Gulf Oil Corp., in what would be the third largest corporate merger in U.S. history, offered $4.9 billion yesterday for Cities Service Co. The offer was immediately accepted by Cities Service.
The $63-a-share offer came minutes after Mesa Petroleum Co. announced that its own $45-a-share bid for Citgo had attracted 43 percent of the company's stock.
At the same time, Cities Service said it would let stand its own offer to purchase Mesa. Last week, Citgo said 41 percent of Mesa's stock had been tendered to it under the $17-a-share offer. Citgo has since made another offer of $21 a share for Mesa.
Mesa had no comment on the Gulf offer, and Gulf and Cities Service officials would not comment beyond a terse statement announcing the merger plans.
The combination of Gulf, the nation's sixth-largest oil company, and Citgo, ranked 17th, would create a concern that would rank fifth among American oil companies and seventh among all industrial corporations, based on sales.
The proposed $4.9 billion merger is exceeded only by E.I. du Pont de Nemours & Co. Inc.'s $7.5 billion purchase of Conoco Inc. and United States Steel Corp.'s $6.5 billion takeover of Marathon Oil Co., both of which occurred last year.
Under the proposal, Gulf will offer $63 cash per share for 51 percent of Citgo's 77.9 million outstanding common shares. The company then plans to exchange securities worth $63 a share for the remaining Citgo stock. The proposal is subject to approval by stockholders of both corporations.
The Justice Department said yesterday it and the Federal Trade Commission had agreed the proposed merger would come under FTC jurisdiction. Both agencies handle antitrust investigations, and the FTC frequently examines oil company questions in that field because of the knowledge it has accumulated in past investigations of the industry.
Gulf's offer apparently rescues Cities Service from Mesa Petroleum, which has been locked with Citgo in a tangled takeover battle for the past two-and-a-half weeks.
Mesa, which has been stalking Cities Service for nearly two years and already owns 5 percent of the company, first approached Cities Service with an offer of $50 a share. When rebuffed by Cities Service's board, Mesa made a public offer of $45 a share for 15 percent of Citgo's stock while it scrambled to line up financing to increase the amount of stock it sought.
Yesterday, Mesa said Cities Service stockholders had tendered, or promised, 43 percent of Citgo's shares to Mesa's offer. Under the terms of the offer, however, the shareholders can withdraw their stock and give it to Gulf.
Meanwhile, Citgo offered $17 a share for 51 percent of Mesa. On June 10, Citgo said that offer had attracted 41 percent of Mesa's 74 million shares, and Citgo upped the offer to $21 a share. That bid is still open. Mesa has rejected both offers.
But the flurry of counteroffers and a barrage of lawsuits against Mesa and its lenders did not dissuade Mesa, which is based in Amarillo, Tex. As a result, analysts said, Citgo, which is 20 times the size of Mesa, was forced to find a friendly "white knight" merger partner.
But Constantine Fliakos, an analyst at Merrill Lynch & Co., called Gulf's offer "disappointing."
"I think it's an investment decision that's not an attractive one," he said. "I think it's overpriced on the basis of Cities Service's earnings power and potential."
The proposed acquisition would, however, bolster Gulf's crude oil reserves, which have been been badly depleted by a sharp cut in supplies from Kuwait, once a major source of oil for the Pittsburgh-based company.
During the battles for control of Conoco and Marathon last year, when rumors of other oil company takeovers swirled around Wall Street, Cities Service was frequently mentioned as a possible takeover target. At the time, however, Cities Service Chairman Charles J. Waidelich raised fears about the numbers of mergers in the industry, urging that the government "look very carefully" at a proposed merger between Mobil Corp. and Conoco.