Investors Skeptical of Pickens Bid for Unocal

When T. Boone Pickens talks, the stock market usually listens.

But the market turned a deaf ear to the Texas oilman Friday as the price of Unocal Corp. slipped in heavy trading amid signs of investor skepticism that the firm would become the target of a Pickens takeover bid.

Pickens had announced the day before that a partnership he heads had acquired a 7.9% stake in the Los Angeles-based firm, parent of Union Oil Co. of California, and intended to raise its holdings to about 15%.

When he made similar disclosures regarding Gulf Oil Corp., Phillips Petroleum Co. or other oil companies, the stock prices jumped. However, analysts and investment managers say Unocal may be a tougher trophy to bag than any of Pickens’ earlier quarry, and this assessment was apparently behind the drop in Unocal’s stock.

Unocal shares fell $1.75 in active trading on the New York Stock Exchange to close at $46.25. More than 2.1 million shares changed hands.

David Ullom, an analyst with the Los Angeles-based brokerage firm Bateman Eichler, Hill Richards Inc., attributed the decline to investors deciding to take profits before any struggle for control of the company begins.

Top Institutional Holders of Unocal as of Sept. 30, 1984

Millions of Shares Held College Retirement Equities Fund 2.08 Bankers Trust Co. 2.05 Donaldson, Lufkin & Jenrette 1.70 Brundage, Story & Rose 1.58 Batterymarch Financial Management 1.55* State Street Research and Management 1.50 Aetna Life & Casualty Co. 1.39 Loomis Sayles & Co. 1.32* General Electric Pension Trust 1.31 Prudential Insurance Co. 1.25

*As of Dec. 31, 1984 Source: Computer Directions Advisors Inc.

“The consensus is that (Unocal Chairman Fred) Hartley is more of a fighter than other chief executives have been,” Ullom said. “And there are a little better defenses in place at Unocal than other companies have had.”

Unocal was silent on its plans Friday. A spokesman said the company would have no comment on the announcement by Pickens, chairman of Mesa Petroleum Co. of Amarillo, Tex. Hartley could not be reached to discuss the steps Unocal might take to maintain its independence. Earlier in the week, the 67-year-old chairman had said that Unocal is “not for sale.”

In a filing with the Securities and Exchange Commission, the investor group, Mesa Partners, said that, although it is buying Unocal stock for investment purposes, those plans could change. The filing said its actions could include “seeking to obtain control of the company” but might also be “disposing of the shares now held.”

About 37% of Unocal’s stock is held by financial institutions, which recently have been showing increasing signs of heeding the appeals of investors such as Pickens for institutional holders to become more demanding of the managements of the companies in their portfolios.

An investment manager at one of Unocal’s largest institutional holders, who asked not to be identified, said he hopes Pickens is able to prod the company into restructuring its operations.

“I don’t think Boone can run this company any better than current management,” the fund manager said. “But he can probably get more value to the owners by doing something different with respect to the cash flows.”

He suggested that, rather than investing in projects such as oil shale development or certain exploration projects, Unocal could buy back a large portion of its stock, a move taken by other oil companies recently to increase their share values.

“I’d like to see Pickens take over the reins of a major corporation such as Unocal and use it as a forum for restructuring the rest of the industry,” he said.

Analysts have suggested that, to fend off Pickens or some other potential suitor, Unocal may take the offensive with an acquisition of its own. Unocal’s debt-to-equity ratio is only 16%, relatively low for a major oil company, which would enable Unocal to increase its long-term debt to finance a takeover.

As with other oil companies that have been bought recently, the main attraction of Unocal is the size of its domestic reserves. At the end of 1983, the company had domestic oil reserves of 527 million barrels, about three fourths of the total worldwide reserves.