As directors of Conoco Inc. met to consider a $2.55 billion takeover bid by Joseph E. Seagram & Sons, Conoco's potential rescuers, the so-called "white knights" became the focus of speculation aimed at cashing in on any merger with the oil giant.
"I think merger fever is becoming a national pastime," said Robert Levine, an oil analyst with E.F. Hutton in New York. "From an investment standpoint, I'll be happy when the baseball strike is over so we can go back to that."
Even Diamond Shamrock Inc., a relatively small Dallas-based oil company, felt compelled to state before the opening of trading yesterday morning that it was not involved in merger talks. After shooting up 2 3/8 Friday to 44 7/8, the company's stock closed down 2 5/8 yesterday. Pennzoil Co., even smaller than Diamond Shamrock, saw its stock go up 2 3/8 Friday to close at 44 7/8.
Investment analysts say the activity in these smaller oil stocks results from a perceived narrowing of Conoco's alternatives to the Seagram bid after the breakdown of Conoco's merger negotiations with Cities Service Co. last Thursday. "I feel for them," Levine said yesterday of Conoco's management. "They've got a tough problem on their hands, and not too many options."
Analysts said one option that probably will not stave off the new Canadian attack is for the directors to advise shareholders not to accept Seagram's tender offer. "Shareholders are looking at a share price of $73 for a stock that was selling at $60 a few weeks ago," Jack N. Aydin, a New York analyst with McDonald & Co., said yesterday. "I don't know what Conoco can do."
The last takeover bid that Conoco fought with such a negative recommendation was a 22 million-share tender offer by Dome Petroleum Ltd. of Calgary. The offer attracted a rush of shareholders, and Conoco recouped the shares only in return for its Canadian oil and gas properties and $245 million in cash.
Seagram, a Canadian firm and the world's largest producer and marketer of distilled spirits, offered last Thursday to buy 35 million shares of Conoco, or 41 percent of outstanding common, at $73 a share. Seagram's percentage of the total outstanding would be smaller if Conoco agrees to sell to Seagram up to 15 million shares of its treasury stock, which is authorized by shareholders but not now in circulation.
Conoco could also attempt a merger -- much as it did with Cities Service last week -- in an attempt to become too big to swallow. With the negotiations between Conoco, the ninth-largest oil company, and 19th-ranked Cities billed as "a merger of equals," investors apparently turned their speculation to even smaller companies as well.
But other market watchers put little stock in such rumblings. Robert Morris of the New York securities firm Drexel Burnham Lambert was skeptical yesterday that Conoco could arrange a merger that could buoy its share price anywhere close to Seagram's $73 challenge.