“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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Pickens was wrong and Joe Roby $200 richer. Late Tuesday afternoon, Cities Service announced that its board of directors had unanimously rejected Mesa’s $50 bear hug and recommended that Cities stockholders do likewise to Mesa’s $45 unfriendly tender offer. To underscore the announcement, Cities’ chief executive officer, Charles Waidelich, met, for the only time in this deal, with a selected assemblage of merger reporters in the conference room of Cities’ Park Avenue offices. He stood at a podium at the back of the room and read from a prepared statement. A civil engineer who had spent thirty years rising through the ranks at Cities, he looked tense and uncomfortable; his jaw was clenched, and beads of sweat were forming on his forehead. His voice was a little jumpy, but there was no mistaking the message: “The Cities Service boards of directors is unanimous in its view that the board and not Boone Pickens will make the decision as to whether, when, and upon what terms Cities Service is for sale.”
Having taken his little dig at Pickens, Waidelich then threw a new twist into the plot. The Cities board, he announced, had a new proposal – its own bear hug for Mesa. As Waidelich explained it to the reporters, Cities was offering to pay $21 a share for Mesa stock, contingent on the approval of the board of directors of Mesa Petroleum.
No one from Mesa was allowed into Cities’ offices to attend the press conference, but somehow Richard Cheney, the PR man, managed to get a tape recording of the conference. Fifteen minutes after it was over, Cheney, Pickens, Bea Pickens, and the half-dozen others in the Mesa command post were listening to Waidelich on tape – and truth to tell, they were enjoying every minute of it. The reporters browbeat Waidelich, and he simply lacked the skill to deflect their questions gracefully. No, Waidelich said in response to one question, Cities had never, ever threatened to tender for any potential Mesa partner. “I just told them that I looked at their company and they appeared to be very attractive,” he said.
“That’s the same thing, Mr. Waidelich!” bellowed Robert Cole of the New York Times.
Cheney found that exchange so amusing that he replayed it anytime someone new came into the suite.
At another point on the tape, Waidelich said he hoped Pickens would stay on if Cities bought Mesa – “I think Mr. Pickens could make a contribution” were the exact words he used – but his voice was so lacking in conviction that you could hear several reporters snicker.
Pickens barely had time to listen to Waidelich’s statement before the phones began ringing; reporters wanted his reaction to the latest Cities move. With the tape recorder still playing on the coffee table, Pickens moved to the desk to be closer to the phones. The first call he took was from Robert Cole, a gravel-voiced, overbearing man who had been Waidelich’s chief antagonist at the press conference.
“How do you analyze the offer, Mr. Pickens?” asked Cole.
“Well,” said Pickens, collecting his thoughts as he spoke, “the $21 is not much of an offer, that would be my feeling.”
“How would you feel about staying with Mesa if Cities took it over?”
Pickens paused for a second and then grinned. “I would suppose that if Cities took Mesa over, then Chuck would offer me a job as Southwest Kansas district geologist, based out of Ulysses.”
Cole chuckled and wrote down the line. “Southwest . . . Kansas . . . district . . .”
“Southwest Kansas district geologist, based out of Ulysses,” repeated Pickens. “Did you get that, Bob? You can quote me on that.”
To Pickens the underlying message of the Cities offer was clear. Any illusions he had harbored about the Cities board’s caving in were dashed. It wasn’t going to happen. If he wanted to win this fight, he was going to have to go the route he and his strategists had outlined that night in Joe Flom’s office. First, he would have to get the stockholders of Cities Services to tender as much of their stock to Mesa as possible. Then he would have to round up a new set of partners to help him buy that stock. He already owned 5 per cent of Cities. His banks had lent him $600 million to acquire the 15 per cent for which he had officially tendered. Assuming that his offer attracted over 45 per cent of Cities (an assumption Pickens always made), that meant he still had to find the money to buy another 31 per cent of the stock at $45 a share. That would cost $1.1 billion, which he had to come up with in two weeks. The search for partners was on. Just as he had done 25 years before in Amarillo, the time had come again to begin knocking on doors.
Before rejoining the others, who were still playing and replaying the tape of Waidelich’s press conference, Pickens took a call from another reporter, Tim Metz of the Wall Street Journal.
“Tim,” said Pickens, “did you hear ol’ Waidelich say there would be a job for me if Cities took us over?”
