NADERGRILISTHERAIDER"lIe pairing I BOONE PICKENS TALKS TAKEOVER ~!~:·~uality is disturbing,

. t t RN: Who are the two or threelS!lO as.s range as you you think most highly of?might think. BP: Let me think about that one.Ralph Nader, 51, of Washington, RN: Lee Iacocca?DC, is a lawyer turned advocate BP: I'll say one thing, he bailedwho made America safe from the out a bad situation pretty well.Corvair and a host of other prod- RN: Bill McGowan of MC!?ucts that malfunctioned, blew BP: I don't know him.up, or smelled bad. He spawned RN:But none of them leap out? Noa legacy of consumerism that heroes?has changed the way we live. His BP: I may be unfair. I don't knowtargets have included many com- them that well. I've been prettypanies-among them, General sheltered as far as the oil in-Motors and Ford-all of whom dustry is concerned. And I justhave disliked him intensely. He haven't had that much contactheads the Center for Responsive with them. I mean, sure, all ofLaw and has made many chief them are great guys socially.executives lose sleep. But I haven't done businessThomas Boone Pickens, Jr., 57, of with them. And you don't knowAmarillo, Texas, is a geologist if they're good performers orturned financier who showed poor performers unless you'reAmerica that there is a way to actually in deals with them andmake money from the excesses see how they handle their busi-of companies that are heavy nesses.around the middle and light in RN: Looking at the major oilthe head. He spawned a legacy companies, who's the best man-of takeover mania that may yet ager?change the way we live. His tar- BP: I'd say that's kind of shiftedgets have included many compa- around some. There's no doubtnies-amongthem, Cities Service, that Arco certainly looks goodGulf, Phillips Petroleum, and in what they've recently done forUnocal-all of whom have dis- their stockholders. So I tip myliked him intensely. He is chair- hat to Arco on that one. I wouldman ofMesa Petroleum Company say as far as good explorers areand has made many chief execu- concerned, Amoco has beentives lose sleep. quite good at times. Their rec-Both men think corporate America is and shoulders above the other raiders in ord hasn't been so good the last few years,

taking a dangerous turn. Both are writing terms of his intelligence and creativity." but there's no doubt that number one onbooks about it. Still, Nader is Nader, and he is troubled the list of major oil companies in theThe odd couple was joined when Nader by much of what Pickens has wrought. United States, as far as protecting the

asked to interview Pickens for his book; As a result of takeover attempts, companies asset base of the stockholders, has beenNader subsequently made the full inter- are burdened with debt and small share- Shell Oil Company. They're number one.view available to Regardie's. Co-authored holders are losing their rights. Is Pickens But Shell Oil Company is now a part ofwith Bill Taylor, Nader's book, The Big the great defender of the shareholder, as Royal Dutch. And I would say that it'sBoys, is due out this spring; it will contain he sometimes portrays himself? '1don't unlikely that morale will ever be at theextensive profiles of nine major executives- think so,"says Nader. '1think it's all public level it was.none of whom is Pickens. relations." RN: That was not a good acquisition?'1 saw Pickens as a counterpoint to the In the end, though, Nader kept his cool. BP: Well, it was a hell of a deal for Royal

other executives," Nader explains. "He is '1wasn't there to debate him. I was play- Dutch. But us Shell stockholders sureon their minds. In a strange wa)i he rep- ing the role of journalist. " got screwed.resents the latest corporate accountability RN: There are two schools of thought:fad. I would never have dreamed it 10' RN: When you look at the CEOs of the one says that a big corporation can'tyears ago." top 200 corporations, are you in any way really be changed by the man at the top;Nader says he found Pickens fascinat- worried in terms of the quality, the vision, the other one says that the man at the

ing. '1always like fiercely assertive people," the narrowness? top can change even a big bureaucracy.he says, noting that Pickens "stands head BP: Yeah. I'd say with more than half of BP: That's exactly right. I believe the

