Mesa Petroleum Co. escalated its unusual takeover battle with Cities Service Co. yesterday by offering $45 a share for 15 percent of Citgo's stock.
The bid does not preclude a $50-a-share offer Mesa made last week to Cities Service's board for all of the company's stock. "Our proposal is still open, and we hope that the board of directors of Cities Service will accept it," Mesa Chairman T. Boone Pickens Jr. said.
Cities Service's board is expected to meet this week to mull the $50-a-share bid, which already has been rejected by the company's management. The Tulsa, Okla.-based company had no comment on Mesa's latest offer.
That offer, which does not require action by Citgo's board, further complicates Cities Service's own attempts to win control of Mesa through a $17-a-share bid for 51 percent of Mesa's 74 million shares.
Mesa's board, calling Citgo's offer "inadequate," voted unanimously yesterday to reject it.
Mesa Petroleum stock closed at 18 3/4 on the New York Stock Exchange yesterday, up 1/8. Cities Service stock fell 2 1/8 to 36.
With its new offer, Mesa apparently is trying to take its case directly to Cities Service's shareholders. If the bid for 15 percent of the stock draws a significantly higher percentage of Citgo's shares, the Cities Service board might be persuaded to accept the more valuable offer for all of the company's stock. Mesa also could be hoping to buy time until it lines up financing to mount a larger offer for Cities Service.
Pickens described his company's new offer for Cities Service as "unfriendly," and would not rule out the possibility that Mesa eventually might seek more stock under the $45-a-share bid.
"We're committed to buy any and all shares up to 15 percent, but we specifically reserve the right to buy more if financing can be arranged," Pickens said in a statement issued from Mesa's headquarters in Amarillo, Tex.
The purchase of the 12.1 million Citgo shares Mesa wants under the offer would cost the company about $544.5 million. Cities Service has about 77.9 million shares outstanding.
Mesa has been stalking Cities Service for nearly two years, amassing a holding of about 5 percent of the bigger company's stock in the process.
Measured by revenues, Cities Service is more than 20 times larger than Mesa, although Mesa has been more profitable lately. To bolster its stance as David against Cities Service's Goliath, Mesa reportedly has been seeking partners to help finance the takeover bid. Several medium-sized oil companies, an investment company, and even giant Texaco Inc. have been rumored to be interested in joining Mesa's bid for Citgo. The bid for all of Cities Service would cost Mesa nearly $4 billion.
Pickens reiterated Mesa's opposition to Cities Service's bid, which is worth about $629 million. If successful in its offer for slightly more than half of Mesa's shares, Cities Service is expected to make some sort of bid for the remaining Mesa stock. Cities Service has $1.7 billion in credit available for the purchase.
After it made its offer last week, Cities Service filed suit to halt what it called Mesa's bad-faith takeover efforts. Citgo accused Pickens and Mesa of issuing statements "calculated to mislead the investing public into believing that Mesa is committed to launching a formal tender offer for Cities Service stock." The suit charged that Pickens and Mesa fraudently tried to persuade investors "that it is feasible or practical for Mesa to acquire the [95 percent] of Cities Service stock which Mesa doesn't already own."
Mesa countersued, accusing Cities Service of malice and deception in attempts to prevent the merger.
Although the two companies are in the unusual position of bidding for each other, the various deadlines in the offers could allow Cities Service to take over Mesa before Mesa can acquire Cities Service.