had gone there to see what they could glean from hanging around Cities’ hometown. Pickens turned on the speaker.
“How did you do?” he asked.
“Well, we got into the Cities building today,” one of them replied. “We applied for jobs. They wouldn’t take our applications, Mr. Pickens.”
Everyone chuckled at that.
“We had lunch in the Cities cafeteria. Boy, people sure are taking your name in vain around here.”
“So if we get a house in Tulsa, you would advise that we get one with a big fence?” said Pickens.
“That’s about right, Mr. Pickens.”
While Pickens was taking a third call, Hamilton James, of Donaldson, Lufkin & Jenrette, the 31-year-old investment banker for whom these weeks in the Pickens suite had meant working on the biggest deal of his life, proposed to the others a new idea that he thought might finally turn the tide in Mesa’s favor. If they agreed with him, this would be a major strategic contribution to the deal. He leaned forward and blurted out his idea.
“We need to get the date of their tender offer extended past ours,” he said. On this point, everyone was agreed: as long as Cities had that four-day time difference, it was still in the driver’s seat. “We have to get in a position where we can buy their stock first. That puts the monkey on their backs instead of ours.”
The way to accomplish this, James thought, was to find someone friendly to Mesa to make a competing tender offer, ten days must be added to the timetable of the first tender offer. The loophole that James saw in the law was that there was nothing in the rules that said how much stock the tender offer had to be for. Thus James’ scenario would work like this: someone would make a competing tender offer, but for only 10 per cent of Mesa’s stock. That would force Cities to wait an additional ten business days before it could begin to buy any Mesa stock. In the meantime, Mesa would put together its deal to buy a controlling interest in Cities. When July 2 rolled around, it would buy the Cities stock . . . and Cities would then become a subsidiary of Mesa Petroleum. Naturally, the new parent company would put a quick end to Cities’ tender offer for it.
“It has to be a real tender offer,” said Lovejoy. “They would have to come in because they thought it would be a good investment. Boone couldn’t promise anything because then it would be a self-tender and the other side would go to court and say it didn’t count.”
But that was a minor quibble; the Mesa strategists, including Pickens (who had returned to the sofa), all thought that James was onto something.
“Ten per cent of Mesa wouldn’t be much,” said Pickens. “About $140 million.”
“I think you should figure a bit higher than that,” answered Lovejoy. “More like $150 million to $170 million.”
Clearly they would move ahead with James’ plan. But it seemed somehow not to interest Pickens fully. “You know,” he said, “I still don’t think that board is going to turn us down tomorrow.”
Ulysses, Kansas
Tuesday, June 8, New York
My Library
