Mesa Petroleum Co., the Amarillo-based oil company headed by T. Boone Pickens Jr. that has served as a catalyst in restructuring the domestic oil industry, announced plans yesterday to restructure itself.
The restructuring, designed to maximize value for Mesa shareholders, would convert Mesa to a limited partnership. Stockholders will vote on whether to approve the change in December. The plan also signals the end of an era in corporate takeover history, since Mesa will no longer be available to be used to launch hostile takeover bids for major oil companies.
Pickens has sparked a restructuring of the domestic oil industry in the last several years by using Mesa as the vehicle for hostile takeover attempts. While Pickens never acquired any of his targets, he made millions for Mesa by purchasing large stakes in giant oil companies, including Gulf Oil Corp., that were sold to other bidders at premium prices.
Converting Mesa to a limited partnership means the corporation no longer plans to retain cash from oil and gas sales to use for future exploration or for takeover bids. Instead, the Mesa Limited Partnership will make quarterly distributions of cash from operations directly to Mesa Limited Partnership unit holders.
The limited partnership also will increase returns to Mesa stockholders by taking advantage of several tax provisions. For example, the limited partnership is free of the corporate income tax that Mesa currently must pay on earnings.
In addition to being a major Mesa shareholder, Pickens will benefit from the conversion because it will trigger the excercise of options he holds to purchase 4.8 million Mesa shares at $11.50 a share. Without the restructuring, these options would not have become completely excercisable for several years. Mesa stock rose 1 5/8 yesterday, to close at 17 1/8.
Pickens said he favors the restructuring because he is pessimistic about the outlook for oil prices. Since he does not believe prices are high enough to justify aggressive energy exploration, he favors returning cash directly to Mesa shareholders rather than reinvesting the company's profits in businesses outside the oil industry or using the proceeds in takeover bids. Pickens became disillusioned with using Mesa to launch hostile takeover attempts following his aborted effort to gain control of Unocal Corp. earlier this year.
"This is really a sophisticated way of liquidating the company, and I think the bottom line is that T. Boone and Mesa are basically riding into the sunset with the Mesa Limited Partnership," said Alan Edgar, an oil analyst with Schneider, Bernet and Hickman in Dallas. "Mesa will be left with the most efficient vehicle to maximize shareholder investment, and I think Boone might become a private merchant banker and launch takeover bids on his own. This is an efficient way for him to pull off the grand finale for Mesa."
Pickens, who will serve as general partner of the limited partnership, said yesterday he has no plans to launch takeover bids on his own.
"We're facing industry fundamentals that are damn tough to deal with, and we would just as soon flow through cash to stockholders and go back to aggressive exploration at some later date if we have fundamentals we can live with," Pickens said. "When we looked at our options at Mesa, we could be an aggressive explorer or continue to pursue takeovers. We decided we didn't want to pursue the takeover game, and it is not the time to be an aggressive explorer."
Under the plan, Mesa stockholders would receive one limited partnership unit for each Mesa share. Substantially all of Mesa's oil and gas properties would be transferred to the partnership. The 14.6 million shares of Unocal stock owned by Mesa would be retained by Mesa and sold over a period of not less than a year following approval of the restructuring. It is expected that the proceeds of these sales would be used to purchase limited partnership units that would be distributed to Mesa unit holders.