Occidental Petroleum Corp. has failed to make adequate and accurate disclosures in its proposed $1 billion proposed tender offer for the Mead Corp., a hearing officer for the Ohio Division of Securities concluded yesterday.
The Ohio decision in the hotly contested battle - the largest hostile tender offer ever attempted - was handed down on Mead's home ground and was scathing and sweeping in its indictment of Occidental's worldwide business operations.
"The record is fraught with examples of senior management making plans and disregarding them; recognizing risks but failing to plan for them; or spotlighting a project, then abandoning it," said the hearing officer. "Occidental's disclosure reflect its attempt to round off the jagged edges of its capricious actions."
Nodine Miller, the hearing officer, also observed that Occidental's global operations are riddled with risks," but then immediately added that "the 20th Century globe is riddled with risks."
Occidental said it, still was studying the 81-page document and hadn't decided what further steps to take.
Observers on Wall Street said they could not recall a similar decision ever being handed down by a state securities division in the many takeover cases that have been reviewed under state statutes.
"The question is whether or not the objections of the examiner could actually be satisfied by further disclosures," said Richard Rosenthal, head of the arbitrage department at Salomon Brothers. "It's a little like the old question. 'Have you stopped beating your wife?'"
Mead stock dropped 1 1/4 points to 30 3/4 as a result of the decision. But in later trading on the Pacific Stock Exchange Mead gained 1 1/4 to clase at 31 for the day.
In any case, Occidental was expected to continue to pursue the takeover, particularly because Mead has personalized the situation by levelling its ammunition directly to Oxy Chairman Armand Hammer in a full-page and several weeks ago.
"I can't imagine them dropping this," said one arbitrageur. "They have nothing to lose by going forward."
Meanwhile, sources indicated that the Justice Department is preparing to enter the fray within the next few days with a request for further information from Occidental on the takeover bid.
The Securities and Exchange Commission also is examining Occidental's offering prospectus for the proposal and must clear the prospectus for the offer to go forward.
SEC clearnace is farm more important than Ohio Securities division decision because recent court rulings have challenged the constitutionality of all such state takeover proceedings.
However, the Ohio ruling does say that Occidental misled shareholders by inadequately disclosing:
The events that led up to the offer.
the terms of the offerings.
The existence of litigation that allegedly could cost the company $250 million.
The risks involved in its foreign petroleum operations and the actual crude sales of its Libyan operation.
The existence of $25 million in Peruvian banks to allegedly help the country's ailing economy.
The environmental difficulties attendant with its in situ share oil conversion project.
The unceratin impact of long-term fertilizer contracts with the Russians for its Hooker Chemical Co. subsidiary.
Also with respect to Hooker, the hearing officer said the division "is staring down the barrel of a gun loaded with unknown toxicological and environmental liablities from the production of high-profit chemicals, high costs of production, shrinking markets, faded technology and obsolete facilities."
After the decision also observed that, "When backed into a financial corner, Occidental over the year has undertaken a variety of distasteful and questionable business solutions which have both adversely affected the company and generated costly litigation."
Both statements were labeled "findings of fact."