Pickens Group Plans to Acquire Stake in Boeing : Aerospace Firm’s Board Moves to Erect Defenses Against Corporate Raider

In what may be the first hostile takeover move against a major U.S. aerospace firm, a group led by corporate raider T. Boone Pickens Jr. has indicated that it plans to acquire a significant stake in Boeing common stock, the Seattle-based company disclosed Monday.

Boeing said it received a notice dated June 29 from Mesa Limited Partnership, the organization that Pickens controls, that it was filing its intention under the Hart-Scott-Rodino federal antitrust law to accumulate more than $15 million of Boeing shares. After a 30-day waiting period, that stake could be increased to as much as 15% of Boeing’s 155.1 million shares outstanding.

A hostile acquisition against a key defense contractor has been considered unlikely until now, partly because of the potential for government intervention on national security grounds. But analysts say Boeing’s recent performance has disappointed investors and the company’s undervalued stock has made it vulnerable to a hostile action.

Boeing directors, apparently viewing the Pickens threat seriously, moved swiftly to erect a complex takeover defense that goes into effect when it designates an investor an “adverse person.”

A stockholder rights plan would distribute purchase rights to common shareholders, enabling them to buy additional common shares at half the effective market price, Boeing said. The plan would exclude the “adverse person” from those purchase rights, which would significantly increase the cost of acquiring the company.

“We believe that this plan protects the interest of our stockholders in the event that they and Boeing are confronted with coercive or unfair takeover tactics . . . including offers that do not treat all stockholders equally,” said Frank Shrontz, Boeing’s president and chief executive.

Officials at Mesa’s Amarillo, Tex., headquarters, did not respond to a Times inquiry. Pickens is one of the foremost corporate raiders, having launched numerous hostile takeover efforts that usually ended unsuccessfully but not before he reaped a substantial profit.

Aerospace industry analyst John Simon said he expects that Pickens’ goal may not be to take over Boeing, but rather to reap a profit by selling out after forcing up Boeing shares from their currently depressed levels.

“Apparently, Pickens has run out of oil companies to pursue and now he is looking for other undervalued industries,” Simon said. “The aerospace industry is selling at a substantial discount to the market. We haven’t seen a biggie go yet, like a McDonnell, a General Dynamics, a Boeing.”

Boeing stock fell 75 cents a share to $46.625 on Monday in New York Stock Exchange trading, which ended for the day before the Pickens announcement. With about 155.1 million common shares outstanding, the company has a market value of about $7.23 billion.

But if Boeing is acquired, it is almost certain to go for a much higher price, at least 20% over its existing market value. At the top end, Boeing could fetch $15 billion or an amount equal to its annual sales. El Segundo-based Hughes Aircraft, as well as other smaller aerospace companies, have sold for amounts that nearly equal their annual sales.

Profit Down 30.8%

A deal valued at $15 billion would be the largest acquisition in history, exceeding the $13.2 billion that Chevron paid for Gulf Oil in 1984.

At its current level of $46.625, Boeing shares are selling far short of where many institutional investors had hoped several years ago. The company is selling at a current price-to-earnings multiple of 15.7, somewhat lower than the average price-earnings ratio of 17.

On Monday, Boeing also reported that its second-quarter profit dropped by 30.8% because of rising costs for research and development and for production.

Boeing earned $117 million on sales of $3.48 billion, down from a profit of $169 million on sales of $4.03 billion a year earlier.

By any measure, Boeing is a critical part of the U.S. defense establishment, with contracts on the Stealth bomber, the Advanced Tactical Fighter and a variety of other aircraft, electronics and missile systems.

It is almost certain that the Pentagon already has been notified of Pickens’ move, but Boeing Vice President Harold Carr said the company would have no comment on that issue. Although the Defense Department can exercise significant leverage under its contracts, it is unlikely to interfere with a restructuring that would affect Boeing’s commercial business, Simon noted.