COVER STORY

In'teM1iew

80 REGARDIE'S December 1985 PHOTOGRAPH BY ARTHUR MEYERSON

latter. I believe if you're running the BP: More or less, most of them are. ocal'schairman, Fred Hartley,ifhe wouldoperation and you're the leader,youbetter BT: Any ideas on how a CEOcan go about consider paying a higher dividend. Andbe able to change things. Or it's a very making his annual meeting more mean- Hartley's response to it was, you lookpeculiar organization. ingful in terms of solicitingshareholders' like an elderly person, why don't you sellRN:Do you think there is toomuch secrecy opinions and ideas? your stock and go out and enjoy your-in corporate America? BP: You can't go to a shareholders meet- self? Well, it was a ridiculous remark.BP: There is too much secrecy, yes. Look ing and open up the meeting with 500 And a woman followedright up and saidat the stuff they've uncovered about the people and start a roundtable discussion. that she felt the same way - that shemajor oil companies and price-fixing of That isn't going to work. You've got to didn't even have enough to buy a cup ofgasoline. All the price-fixing was done control the meeting. I think sometimes coffee with her dividend. And he said,by telephone. No memos were passed I'm disappointed at what CEOssay when come by my office after the meeting'sback and forth. No letters were passed they stand up in front of a group of over and I'll give you a free cup. Thatback and forth. Files didn't have anything stockholders. kind of arrogance.

AMERICA'S CORPORATE WATCHDOG gO;~~ ~~~r!a7J,srde~~"tt;~~whether to tender my stock, sellmy stock, or hold my stock.Hartley looked at him and said,I'm not your investment adviser.They had a woman get up andsay,why don't you have a womanon the board? He got around tofinally saying that women arenot qualified. He didn't quitesay it, but it was all but that.Then he said that he had a wo-man picked out one time, butshe died. It was a two-hourmeet-ing. I finallysaid, "This meeting'sdragging pretty bad, Mr. Hart-ley."He said, "I like to hear fromall the stockholders." I said,"The problem isn't the stock-holders' questions, it's your drag-ging on the answers."RN: Do you get letters-criticalletters - from CEOsdenouncingyou?BP: No, they never write me.RN:How bad was all that troublewith the private detectives?BP: That's really a sleazy deal.RN: Can you tell us somethingabout that? Was it instigated byall the companies you tried totake over?BP: Everyone of them had thesame people.RN:What was the firm?BP: Jules Kroll & Associates ofNew York.

~ RN:And what was their purpose?BP: To dig up dirt on Boone Pickens.RN: How did you counteract that?BP: They never found any dirt.RN:Anything else? Did you contemplatea suit?BP: Oh yeah, we sued them finally.Kroll,in the Phillipsdeal, calledan ex-employeewho they thought was an enemy ofmine.The irony of the thing was, yes, I hadfired him, but we weren't big enemies.It so happened our families were goodfriends, and our children were. And Krollasked if he would talk about me, and hesaid, yes. And they said, the first thingis, do you know his children? And hesaid, yes. And they said, can you tellus where his children are located? Andhe said, that's all for this interview, andhe hung up the phone. And he calledme and said, they now want to know

