Unocal’s Hartley Says Pickens Faces Defeat at Shareholders Meeting

Declaring that T. Boone Pickens has already thrown in the towel, Unocal Chairman Fred L. Hartley said Wednesday that he doesn’t anticipate losing to Pickens and his investors group at Unocal’s annual meeting on Monday.

“I think we’re going to win easily,” Hartley said in his first interview since the Pickens group officially launched its two-step tender offer for Unocal on April 8. He would not specify how many shares have been committed to vote against the Pickens group Monday but said that, “from the votes we already have in,” the vote is running heavily in Unocal’s favor.

Pickens and his partners are seeking to have the meeting adjourned before any action is taken Monday and postponed for two months while Pickens lines up support for his takeover plan. Analysts and some big institutional shareholders informally polled by The Times say they have noticed a shift in the momentum this week--from Unocal to Pickens.

Believes Firm Has Upper Hand

But Hartley believes Unocal has the upper hand with its offer of $72 a share for 50 million shares and with Pickens’ acknowledgement that it was the best offer on the table. The Pickens group has offered $54 a share for 64 million shares.

“He’s finished,” Hartley said of his nemesis. By recommending to Unocal shareholders attending a Mesa-hosted meeting in Los Angeles on Tuesday that they accept Unocal’s offer, Pickens was throwing in the towel, Hartley said.

“He’s not even looking for it. He’s out of it,” Hartley said.

Responding to Hartley’s comment, Mesa’s chief financial officer, David Batchelder, said late Wednesday that telling shareholders to take $72 instead of $54 is “not throwing in the towel; that’s just common sense.”

Hartley said he is aware that Pickens might come back with a second offer. “He’s trying to hurt the company, the company shareholders, by driving down the value of the stock, and so he can come back for a second time and get our company on the cheap.”

There is growing speculation in the investment community that Pickens might either drop his first offer altogether or just lay low for a while and let Unocal buy 50 million shares for $72 each. Then, the scenario continues, after the stock had dropped back closer to the $35 level where it was before the Pickens group started buying, the group would come back with an offer for the rest of the company at something less than $54 a share.

Until Tuesday, the Pickens group’s offer was the only firm bid for Unocal on the table. Unocal had said it would exchange debt securities valued at about $72 a share for 87 million of its shares--but only if the Pickens’ group was successful in the first step of its two-tiered offer.

In the interview, Hartley explained why Unocal waited until this late in the takeover fray to make a firm commitment to buy back some of its shares.

“We finally became convinced that there was a very good chance that he was able to get his financing” to buy 64 million shares, Hartley said. “Very frankly, that amount of financing has not been achieved before.”

The Pickens group announced April 15 that it had raised the $3.9 billion it needs to buy a majority interest in Unocal.

To buy back 50 million shares at the $72 price, Unocal will have to spend about $3.6 billion, raising the company’s debt load to about $4.8 billion, a level that Hartley said he is not entirely comfortable with but that “does not put us into a catastrophic arena.”

Because of that extra debt load, he said, Unocal will be forced to cut back its 1985 investment program of $2.1 billion by about $250 million.

His comments about the added debt burden illustrates a point reiterated several times during the 90-minute interview: Hartley leaves no doubt that he would prefer not to be taking the defensive maneuvers he has, but said in this “junk-bond irresponsible society,” he hasn’t any choice.

“It goes against my common sense,” he said.

Asked how he can reconcile that attitude with Unocal’s first stock-for-debt offer that would wipe out its net worth, Hartley replied that the move would “protect” Unocal shareholders from Pickens’ junk-bond financing. The debt offered by Unocal is in the form of secured notes.

Hartley, in fact, directed much of his ire at the financial community for providing corporate raiders the wherewithal for such takeovers.

“The financial mafia on Wall Street is a new force to deal with,” he said.

He repeated his longstanding criticism of tax laws that he maintains favor the raiders and their use of so-called junk bonds, securities issued on the strength of the assets of the target company.

He said the whole future of corporate America is at stake. Institutions that provide financing for hostile takeovers, he said, are “not concerned about the future of businesses in the United States and are quite happy to participate in their destruction.”

Gulf Oil, for example, which was acquired by Chevron after fleeing from Pickens, “is gone,” he said, “sometimes we say murdered.”

“The battle today is not Hartley versus Pickens or Unocal versus Mesa,” he continued. “Our economic system is at stake.” This “chain letter” is leading to the same situation that existed in the oil industry early in the century, when the government broke up the Rockefeller trust, he said.

“Communism is all debt. There is hardly any equity left in South America. . . . And now we’re doing the same damn thing to ourselves,” he said.

His criticism of Pickens and “his camp” is equally biting. They have “no manners, no morals, no integrity,” he said.

He also took issue with Pickens’ tenets: that oil and gas exploration is currently too expensive to make economic sense, that oil companies are undervalued, that focusing on the short-term interests of shareholders does not conflict with long-term interests and that big oil companies, including Unocal, are depleting their shareholders’ assets by not replacing annual production.

A “fable” is how he labeled Pickens’ idea of undervalued stock. The stock price, he said, reflects earnings and earnings growth; not the assets. “The situation equates to you being worth more to your spouse dead than alive,” because of life insurance and other benefits, he said. So, too, companies must be liquidated to realize the full value of the assets.

On exploration: “If I’d have been as unsuccessful as he’s been in the last three years, I’d probably be talking the same way he is.”

On reserve replacement: “Our record for the last two years has been very strong. Essentially, we’ve managed to maintain our reserves while increasing our production.”

On long-term investments: “To stay in this business and grow in this business, you have to have a high technological content” that requires heavy expenditure in research and development.

Hartley said Unocal is “not seriously” considering other deals such as acquisitions. “I don’t think we should assume we’re smarter than the other guy running his company,” Hartley said.

And he ruled out two strategies that other takeover targets have used in recent years: the payment of corporate blackmail, or “greenmail,” as it is called, and bringing in a “white knight”--that is, a buyer more acceptable to management. “The white knight business has sort of run its course,” he said. “Some have seen the consequences of their behavior.”

About his decision to exclude the Pickens group from Unocal’s tender offer, Hartley said Pickens isn’t a shareholder with a long-term interest in Unocal. “He is a raider of Unocal.” By excluding Pickens from the offer, “we get our shareholders another $2 a share.”

When he speaks of Unocal shareholders, he said, he means such people as the families that have owned Unocal stock for 75 years. He has owned Unocal stock for more than 40 years.

“We have a responsibility to protect the long-term investors of this company,” he said.