Don't invite Fred L. Hartley and T. Boone Pickens Jr. to the same party.
Mesa Petroleum Co. Chairman Pickens, having made $1 billion with "corporate raider" investments in Gulf Corp., Cities Service Co., Phillips Petroleum Co. and other oil companies, is now stalking Hartley's Unocal Corp. Pickens and some partners have bought 13.6 percent of Unocal and say they are contemplating a takeover.
But Hartley, one of the oil industry's feistiest executives, appears to be giving Pickens his toughest fight yet.
Unocal has unleashed a legal and verbal attack on Pickens, with Hartley as its chief spokesman. Last week, Hartley told a House subcommittee that Pickens was out to "murder" his company and asked for changes in tax laws to make hostile corporate raids such as Pickens' far more difficult. And in his own testimony before the committee, Pickens loosed his own barrage of personal attacks on Hartley -- including a complaint that, when the two men had chanced upon each other outside the hearing room before the proceedings, Hartley refused to shake hands with Pickens, who is Unocal's largest shareholder.
Before his testimony, Hartley discussed Pickens, the current wave of oil company takeovers and their effects with Washington Post staff writer Mark Potts. Excerpts from the interview follow.
Q: We've seen a number of corporate raids in the oil industry in the past year or two. How come? Does it say something about oil industry or about the raiding industry?
A: I don't think it shows very much about the oil industry. It certainly shows quite a bit about the raiding industry. It's another way of making a lot of money without working, which is apparently the goal of those certain kinds of minds that are not particularly interested in working for a living. They just want to play with money and take a piece of it as it goes by and enjoy life.
Q: Why does it seem to be centered on the oil industry?
A: I suppose it's because of the one individual, Pickens, who doesn't know very much about anything else.
Q: Do you think he knows anything about the oil industry?
A: No. His experience is highly limited. He's an oil driller in a very modest way. His company's about a third to half the size of our Gulf of Mexico division alone. And he's lost all confidence in being in the oil business. He's reduced his exploration budget. . . . The concept he has is that there's nowhere to drill, anyway, which we totally and completely disagree with.
Q: Do you think the industry is still vital?
A: Certainly. Our investments this year are going to be higher than ever, with a total corporate budget in excess of $2 billion of capital and exploration investment.
Q: The industry is sort of at a low ebb now because of world prices having dropped.
A: We only had the low ebb to those who are really not in the business, not totally immersed in the business. They are, to a great degree, the independent oil companies who like shallow plays and fill-in wells and that sort of thing that we're not really involved in. We're involved in large-scale, expensive exploration.
Q: So you are confident of the longer-range outlook for the industry?
A: Yes, yes. Very much so. I think that Pickens has done a great disservice to the industry by stating that we are in our sunset years. Of course, as you know, he thinks all managements of business in general, and the oil industry in particular, . . . spend a great deal of our time either at our fishing lodges or our hunting camps. And when we're not there, he says we're just generally lazy, which is quite a broadside, especially against me, since I worked Saturday and Sunday this past week.
Q: He also complains about what he says is insensitivity to shareholders, that managements are looking out more for themselves than for the stockholders. What do you say to that?
A: That's his personal opinion, and I would think he'd be the last man to talk about it. He's the first fellow who's ever "greenmailed" his own stockholders. The $27 million he got in bonuses last year , with the number of shares he has, that's a payment to him of about 20 dollars a share . In 1984, Mesa paid out dividends at 20 cents a share. That's a ratio of 100 times, and that looks like a pretty good greenmailing operation to me.
Q: But his shareholders don't seem to complain.
A: Well, I don't know that you know that. I would think that they'd be madder than hell.
Q: Pickens has complained that oil company executives don't own enough stock in their own companies. How much stock do you own in Unocal?
A: All that I can muster together with the limited funds I have as a working man. I've got about 220,000 shares, and I've got another 60,000 shares in my profit sharing over the last 46 years of working for the company. So even Pickens cannot accuse me of putting my money into Treasury bills and having no confidence in the company. That's just pure Picken-pulp.
Q: He's holding about 13.6 percent of your company. Do you think that gives him any greater right to have a say in how the company is run?
