Even at current, escalated stock prices, Conoco Inc. remains a bargain, Edward G. Jefferson, chairman of E.I. duPont de Nemours & Co. said today, indicating that Du Pont has not reached its limit in the billion-dollar bidding for Conoco.
Du Pont set its latest offer Tuesday at $95 a share for 40 percent of Conoco's common stock, putting some daylight between its bid and the competing offer of $85 per share for 51 percent of Conoco's stock by the Seagram Co. of Canada. Du Pont also has offered to exchange its stock for the remainder of Conoco's stock, and Conoco's directors have accepted the proposal, which now awaits antitrust clearance by the Justice Department and the approval of Du Pont's shareholders.
Both cash offers represent tremendous inflation in value of Conoco's stock, which was selling for less than $50 a share on the New York Stock Exchange this spring.
Jefferson would not say how high Du Pont was prepared to go it Seagram raises its offer or if Mobil Corp., Texaco or several other oil firms follow through on their apparent preparations to get into the contest.
"If I knew where the bidding might go it would be, ah, helpful," said Jefferson, pausing a moment to choose the right word. "But I really don't know," he added in an interview at Du Pont's Wilmington headquarters.
But he referred to an independent estimate that places the value of Conoco's oil, natural gas and coal reserves and other assets at more than $138 a share -- an analysis by the Greenwich, Conn., research firm, J.S. Herold Inc. -- saying that Conoco remains undervalued even at today's prices in his opinion. Du Pont's bid for Conoco represents a chance to "acquire natural assets in the ground at a substantial discount.
"To what extent this process will see bidding go higher I really don't know. I think we have made an excellent, balanced offer, and we'll see what the future brings . . . . The things that may come up in terms of offers from others are really unpredictable. You kind of live from day to day on that.
"I think our determination here was somewhat underlined by out speed of response this week," Jefferson said, noting that Seagram's revised offer of $85 per share was announced Sunday afternoon, and by Tuesday he had prepared a counteroffer and had it approved by Du Pont's finance and executive committees and the board of directors.
"A lot of people have expressed surprise to me that we were able to move as quickly as we did," said Jefferson. "I'm pretty pleased with the organization. I think it has been a pretty nimble one."
Jefferson, an English-born chemist who became chairman and chief executive of Du Pont on May 1, took pains to protest that Du Pont is not as slow-footed, timid or tradition-bound as some financial analysts seem to think.
"I would ask you, is a company that has an R&D budget of $570 million this year and that has introduced 80 major new products over the last 20 years, relly conservative?" Jefferson said.
Although the core of Du Pont's revenues still come from its traditional business in synthetic fibers, plastics and chemicals, it is investing heavily in molecular genetic technology to produce new plant strains and pharmaceuticals and other high-risk areas.
"It isn't so obvious that the risks are there and the people engaged in this are real entrepreneurs. But they are," said Jefferson.
On other aspects of the Conoco competition, Jefferson said that:
Du Pont has not considered whether it would sell parts of Conoco -- such as its coal holdings -- if the merger is successful. "We haven't crossed that bridge," he said.
Du Pont's current offer would be financed through a $4 billion line of credit, which if fully used would increase Du Pont's annual interest charges by more than $600 million, and a sale of some Conoco assets would be one means for reducing that debt burden.
Jefferson said, however, that he is "not uncomfortable" with the prospective increase in indebtedness, explaining: "The debt-equity ratio of the combined company would be in the 38 percent range, which is not remarkable at all in terms of the debt of industrial firms."
He is not surprised or disheartened by the drop in Du Pont stock following the bid to acquire Conoco, noting that is customary in such acquisitions. Asked whether Du Pont's stock might drop to a point that made the merger too costly for Du Pont, Jefferson didn't respond directly.
Instead, he expressed the hope that Du Pont shareholders and market analysts would come to see the merger as beneficial to the giant chemical firm and that would check downward pressure on its stock.
"One of the reasons [for the initial drop in Du Pont stock] was the misperception that this would involve a dilution in earnings per share. That company's prospectus status that Du Pont's unaudited earnings after the first quarter of this year were $1.29 per share. The first-quarter earnings for a combined Du Pont and Conoco, assuming the merger had been effective then, would have been slightly higher, $1.32 a share, according to Du Pont's analysis.