“I wasn’t there, Boone, but I heard about that,” said Metz.
“You know what the job is? He’s going to offer me the position of Southwest district geologist, based in Ulysses.” Metz laughed. “You can quote me on that, Tim.”
“Do you think this offer shows a weakness in their position?” Metz asked.
“I think what it shows is a weakness in their intelligence,” replied Pickens. Metz jotted down that last quote and hung up.
Pickens turned to the others in the room. “That was a tough thing to say, but I guess it’s time to come out swinging.”
“This Is a Sweet Deal”
Friday, June 11, New York
Every day he was in New York, far away from the T. Boone Pickens, Jr., Fitness Center or the YMCA in Houston, where he plays racquetball, Boone Pickens tried to find some time for running. It wasn’t racquetball, but at least it was exercise. He would usually rise at six o’clock, run several miles along the periphery of Central Park, and then return to the suite in time for a working breakfast with Lovejoy, Stillwell, and a few of the other Mesa strategists.
On this Friday morning, breakfast was over and Pickens, Stillwell, Lovejoy, and Gaines Godfrey, were all sitting around the coffee table, chatting about nothing of any great importance. The Journal and the Times were stacked on a corner of the table, and the latest batch of Granny Smith apples was piled high in a bowl.
The others were all stressed in suits, but Pickens has yet to get out of his post-running clothes – a monogrammed white bathrobe and slippers. That casual attire, along with his generally relaxed air, made him seem more like a character on Love Boat than a man in search of $1 billion. But he had been deep into it for three days now. Around nine-thirty the group broke up. Pickens took a shower, got into a business suit, and headed downstairs to the other Waldorf suite Mesa was using, where he was scheduled to meet with a potential partner.
It was while he was attending this meeting that the bad news came over the Dow Jones wire: the Cities Service offer had drawn 45 per cent of Mesa’s stock in a proration pool. In every merger fight, the proration date is a kind of preliminary deadline that gives each side some idea of who is ahead so far. A creation of federal securities law, it comes ten days from the start of the tender offer, and the stock that is tendered in time to make the proration pool gets certain advantages over stock that comes in later. For that reason, Wall Street professionals always tender their stock in the proration pool if they are going to tender at all, and thus on the date the pool closes, a fair indication can be gleaned as to which way Wall Street is playing the deal. Pickens had hoped the number would be a lot lower than it was; some analysts had been telling him that it might be as low as 25 or 30 per cent of the stock. Now he had to face the fact that if Cities raised its offer – and everyone on Wall Street assumed it would; that’s why they had jumped into the pool in the first place – it would surely attract another 5 per cent of Mesa, and maybe a lot more. Cities still had the four-day time advantage; it still had the financial advantage of being able easily to afford to buy the Mesa stock it got. And now there was no doubt that Cities was going to get enough stock to buy Mesa. It was still ahead in this game.
When Pickens returned from the meeting, he hung up his jacket and headed for the phones. He didn’t talk much about the proration number; there was to much else to do. The pace of the deal had picked up over the past few days, and there was a sense of urgency that hadn’t been there a week before. Time that was not spent looking for potential partners was time wasted. There was a much more clearly defined sense of purpose now – and the purpose was to find partners as quickly as possible.
Sitting at the desk opposite Bush, Pickens turned one of the phones around in his direction and went to work. His first call was to Charles Koch of Koch Industries, a huge, privately held company with petroleum interests.
“How would you like to get in the game here?” Pickens asked when Koch came on the line. “This is the Dome-Conoco deal. There is no doubt that we’re going to get over 50 per cent of their stock. The question is paying for it; we need to have a financing for the 31 per cent at $45 a share, which comes out to $1.1 billion.
“There are two ways we can go with this thing,” Pickens continued. “One is we could take one partner. One partner could do this deal for $550 million and margin their position” – that is, use the first $550 million as collateral to borrow an additional $550 million – “for the remainder. Then you would own 30 per cent of Cities’ assets, and you’re buying oil for about $5.50 a barrel. That makes it an extremely attractive situation. The second version goes like this: We could bring in several partners to raise the $550 million. They would buy Mesa preferred stock, we would leverage it, and pay for 50 per cent of Cities. We would give the preferred a good dividend until it was redeemed, give you an agreed-upon discount of Cities reserves on the order of $5 or $6 a barrel.”
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