After about nine months on the sidelines, T. Boone Pickens Jr. and Mesa Petroleum Co. are back in the corporate-takeover business.
While Mesa's bids last year were for giant oil companies, the latest offer is for KN Energy Inc., a Lakewood, Colo., natural-gas transmission and distribution company. Mesa President David Batchelder said yesterday that owning KN's distribution network would help Mesa market its natural-gas reserves.
"Their transmission lines are mostly in Kansas, and two-thirds of Mesa's natural-gas reserves are in Kansas," Batchelder said. "It is a natural fit. It develops alternative ways to move our gas. We believe that, with KN's transmission and distribution facilities, we will be able to enhance the value of Mesa Limited Partnership's natural-gas reserves."
Batchelder said Mesa's $22-a-share, $200 million bid for KN is one of several efforts by producers to gain control over natural-gas distribution. The largest of those is Occidental Petroleum Co.'s pending multibillion-dollar acquisition of MidCon Corp.
Batchelder said producers want to own distribution channels because the relative abundance of natural gas has pushed prices down, forcing producers to pay more attention to marketing their reserves.
"The producer of natural gas can no longer sit back," Batchelder said. "It used to be that the pipelines would come to producers and compete for your gas. That isn't the case anymore. You have to market your gas."
KN, which has opposed Mesa's overtures in the past, said yesterday that the latest Mesa offer will be considered by directors at a board meeting on Feb. 20. KN already has approached other potential buyers, Mesa said, and KN also recently initiated its own takeover bid. Last week KN said it has purchased a 12 percent stake in Rocky Mountain Natural Gas Co. and was considering a business combination.
Wall Street is anticipating that bids higher than Mesa's $22-a-share proposal will be made for KN. KN closed yesterday at $23.50, up $1. If a higher bid is successful, Mesa could profit, because it already owns 4.7 percent of KN.
In a letter to KN released yesterday, Pickens said he believes "it is likely we will be able to top any other arms-length bid," adding that he also might be willing to alter the terms of his all-cash offer for KN shares. Batchelder added that he believes Mesa is in the best position to pay a premium price for KN because it can utilize the firm's distribution system efficiently.
"We want to acquire this asset," Batchelder said. "We are very serious. At some point, it only makes sense for their management to sit down and talk to us. If they don't talk to us, we will have to wait and see" what action to take next.
The Mesa offer was made by Mesa Limited Partnership, for which Pickens serves as general partner. The partnership holds producing oil and gas properties that were spun off from Mesa Petroleum Co. Batchelder said the partnership easily could finance the relatively small all-cash bid for KN.
KN used to own producing properties, but they were spun off to shareholders after an earlier takeover bid from Mesa, according to Harlan Hansen, KN's director of communications. Hansen said KN has transmission and distribution assets in the western half of Kansas, the western two-thirds of Nebraska, northeast Colorado, eastern and southern Wyoming, and east Texas.
For the year ended Sept. 30, KN had revenue of $432 million and net income of $15 million ($1.67 a share) compared with revenue of $468 million and a net loss of $445,000 (5 cents) in the same period a year before. The loss includes an extraordinary write-off of $19.8 million.