Diamond Shamrock Corp., whose stock has been on a roller coaster ride in recent days as the result of an abortive $3.2 billion merger attempt with Occidental Petroleum Corp., yesterday tried to reassure shareholders that it had done the right thing by pulling out of the deal.
In a letter to holders of the company's stock, Diamond Shamrock Chairman W. H. Bricker said the firm's board had become concerned that the combined company would be lacking in management and financial strength and, as a result, terminated merger negotiations on Monday just hours after the companies said they had reached a preliminary agreement. The merger would have combined Occidental and Diamond Shamrock, the nation's eighth- and 18th-largest oil companies, to create one that would rank No. 7 in the oil industry.
"The board concluded that there could not be sufficient assurance that the transaction would, in fact, be financially beneficial to Diamond Shamrock's shareholders," Bricker wrote. "The board also was particularly concerned that the combined company would lack the broad management strength necessary to make the merger successful."
Bricker, who could not be reached for comment yesterday, has criticized Occidental's management in other statements since the collapse of the merger plan, leading many analysts to believe that the central problem that scuttled the deal was disagreements over who would wind up running the combined company -- Bricker and Diamond Shamrock's management team, or Occidental's managers, led by its 86-year-old, iron-fisted chairman, Armand Hammer.
Under the agreement, Bricker was to have stepped aside after the merger, acting only as a consultant. But analysts think Bricker and his colleagues wanted more of a say in the running of the company, and felt they would be thwarted by Hammer.
"They didn't see Diamond's management having any say," said Alan Edgar, an analyst at the Dallas brokerage of Schneider Bernet and Hickman. "Any restructuring of the company that would be necessary after the merger to strengthen the company would be impossible because the old man would want to have his way."
"My thought is that Bricker sort of entered into the idea that he and his upper management could sort of replace the management at Oxy, and it became clear that neither he nor his people had a place there," said William Randol, an analyst at First Boston.
Hammer has been unavailable for comment.
In his letter, Bricker averred that his role in the merged company was not a factor, and that he "was committed to depart from Diamond Shamrock and accept no position in the combined company."
The letter offered no supporting facts for its contention that the combined company would not have been as financially sound as Diamond Shamrock's management had first believed. Analysts said that together, the two companies would have been carrying a large amount of debt, and that while the two had complementary chemical and coal operations, the combination of their petroleum operations didn't seem so advantageous.
Bricker said in the letter that the board was concerned about the outcome of the merger because it appeared that under the stock swap arrangement that had been proposed, holders of Diamond Shamrock stock would end up with a majority of the ownership of the combined company.
Analysts have criticized both companies' handling of the affair, and suggested that Diamond Shamrock -- perhaps more so than Occidental, which remains under Hammer's protection -- may now be vulnerable to a takeover from another company. "As far as Diamond goes, they are, by default, on the auction block," Edgar said.
Bricker, however, said in the letter that Diamond Shamrock intends "to remain an independent company . . . ."