in them. But the investigatorsgot enough of the stuff to knowdamn well the oilcompanieswerein cahoots on pricing. That's bad.RN: Are you concerned about therash of corporate crimes?BP: Yeah, I am. I think that's asad situation.RN:What's the solution-strong-er prosecution, tougher enforce-ment?BP: Sure. I have said that timeafter time; you don't have to cheatto win. You don't even have tobend your principles. Becauselet me tell YQU one thing: I canbeat the other side because I'llwork harder than they do.RN: Do you think there is morecorporate crime now than therewas 10 years ago?BP: I don't know. I don't knowthat I'm qualified to answer that.But what I read about it, I don'tlike.RN: Saul Steinberg's attempt totake over Disney-does it hurtyour cause when something likethat happens? You know, puregreenmail. Do they tar you withthe same brush?BP: There's no doubt.Weve nevertaken greenmail. We've nevernegotiated greenmail. We'vebeen very up-front about it.Yet they still call me a green-mailer. So sure, it hurts some-times. But again, I say the cul-prits in the greenmail deals arethe managements of the companies.RN: Aside from the oil industry, are othersectors ripe for takeovers?BP: Anytime market values are at a frac-tion of appraised values, managementhad better get moving. One can putmoney together very fast now,and dealscan be made. I'm not going to identifyany other industries that are ripe fortakeovers-I'll leave it up to you. Justlook at those undervalued assets. Thosepeople are vulnerable.RN: There have been reports that you'renot averse to going into other industries.BP: Weve said that at some time we maydo that. We haven't done it as yet.Bill Taylor: What do you think of the waythat most annual meetings are conductednow? Are annual meetings basically ajoke?

BT: It's as if it's the most painful day ofthe year for most of them?BP: It is. And that's incredible to me. Ilook forward to our stockholders meet-ings. We actually encourage questionsabout the management of the company;and all the directors are there. But at theUnocalstockholdersmeeting inCaliforniathis spring, they turned off the lights. Ithought they hadn't paid the light bill. Itwas dark, likea theater.And the spotlightwas on the CEOup front. You shouldhave seen it.RN: That's one way to daunt the share-holders.BP: That's right. But the questions andanswers out there were unreal. Last yeara stockholder told us that he had gone tothe '84 stockholders meeting at Unocal.He said that he stood up and asked Un-

PHOTOGRAPH BY RHODA BAER REGARDIE'S 81

where your children are.RN: Do you think they were being rough?BP: I really don't think they were goingto do any harm to them. I think whatthey were going to do was harass them.I think they were going to start callingthem up and saying, your dad's a badguy, and stuff like that. [The lawsuit waslater dropped by Pickens.]RN: Has anybody tried to set up a debatebetween you and a CEO?BP: About 25 times.RN: None of them would debate?BP: Hell, no, they won't debate. Theywon't even consider it.BT: Not even Andy Sigler [the chairmanof Champion International and the headof the policy committee for the BusinessRoundtable, a lobbying group made up ofchief executives of major corporations],who's obviously an expert?BP: Oh, no. He's been asked numeroustimes. Leslie Stahl of "Face the Nation"asked every one of them. She said, I'll getsomebody from a major oil company todebate you. She said, is there anybodyin particular? I said, I'll take anybodythat'll sign. She said, well, alright, I'llget one of them. She called me back andsaid, I can't get anybody. I'll tell you whythey won't debate. It's because I've gotthe right side of the issue and I under-stand it.RN: Do some people put pressure onbanks not to lend you money?BP: That goes on all the time. But it'sworse than that. The Business Round-table puts pressure on them.RN: How do they do that?BP:That'sreal easy. They'll tell the banks,you quit doing business with this guyor were going to quit doing business withyou.RN: Does it work?BP: Sure. They eliminated some of ourbanks that way.BT: Iguess Cities Service was one of themost aggressive companies doing that.BP: No. That was back in the early days.The ones that were the most aggressivehave been in the last two deals-Phillipsand Unocal. They got the Business Round-table mobilized.BT: SO it's like the old-boy network.BP: Absolutely. Totally.BT: Do you think that the Business Round-table is the key vehicle for the broadercorporate pressure that operates on peo-ple, as opposed to CEOs just doing it ontheir own?BP: I don't think everybody on the Busi-ness Roundtable is working on my case.I think that the policy committee, whichis headed by Andy Sigler, is certainlyanti-Boone Pickens. So you're going tohave people that are more aggressivethan others. I'm sure I have friends inthe Business Roundtable-people comeup to me and say something that's sur-prising at a cocktail party from time totime. A managing partner of aNew Yorkinvestment banking firm who we've never

