Mesa Petroleum Co. Chairman T. Boone Pickens Jr. may have suffered a major financial loss in his abortive pursuit of Unocal Corp., key Wall Street analysts said yesterday.
One Wall Street source familiar with the Unocal situation said Pickens took a "pasting" in the deal. The source, who asked not to be identified, estimated Pickens may have lost as much as $100 million on his investment in the oil giant.
One of Pickens' top associates said yesterday, however, that the investor group had broken even on the deal.
Meanwhile, oil industry analysts said that Unocal's victory was a Pyrrhic one, leaving the company heavily in debt that will restrict its operations for years to come.
Pickens' ultimate loss -- or profit -- on the deal depends on where Unocal's stock price goes in coming months. The company's stock, which analysts said had been inflated for months by speculation about a Pickens-led takeover, skidded yesterday in the wake of the settlement made Monday by Unocal and Pickens, falling $10.50 to $35.62 a share. The stock price calculated on a "when-distributed" basis, which more accurately reflects the aftermath of the agreement, was even lower, at $33 a share.
Pickens and Unocal ended their bitter two-month battle Monday with a settlement under which Pickens agreed to end his attempts to take over Unocal and the oil company agreed to make certain concessions of its own.
Central to the agreement is the disposition of Pickens' 23.7 million Unocal shares -- 13.6 percent of the company's total stock. Pickens is going to be allowed to sell a portion of his stock back to Unocal for $72 a share, an offer that has been made to all other Unocal shareholders, and after a series of related maneuvers, will be left with about 16 million shares in the company that will be virtually under the control of Unocal under terms of the peace agreement.
Analysts varied in their reckonings of what the settlement would cost Pickens, who says he paid an average of $48 a share for his stock, including interest, legal and other expenses. David Batchelder, Mesa's vice president for finance, yesterday estimated that the deal with Unocal was worth $48 a share to Pickens' group -- but other observers differed.
"This is a pasting," said one source familiar with the settlement. "This is an absolute debacle for Pickens."
This source said Pickens' per-share costs, including expenses, were closer to $51, and that the Mesa chairman was receiving more like $45 for each of his shares. As a result, the source said, Pickens would lose about $135 million on his investment.
According to the source, in addition to the $1.1 billion Pickens paid to buy his Unocal shares, he also had to pay an estimated $25 million in interest on the money borrowed to buy the shares, $30 million in proxy and legal fees associated with the fight, and $37.5 million for the services of Drexel Burnham Lambert, which lined up the financing.
In addition, the banker said Pickens' costs are increased by the fact that he agreed to pay those who financed his effort any profit he made on the Unocal stocks -- and thus is liable to them for a portion of the proceeds of Unocal's $72-a-share buyback, even though Pickens lost money on the overall deal. That adds $42 million to his costs, the banker said.
Oil-industry analysts figured the outcome of the deal differently, but with similar results. One said that, assuming that Pickens receives $72 a share for 32.5 percent of his stock, as estimated by Unocal, and the remainder is worth about $32 a share, Pickens is getting $45 a share for his stock, giving him a loss of about $70 million.
Any estimate of Pickens' outcome is dependent, however, on the future of Unocal's stock price, because Pickens will hold on to 16 million shares once the agreement is completed. While analysts yesterday were basing estimates on a price of $32 or $33 a share, they said that, if the stock rises a few dollars, Pickens could cover his expenses, at least on paper. "Three or four points covers most of his costs," said Rosario Ilacqua, an analyst at L. F. Rothschild, Unterberg, Tobin in New York.
Predicting Unocal's stock performance is tricky, analysts said. The $4.2 billion in debt the company will assume to buy the 59 million shares it will purchase under its $72-a-share offer will cripple the company's finances for some time, forcing it to redirect resources to pay off the debt. "The future of the company was diminished," said one analyst. "No matter how you cut it, if you're going to be spending a significant portion of your earnings servicing debt, then you're not going to be spending that money finding and developing and producing new energy resources.
"Management won because it's still management," the analyst added. "However, they're presiding over assets that are much less attractive, so they have lost in a very real sense."
Still, the stock price could be buoyed by another element in the settlement -- the planned issuance to shareholders of shares in a new master limited partnership Unocal will set up to contain its lucrative Gulf Coast oil and gas fields. Coming in the form of the dividend, the shares could make Unocal stock somewhat more valuable, potentially increasing the price.
As analysts tried to sort out the winners and losers from the fight, one analyst said he could see only one set of winners -- any stockholder who sold out at the height of the battle, when the stock was at its peak of $51 a share.
"The people who finished ahead were the short-term stockholders," the analyst said. "They were subsidized by the long-term shareholders."