Maverick oilman T. Boone Pickens Jr.'s days as the scourge of the oil patch may be over, analysts said yesterday.
Legal fallout from Unocal Corp.'s battle against Pickens may significantly slow down the recent wave of hostile takeover raids on oil companies and other corporations led by Pickens and other financiers by rewriting some of the rules.
The most crucial element changing the environment for takeovers, analysts said, is a ruling by the Delaware Supreme Court last Friday. The ruling stopped Pickens' efforts cold and may have established a precedent for a powerful new kind of takeover defense based on treating raiders and greenmailers differently than other stockholders -- especially raiders making "two-tiered" offers that pay cash to half a company's stockholders and promise securities that might be worth less to other stockholders.
The decision allowed Unocal to exclude Pickens' investor group from a $72-a-share offer by the company to buy back its own stock from shareholders. The court said Pickens could be excluded because his offer was inadequate and coercive.
Experts said that while the decision was open to further interpretation and, in the view of some critics, narrow and confusing, it would still likely slow down the raiders.
"It certainly has a chilling effect on Pickens," said A. Gilchrist Sparks III, a Wilmington-based corporate lawyer who argued the case on behalf of Unocal. "Where you've got an offer, such as this one, that is grossly inadequate and coercive in its structure, a board acting carefully and honestly can use this technique to halt the raider.
"Somebody contemplating making one of these offers [now] has to factor in, 'Am I going to get a Unocal type of response?' -- and that may cause some people to think twice, structure their offer in a more fair way or pay more," Gilchrist said.
"You've got a different ballgame than you did before," said Rosario Ilacqua, an analyst at L. F. Rothschild, Unterberg, Towbin. "I think realistically the Delaware court decision certainly means that going after a big company becomes very, very difficult, if not impossible. I think this means some change."
Even David Batchelder, vice president for finance of Pickens' Mesa Petroleum Co. and one of the oilman's chief lieutenants, suggested that the Delaware ruling would slow the takeover tide. "You're going to see people wait until that thing is resolved," Batchelder said.
Pickens, in any case, has been slowed by his Unocal defeat. The outcome of his attempts to take over the oil company has been quite different from his highly profitable raids in recent years on other oil firms such as Gulf Corp., Cities Service Co. and Phillips Petroleum Co. Pickens broke even, at best, on his Unocal investment, and analysts say he more likely lost $100 million or more on the deal.
Beyond the psychological effects of the outcome of the Unocal battle, Pickens' settlement with Unocal left the oilman somewhat hamstrung financially, according to analysts. Although he still will have $1.1 billion worth of Unocal stock and notes as a result of his settlement with the company, the stock will be tied up by the agreement, so that Pickens will be virtually unable to sell it or act on it in other ways without Unocal's permission.
While Batchelder suggested that Mesa would be able to borrow against the stock and notes to fund any future takeover attempts, other experts said getting bankers to loan money against the $550 million worth of stock, at least, would be difficult as long as Unocal can control its disposition. Batchelder said that, for the time being, Pickens has no plans for further takeover efforts, mostly because of the Delaware decision.
The aftermath of the Unocal imbroglio does more than hamper Pickens' future takeover plans. Analysts say that the trend of mergers and restructurings in the oil industry touched off by Pickens is all but ended, in part simply because there aren't many big oil companies that haven't been affected in some way.
Beyond that, analysts said the Delaware decision might put a damper on recent flare-ups of hostile takeover activities in the media, airline and other industries by giving corporate managements a new way to defend themselves against a raid. Batchelder even suggested the Delaware ruling might prove handy as an offensive tactic for the raiders themselves, who could aim their stock-purchase offers just at certain elements of a company's shareholders, such as institutional investors, while excluding other stockholders.
Although the Delaware court said its ruling did not give corporate managers "unbridled discretion to defeat any perceived threat to corporate control by any Draconian means available," some experts said yesterday it may be up to the Securities and Exchange Commission to define the limits of the new rule or to propose new laws controlling managers' rights against hostile raiders.
But for the time being, Gilchrist said, "the bloom may be off the rose.
"If you view Pickens as the preeminent and most successful [raider] with his success in Gulf, Cities Service and Phillips . . . even by his own admission, the best he has done [in the Unocal fight] is come out even. To the extent that he attracts financing by having an aura of infallibility, he may have lost something."