In what may be the largest hostile tender offer ever attempted, Occidental Petroleum Corp. announced yesterday it intends to pursue efforts to acquire the Mead Corp., an Ohio-based paper products company through an exchange of common stock for preferred shares that Wall Street values at nearly $1 billion.
Mead's directors last Friday unanimously rejected an informal takeover approach from Occidental, raised the quarterly dividend to its shareholders by more then 40 percent to help fend off the bid, and filed suit against Occidental in federal court in Dayton.
The suit charged that Occidental's top officers tried to deceive and intimidate Mead's officers into endorsing "an inadequate and illegal offer" and also charged that Occidental had manipulated trading in Mead shares "in an attempt to precondition Mead shareholders and the marketplace" to help the takeover succeed.
Occidental filed a counter-suit yesterday, seeking to force Mead to "disclose material facts" that it claimed would correct allegedly "misleading" statements that were made in rejecting the offer.
The Los Angeles-based oil and resources firm, with sales last year of $6 billion, also charged that the action by the Mead board in raising the quarterly dividend to 40 cents from 28 cents was "a fraudulent, deceptive and manupulative act" that was taken to thwart the proposed offer.
Occidental originally approached Mead's management 10 days ago with an offervirtally identical with the one filed yesterday with the Securities and Exchanged Commission - but said at the time that "while we believe our offer is entirely fair, we would carefully consider the views of your board and its advisers." That was interpreted to mean that Occidental was willing to negotiate a potentially higher purchase price.
After the flat turndown from Mead management and directors, Occidental went ahead with the original terms, which could mean less for Mead shareholders.
"It's a bluffing game right now," commented Bruce Lazier, a petroleum analyst with Paine Webber Mitchell Hutchins. "Occidental is saying we'd rather do it friendly, but if you insist, we won't."
Lazier said the offer - which is estimated to be worth almost $35 for each Mead share (they had been trading at only $22 two weeks ago) - would probably not be topped by another bidder. "There's probably no other company going to pay this money," he said.
Occidental, in its SEC filing, said it would offer to acquire any and all of the outstanding common shares of Mead and the voting cumulative preferred shares for newly issued Occidental $10 cumulative preferred stock and a $7.50 cumulative convertible preference stock.
The terms are 0.28 share of the $10 preferred and 0.07 of the $7.50 convertible for each Mead common share, and 0.731 of a share of the preferred and 0.183 of the convertible preferred for each Mead cumulative preferred share.
The value of the exchange is estimated at about $950 million. Occidental said it also would file required documents with the Ohio secruties office. The offer, the company sais, would commence promptly after its offering prospectus is cleared by the SEC.
Mead seemed to be leaning primarily on a legal strategy for its defense, though there was also speculation that the paper company might be seeking an alternative merger partner through its investment bankers.
In its lawsuit, Mead charged that the market price of its shares jumped sharply on Aug. 9 because Occidental leaked to the market that Mead was to be the target of a takeover attempt. The stock jumped 4 -3/4 points to 27 -3/8 on the New York Stock Exchange.
Occidental officials, according to the suit, had earlier asked for an Aug. 10 meeting with Mead officers but gave no indication as to its purpose.
On the evening of Aug. 10, the Mead suit claimed, Occidental Petroleum's President Joseph Baird and Chairman Armand Hammer met Mead officials and attempted to deceive them by stating that Mead was to be the target of a soon-to-be-announced take-over attempt by an unnamed company. They suggested that Mead could avoid the takeover by agreeing to merge with Occidental, the suit charged.
The suit also claimed that the Occidental officials tried to get Mead Chairman James McSwiney and President Warren Batts to abdicate their fiduciary responsibilities to the company's shareholders by suggesting to the Mead officers they would get stock options and positions on Occidental's board if they agreed to the merger.
The legal charge and countercharge are not unusual in a tender battle where one company tries to acquire the shares of another company, whose management resists.
It is highly unusual, however, for Occidental to pursue a hostile course in attempting an acquisition. Observers say Occidental has tried only one hostile tender offer in the 22 years since Armand Hammer has been head of the company and that one failed. In June Occidental dropped a $525 million bid to acquire Husky Oil Ltd., of Canada, citing open market purchases of Husky stock by another Canadian company and Canadian nationalism as reasons. However, Husky management and Occidental officers had come to terms on the offer before it was made.