82 REGARDIE'S December 1985

done business with sent word to me:"Tell Boone to keep doing what he'sdoing. It should have been done yearsago." So it's interesting where your sup-port comes from. But I can tell you, alot of things that have been going on incorporate America gag a lot of people.Not just Boone Pickens. There are a lotof people that don't like it.RN: Just to get a better description of thiswave of anti takeover defenses that issweeping corporate America, how wouldyou describe it?BP: The only reason the opportunity fortakeovers is there is because manage-ments haven't performed for stockholders.The number one defense against take-overs is to have your stock price up-then the opportunity is taken away. Ifyou want to become vulnerable, thenhave your price at a low percentage ofthe appraised value of the company-therein lies the opportunity. Now that'sit in a nutshell. When these managementscome crying, "Oh my God, they're comingafter us," takeover advisers tell them rightoff that they need to get the price oftheir stock up and they need to do some-thing for their stockholders. Just go backto this basic point: who is it that ownsthe company? The stockholders. Whyshouldn't they be allowed to decide wheth-er they want to sell it or not?RN: In looking over the whole takeoverdrive, what we've noticed is somethingthat the press has virtually ignored-that thousands of companies in the lasttwo years have instituted antitakeoverprovisions, charter amendments, andbylaws. The companies that have neverbeen exposed to any takeover drives arerigging the process. Has your successand the success of others who are doingthe same thing provoked a reaction bythousands of corporate managers whowant to make sure than such efforts arenot going to be successful in the future?BP: There's no doubt about that. They'rechanging the rules, arbitrarily in somecases, just taking rights away from peo-ple. Sometime soon we've got to estab-lish in this country that stockholders doown the company. Not the managements.That's just not the way it was designed.Let me tell you, a lot of CEOs treat

these assets like their own private fief-dom. They have no financial risk, theyhave no ownership, but they have fullcontrol of the assets. It's an incrediblesituation.RN: In terms of defenses, is the antitake-over epidemic going to make it almostimpossible for people such as yourself?BP: It's not. And the reason is this: I stillbelieve that any time you have 51 percentof a corporation, you're going to be in acommanding position. And whether theyhave an 80 percent supermajority vote ornot, there's not any board of directors Iknow of that's going to stand up to a 51percent owner for very long and continueto take financial risk and assume liability

PHOTOGRAPH BY ARTHUR MEYERSON

for the results. They'll do it with owner-ship fragmented all over the world. Butwith a 51 percent owner you're going tohave to have real guts to continue tomake financial decisions where you carihave losses and assume that liability.RN: Let me run down the list of anti take-over measures and tell me which onesyou think are serious and which can beovercome. Staggered directors?RN: A staggered board of directors is nota problem against a 51 percent owner.RN: Elimination of cumulative voting?BP: Cumulative voting is good for thestockholders. It's not a disaster when youdon't have it, but it's an advantage whenyou do have it.RN: The supermajority provision?BP: I think it falls in the same categoryas the staggered board.RN: The Unocal two-tier defense?BP: That's a serious one, very serious. Ifyou're going to be able to discriminateagainst a stockholder, then something'swrong with the system. If that continues,about the only way you can go then iswith a 100 percent cash-tender offer. Lookat the Unocal deal-they called our deala front-end-loaded two-tiered offer, butwhat was theirs? They offered to buy50 million shares of stock for $72. Theybought it. And what's the price of stocktoday? $30. Now that's a two-tiered dealif there ever was one. Ours was a $54/$54deal, and theirs was $72/$30. Now there'ssomething queer.It's really interesting to hear comments

