Joseph E. Seagram & Sons Inc., which is engaged in a bitter takeover fight for Conoco Inc., filed suit today in federal court charging Conoco Chairman Ralph E. Bailey and Conoco's directors with violating securities laws in an attempt to thwart Seagram's bid.
Conoco had gone to court on Tuesday to try to stop Seagram's offer to buy $2.55 billion of Conoco's stock at $73 a share, and sought $1 billion in damages from Seagram, accusing the Canadian company of reneging on an agreement not to make a bid for the Connecticut oil company and wrecking a tentative merger agreement between Conoco and Cities Service Co.
Today's suit is a counterclaim to the Conoco filing.
Seagram, which last spring failed in a bid to take over St. Joe Minerals Corp., has offered to buy 41 percent of the nation's ninth-biggest oil company. Two weeks ago it was rebuffed by Conoco's board when it sought to buy on a "friendly" basis 25 percent of the company. Last week Seagram said it would buy at least 25 percent of Conoco on the open market, then switched tactics to a tender offer -- a direct bid to Conoco shareholders to sell Seagram their shares.
In a letter to stockholders earlier this week, Bailey urged them to hold on to their Conoco shares because the $73 price offered by Seagram was too low compared with the "intrinsic value" of the company's stock. Conoco not only is one of the nation's major oil companies, it also has extensive coal holdings.
Dome Petroleum, a Calgary oil company, successfully bought 20 percent of Conoco's stock, then forced Conoco to swap its Canadian oil properties for the stock. The Canadian government has been encouraging "Canadianization" of the country's oil and gas properties, a policy that is angering many U.S. companies. Canada also has been decidedly cooler to new foreign investments at a time when Canadian companies, like Seagram, have been making highly publicized takeover bids in the United States.
Seagram charged in its suit that Conoco directors just authorized long-term contracts for Conoco's nine top officers in order to "entrench" management in the face of the Seagram bid. Seagram said the contracts do not provide Bailey and the others "security" because they become operative only if "Conoco common stock is no longer listed on the New York Stock Exchange or if 20 percent of the common stock is acquired by another corporation or group of persons acting in concert."
Seagram also accused Conoco directors of threatening to dismember the company to thwart a takeover, an avenue the suit says ia a "classic 'scorched earth' program [designed] to preclude Conoco's stockholders from having an opportunity to assess the Seagram offer meaningfully." Seagram also accused Conoco of bad-faith negotiations with Seagram.
Seagram asked the court to prevent the directors from dismembering Conoco.
A spokesman for Conoco said the company had not seen the suit and could not reply.
Seagram, the U.S. subsidiary of Seagram Co. Ltd., is a major distiller and seller of wines. In its Conoco bid, the company is using the $2.3 billion it received last year when it sold U.S. oil and gas properties to Sun Oil Co.