No corporate white knight has yet ridden to its rescue, but Phillips Corp. is putting up a determined defense against an assault by maverick oilman T. Boone Pickens Jr.
The Oklahoma oil company has unleashed a fusillade of legal and public relations challenges against Pickens, whose pursuit of Gulf Corp. last year led to a record $13.2 billion takeover of that company by Chevron Corp.
Phillips has engaged Pickens in battle in courts in Oklahoma and Delaware, has complained to the Securities and Exchange Commission and the Federal Trade Commission about Pickens' tactics, has hired a top merger law firm and a big-time New York public relations firm to get its message out -- and even has inspired a community prayer vigil in its hometown of Bartlesville, Okla.
So far, the defense seems to be holding.
Phillips has succeeded in stalling Pickens' charge while the Oklahoma and Delaware courts argue over jurisdiction in the case. And yesterday, FTC officials said they were looking into the purchase of 5.7 percent of Phillips stock by Pickens' group over the past month, in an attempt to determine whether Pickens overzealously navigated a loophole in the Hart-Scott-Rodino antitrust laws.
Nevertheless, analysts say, it is too early to tell if Phillips can stave off Pickens and remain independent. They say that while the company still has a few tricks up its sleeve, so does Pickens -- and nobody will rule out the possibility of a takeover of Phillips by someone else. One Wall Street analyst reckons the chances of Phillips being bought out at "better than 50-50." Pickens quotes the same odds.
Multipronged legal defenses against unwanted takeover threats are nothing new. But Phillips has managed to tie Pickens up in court for longer than usual.
At the same time, this multibillion-dollar takeover battle has been bereft of the rumors and speculation about possible alternate offers that usually are attached to a company fighting an unwanted suitor.
Although Phillips' management has occasionally been derided by analysts as one of the least imaginative in the oil industry, it is getting high marks for the way it seems to have prepared itself for Pickens' attack.
Shortly after Pickens announced last week his intention to bid for 20 percent of Phillips as a prelude to a takeover of the company, Phillips got a local judge in Oklahoma to block the offer on the grounds that it violated a "standstill" agreement entered into by Pickens' company, Mesa Petroleum Co., early last year. Under that agreement, Mesa was prohibited from buying stock in General American Petroleum Co., which Phillips has since acquired. Phillips argues that the ban should apply by extension to Phillips stock.
The scene then shifted to Delaware, where Pickens' group attempted to have courts in that state -- in which Phillips is incorporated -- overrule the Oklahoma court, arguing that the standstill agreement had been recorded originally in Delaware state court, and therefore the Oklahoma court had no jurisdiction. Pickens won that round, but the court failed to order Phillips to drop its Oklahoma case. So Pickens postponed his offer for Phillips until the Delaware Supreme Court can decide the jurisdictional issue.
Phillips filed another suit in Delaware on Wednesday, in federal court in Wilmington, alleging that Pickens was violating federal securities laws by "touting" to the press his plans to grab control of Phillips, without mounting a formal proxy campaign, which must be cleared by the SEC. The court declined to rule, saying it would wait until the earlier jurisdictional question was settled.
Phillips filed a similar complaint about Pickens' tactics with the SEC, saying "a review of just one day's statements by Mr. Pickens indicates how far beyond appropriate, balanced public disclosure Mesa has gone in its campaign." The day in question, last Thursday, included a Pickens meeting with securities analysts, an appearance on the McNeil-Lehrer news program and statements to the Dow Jones news ticker and the press. "In a very short period of time, Mr. Pickens has managed to deluge the market with a barrage of upbeat, self-serving information which far exceeds the public disclosures permitted by the federal securities laws under the circumstances," Phillips wrote the commission.
It is not known whether the SEC is investigating Phillips' complaints. Pickens says he has not been directly contacted by either the SEC or the FTC, which is pursuing Phillips' complaints about how Pickens evaded commission scrutiny of his acquisition of Phillips stock under Hart-Scott-Rodino guidelines.
FTC officials won't say much about their investigation other than that it is in very preliminary stages. But it appears to be part of a problematic broader question that has been worrying the commission staff: how to tighten Hart-Scott-Rodino guidelines to cover some new wrinkles in the takeover game.
Unlike an offer by an individual company for another company's stock, which triggers FTC antitrust scrutiny under Hart-Scott-Rodino, Pickens' and Mesa's bid was made in a partnership with other investors -- and partnerships are not, in general, subject to scrutiny under the law as it now exists. The law was designed that way to limit the commission's workload by keeping many small, mundane takeovers out of the FTC's domain. But there's nothing small or mundane about Pickens' bid to take over Phillips, which could be worth as much as $9.2 billion.
Commission sources say it may be difficult to modify the law to close the loophole -- but Phillips says Pickens violated the law in any case. Phillips argues that in the process of acquiring its 5.7 percent stake in the company, Pickens' group exceeded financial criteria that shield partnerships from Hart-Scott-Rodino scrutiny. Pickens denies that charge, and FTC sources won't say if that's one of the issues the commission will investigate.
Should Phillips exhaust its various legal assaults on Pickens without blunting his attack, it might have to adopt other defensive tactics, including a white-knight takeover by another company or an acquisition of its own -- perhaps even an offer for Mesa.
Analysts consider such scenarios less likely for Phillips than they have been in previous oil company merger battles because of the poor state of the oil industry. And so far, apparently no alternate suitors have come forward, even as Wall Street rumors.