about "hostile" takeovers. In whose mindis it hostile? Look at the R. ]. Reynolds/Nabisco deal- that's $85 on the first step,$42.50 on the backside. But it's okay,because it's a friendly deal; it's friendlybecause they tenured the Nabisco man-agement. Now, if it hadn't been that way,Nabisco's management would have said itwas two-tiered and front-end loaded. Youknow, "Bootstrap! Destroy our company!"All that kind of malarkey. Well, 42 millionstockholders in America are going to haveto understand this and get with it onthese deals. I can point out another one-an unbelievable situation. Can youbelieve that 12 percent-12 percent-ofUnocal's stockholders did not tender theirstock to the $72 offer?RN: They didn't know about it, or what?BP: I don't know. But the chairman ofUnocal did; he tendered to it. Let metell you what that cost the 12 percentwho didn't tender: $250 million.RN: Back to the list. Reincorporation inDelaware?BP: Well, there's no doubt that becauseof the Delaware Supreme Court's decisionagainst us in the Unocal takeover, the Dela-ware courts have established again thatthey will protect managements and boardsof directors under the Business JudgmentRule. That's an incentive, certainly, forcompanies to move the incorporation toDelaware.RN: In the past Delaware has done things

REGARD IE'S 83

like that to attract more charters, goingback 80 years. Do you think that Dela-ware is being more protective of manage-ment in order to get more charters?BP: I don't know. I don't believe I wantto go on record saying that, but I don'tthink there's any doubt that they raisedthe flag for the Business Judgment Rulehere, and probably calmed the anxietiesof managements and boards of directors.They said that the intent of the takeoverwas greenmail. We said time after timethat we would not take greenmail fromUnocal. When we almost reached a settle-ment with Unocal at one point, we toldthem that the settlement would have togo to the stockholders for approval. ButUnocal said it would not. So there wasno way that that court could have ruledthat the intent was greenmail. On thatpoint, they clearly discriminated againstthe stockholder.RN: What about other, more serious take-over defenses - variations of the poisonpill?BP: Well, the poison pill has to be wipedout. I mean, that's something that stock-holders are starting to catch on to andvote against. If you'll give them a littlebit of time, stockholders are just likevoters. They finally get the picture andunderstand what's going on, and theybelieve somebody is not telling the truth.RN: What about greenmail?BP:My feeling is that greenmail is almosta thing of the past, because it's now being

~~ ......".~...,.

understood that those so-called green-mailers were really not the culprits inthese deals. The culprits were the man-agements of the companies.RN:Would those managements be afraidof a backlash if they do that anymore?BP: Oh yeah, I think we're coming aroundto that. I was saying that voters andstockholders are very much alike. Oncethey find out that something is screwy,they aren't going to put up with it forvery long - they'll throw the buggers out.And that's what you're coming down tohere. I think these managements are ab-solutely scared to death to do any green-mail transactions. Now, they'll try to pack-age it·in a different way. For instance,Phillips tried with us. They had a granddesign for how they were going to passus greenmail, but it wouldn't be calledgreenmail. We turned it down. That wasonly three days after we showed up as astockholder. We told them that we weren'tinterested in that. Other companies maytry to do some of that, but greenmail isgoing to be a thing of the past prettyquick. Poison pills are, too.RN: What are the worst poison pills?BP: In the case of Unocal's poison pill,for instance, when we paid $54 for 51percent of their stock, they would buythe other 49 percent for $72. What theywould have done was to collapse thecompany around our equity. We wouldn'thave gotten anything. We would haveended up with a bankrupt company.

BOOTSTRAP: the best interests of GREENMAIL: tended to be syrnpa- lowed by his lowerA raiding technique the company. The practice of ac- thetic to manage- bid for the remainingthat involves using CUMULATIVE cumulating a sizable ments under siege. shares after gainingthe assets of a target VOTING: block of stock in a SHARK REPELLENTS: control of the target.company as col- A mechanism that company, then Any of a variety of UNOCAL DEFENSE:lateral for loans to allows minority selling the stock back antitakeover amend- The target com-purchase the shareholders to win to that company- ments to corporate pany's equivalent of

company. one or more seats on usually at above- charters or bylaws. a two-tier tender ina board of directors market prices - in

