An Oklahoma state court yesterday threw a legal roadblock in front of Mesa Petroleum Co. Chairman T. Boone Pickens Jr.'s attempts to buy 10 percent of Phillips Petroleum Co. as a first step toward taking over the nation's ninth-largest oil company.
The court, sitting in the same county as Phillips' Bartlesville, Okla., headquarters, agreed with Phillips' arguments that a "standstill" agreement Mesa signed last year to refrain from buying stock in General American Oil Co. also applied to a Mesa purchase of Phillips, which has since bought General American. Pickens and his investor group have asked a federal court in Delaware to overturn the standstill agreement.
Pickens said he was surprised at the action in the Oklahoma district court in Washington County, and that he will appeal. Pickens said the action seemed to be based in part on an incorrect argument that the standstill agreement specifically included Phillips. "It didn't have anything to do with Phillips," Pickens said.
The legal action was the first step taken by Phillips to stop Pickens' raid, which was announced Tuesday. The maverick oilman, whose pursuit of Gulf Corp. led to the record $13.2 billion takeover of that company by Chevron Corp. earlier this year, said earlier this week he wanted to buy Phillips stock as a prelude to a takeover of that company.
In a 13-D filing yesterday with the Securities and Exchange Commission in connection with its recent purchase of 5.7 percent of Phillips, Pickens' investor group gave the first sketchy details of how it hopes to take control of Phillips. It said it is seeking, among other things, to remove all of the members of Phillips' board and replace them with directors nominated by Pickens' group, thus giving Pickens and his partners control of the company. The group will need either to own a majority of the company's stock or receive approval from holders of more than half the company's shares to take over.
The group hinted that it might also break the company up, perhaps distributing ownership in specific divisions to shareholders, a strategy akin to the one Pickens used in pursuing Gulf. In that case, he proposed spinning Gulf's oil-producing assets off into a separate company, known as a royalty trust, that would be directly owned by Gulf shareholders.
The filing said the group had already spent $383 million buying Phillips shares and was trying to raise $1.4 billion to increase its holding to about 20 percent of the company. Financing for the takeover, if successful, could come from Phillips operations or the sale of some of its assets, the filing said. The group's initial offer is for about 10 percent of Phillips' shares, but Pickens has said he will soon expand that offer to seek another 5 percent.
Analysts expect Phillips to mount a tenacious defense beyond the intial court challenge to the group made yesterday. Phillips' defense could possibly include either finding another company to take it over or purchasing another company itself to make a buyout more difficult for Pickens. At Pickens' offering price of $60 a share, a takeover of Phillips would cost about $9.2 billion.
The SEC filing indicated that the Pickens group has tried to insulate itself from one possible Phillips defense: a counteroffer for Mesa itself. In that case, the group said, full management of the investment group that is seeking Phillips would automatically shift from Pickens and Mesa to another partner in the group, Texas businessman Cyril Wagner Jr.