A: He has the same rights as all shareholders. You might be interested in knowing that Phillips Petroleum Co. in 1961-62 held just about that same percentage in our company and tried to take the company over . So we are quite used to people that like to pick on the other guy's wife, so to speak. They see something they like, and they think they should have it. And I guess Pickens was probably inhibited while he was a kid and couldn't get the toys he wanted, I don't know.
Q: He's had, like or or not, a pretty good run of success in making money on his investments in all these oil companies. How do you feel about those companies that have agreed to buy him out to get rid of him? Do you think they caved in without enough of a fight?
A: That's a tough one for me to answer. I'm sure every case is different. Pickens was lucky. He never did complete a deal, as you know. There were all the so-called white knights that might show up and bail him out.
Q: Do you think that Phillips did the right thing in finally buying him out? Do you think Phillips, by buying out Pickens and then Carl Icahn, left itself financially sound when it swapped $4 billion in debt for half its stock?
A: I would not want to find ourselves in the same position. I think it would greatly reduce the opportunities for our shareholders, because we would be having to pay out so much money in interest rather than putting money to work for growth, making discoveries, new ventures -- all the things we've been doing for the last 25 years.
We had a growth rate over the last 25 years of 15 percent on average, with dividends and stock appreciation. That's one of the highest growth rates in the industry, and it was brought about by a dedicated group of Americans and employes, reemploying the assets of the company, the cash flow of the company, at the same time paying dividends at a rising rate. If an investor 25 years ago had bought $10,000 worth of Unocal stock , for example, he'd have $127,000. . . .
And, I ought to point out to you that, contrary to what Mr. Pickens thinks of restructuring . . . his concept of restructuring is to yank out the equity of the company, either all or part, and in effect declare a super dividend.
It's very similar to the the goose that lays the golden egg. The goose lays one large egg and is so overcome with the experience that it dies! So I would point out to you that Gulf is dead, murdered. Getty's dead, murdered. Citgo is dead, it was murdered. And Superior is dead, it's murdered. It's gone. These will no longer be forces for the providing of wealth for stockholders or the citizens of the United States. And they aren't going to be available to innovate, to create new technology, to provide competition.
Q: Do you think there are antitrust reasons, as well, that this industry "restructuring" should not be allowed to happen?
A: On competition alone, this should never have been permitted. There's some peculiar ideas in government today that , if you merge, go ahead and . . . make it look nice and decorate it, so to speak -- have a company sell off a refinery and get rid of a few hundred service stations, and you have therefore brought the competition into balance. . . .
Uncle Sam is gonna lose out like mad: He's got at least a half a dozen virile companies no longer participating competitively against the remaining companies, so there will be no bids received from Getty, none from Gulf, none from Citgo and none from Superior, who were quite active, very active. That competition has been destroyed, Uncle Sam is the loser; the people of the United States are the losers, in addition.
Twenty five years ago, it couldn't have happened, because in those days government, I think, understood antitrust, and understood what this competition is all about.
Q: What sorts of changes would you like to see made in the law to prevent raiders from going after companies?
A: There's one very specific action which is already in play . . . up on the Hill . . . and that's to get new laws passed to get the U.S. taxpayer out of the current position of financing takeovers, hostile takeovers.
I would stress that word "hostile" -- I'm not talking about friendly mergers at all. The interest these fellas are paying when they borrow money is deductible. That means that reduces their tax load, which obviously means that the United States debt gets higher and higher, and, God knows, it's high enough. And the real basic result is, if they don't pay their share of the taxes, if they get interest deductibility, that means all we citizens are having to increase our taxes. At least that assistance should be eliminated, and there are a number of bills to bring that about.
Q: What do you think of greenmail?
A: Greenmail or blackmail, muggers' mail, they're all the same. There's no place for it in the United States. Probably there was a place for it in Hitler Germany and fascist Italy, but there sure as hell isn't any place for it in an enlightened democracy that we're supposed to be, and a civilized one.
Q: Do you think it's preferable to let a stockholder who wants greenmail just stay in the stock and agitate?
A: I just don't think that he's entitled to any more money for his stock than any other shareholder is entitled to. If I [as a manager] participate in that, then I've become just as big a crook as the guy who's demanding it. It takes two to tango on bribes, you know, one to give and one to receive, and I have to protect our shareholder rights, and our shareholders didn't elect our directors to make me the chief executive for the purpose of giving away the shareholders' funds.