STAGGERED which the companyby concentrating exchange for agree- DIRECTORS: under siege offers

their votes on ing not to continue Directors whose to buy back a selecta few can- seeking control of terms overlap. It is portion of outstand-

the company. difficult for a raider ing stock-all thePOISON PILL: -even a raider with shares not owned by

Complex stock a majorityof the stock a raider, for example.provisions - to take control of a This controversial

board of staggered defense was used bydirectors. Unocal to thwart

-7J;..--,t;.." >~ ",,~-,

SUPERMAJORITY T Boone Pickens ear-that are PROVISIONS: lier this year; theused to Bylaw amendments move was upheld by

didates. It has been deter a hostile take- that call for more than the Delawareused by dissident over bid by making a 50 percent vote by Supreme Court.

BUSINESSshareholders to the target company shareholders to ap- WILLIAMS ACT:

JUDGMENT RULE: install critics of man- financially less at- prove decisions The 1968 federalThe legal principle agement. tractive. such as mergers. law that providesthat says corporate GOLDEN PARACHUTE: REINCORPORATlON: nw·TIER protection for share-managers need not A severance agree- A takeover defense TENDER OFFER: holders during tenderseek shareholders' ment for senior exec- that transfers the cor- A raider's bid to pur- offers. Basically, theapproval for most utives that often pro- porate charter to an- chase some of a law gives everyonedecisions, as long vides substantial other state, usually target company's a fair chance to sellas they believe those benefits in the event Delaware, where shares at above- their stock at thedecisions to be in of a takeover. laws and courts have market prices, fol- same price.

Source: Investor Responsibility Research Center

84 REGARDIE'S December 1985

RN: Isn't there a poison pill that involvespreferred stocks?BP: Yes, there is. And then they've gotan exploding pill. There are all kinds ofvariations of the pill.RN: Why do you think that's going to bea thing of the past?BP:When you put the pill in, you're takingrights away from stockholders. Theydon't get to see the offer. The offer goesaway if the pill sticks.RN: SOwhat's going to make the pill goaway?BP: The pill itself-that's exactly whatkilled the Phillips recapitalization plan.The pill was so repugnant to the stock-holders that they voted against the recapplan. I think the picture's becoming clear-er and clearer all the time.RN: What about the ultimate takeoverdefense - issuing two kinds of commonstock, like they do at the WashingtonPost and the New York Times, for ex-ample. The family-owned common stockis voting stock, but the non-family-ownedcommon stock is nonvoting. The NewYork Stock Exchange is about to approvethe listing of corporations with two kindsof common stock, voting and nonvoting.BP: There should be legislation againstthat.RN: Isn't that the ultimate anti takeoverdefense?BP: Sure. If I put one in Mesa Petrole-um and said, there's going to be just oneperson who can vote and that's going to

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be me, that's exactly what you have. Butthat's so bad, so counterproductive, andagainst the free-enterprise system thatit's incredible. I would be in favor oflegislation to protect stockholders' rights- that my 100 shares are going to getjust as many votes as your 100 shares.RN: The New York Stock Exchange hasalready indicated that they're going toapprove it, because they don't have anychoice. General Motors wants it, and theNYSEwants the Washington Post on, andthey're worried about competition fromover-the-counter markets and the Amer-ican Stock Exchange.BP: I think it's time for the NYSE to haveguts and say fine, if that's what you wantto do, you need to go down the street,fellows.RN: Are the shareholders going to havemore rights in 1986 than 1976? Or isthe rebound-the backlash-so severewith the antitakeover defenses that man-agements are getting shareholders toapprove, that basically it's going to endup with fewer opportunities to makemanagement accountable?BP: Ithink that '86 will be certainly worsethan '76 was. And I think that '86 willeven be worse than '85. But I also seethe thing turning, too.RN: How is it going to turn?BP: You're going to see stockholders be-come very aware of the situation. They'regoing to be very suspicious of manage-ments, and they're going to revolt.

Interview

RN: Do you give much credence to thisinstitutional stockholder group, the pen-sion fund managers?BP: Sure, but I was disappointed in theway the California pension fund, withover a million shares of Unocal, votedwith management.RN:Why do you think the Council of Insti-tutional Investors was formed by Cali-fornia's state treasurer, Jesse Unruh?BP: I know why Jesse formed it, and Icommend him for what he did. The coun-cil represents $100 billion. There's $38billion out there in California. That's ahuge number that Unruh has fiduciaryresponsibilities for. They're going to bringsome accountability.RN: Do you think pressure for account-ability will come from the institutionalshareholder, or the individual shareholder,or both?BP: The institutional shareholder will lead,because they have research at their finger-tips and they have fiduciary responsibility.So they have the answers to the ques-tions, or they have recommendations fromexperts. And as a fiduciary, you've gotto act on your recommendations, in mostcases. But a lot of that's got to be clearedup. You've got some very weak fiduciar-ies in the system, and you've got somethat are very strong, headed by DeanLebaron at Batterymarch.

RN: Do you foresee a reversal of theseantitakeover changes in corporate bylaws?BP: It's already starting. I think you'regoing to have a reversal. Shareholdersshould vote on these things every year.RN:Well, that'll have to be by legislation.BP: It may have to come by legislation.You may also have industry leaders whosay, we will vote on these questions everyyear. When that happens, it puts pressureon other managers.RN: On the one hand, you have manage-ment changing the charters and bylawswith the supine approval of the share-holders, who may not know what they'redoing. On the other hand, you have theDelaware Supreme Court. How can youcombat those two unless you have federallegislation?BP: Well, you can have legislation. Butas far as the Delaware decision is con-cerned, that can be taken care of by theSEe under the Williams Act.RN: You think it will?BP: I think it will. I have confidence thatthe SEe knows its responsibility to lookafter stockholders. There just happens tobe 42 million stockholders out there, asyou well know. And somebody has gotto come forward and say, these peoplehave to be taken care of.RN: That means someone may have topetition the SEe?BP: The SEe has already made remarksto the press that they're looking at thissituation very closely, at what happened

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~--------------------------88 REGARDIE'S December 1985

in Delaware. It's going to give themstarch to do some things. And I thinkyou're going to see the Delaware decisionprobably taken care of by the SEC. As faras getting these charter amendmentsvoted on every year, I think that's goingto take a little while to do.RN: Do you see the possibility that you,and other people who are doing the samething that you are - Carl Icahn, IrwinJacobs-do you see the need for estab-lishing an advocacy group that just doesthat? Changes are not going to happenvery fast by themselves-maybe a com-pany here or there. But what about ashareholder advocacy group to work theSEC route-the direct annual meetingshareholder-proxy route, the public opin-ion route, the litigation route. You've gotall these shareholders out there andyou'vegot Jesse Unruh's fiduciarygroup,but you don't have a professional, fullystaffed advocacy group to turn the tide,whichisnowoverwhelming.Even family-owned businesses are passing antitake-over defenses against their relatives. Thecount must be in the tens of thousandsin terms of changed bylaws.SP: It's ridiculous. But that's what you'vegot to have happen. It's almost like asellingor buying climax in the stockmar-ket. You finally have to have somethingwild happen for somebody to say, holdit, there's something going on here that'snot quite right. But I have always be-lieved that this revolt will be led by theinstitutional holders. They will be theones who will lead, because they haveto. If I'm a fiduciary,let me tell you, whenI get that research recommendation toaccept a tender offer or not, I've got aneasy call. I'm not going to go againstthat. But it doesn't always work like itshould. In bank trust departments, theyoften reverse the recommendations. Youknow why? Because there's no Chinesewallbetween the commerciallending sideand the bank trust department. In theGulf deal, we saw trusts where, out of aseven-person proxy committee, we hadit wongoingaway,and wewere reversed.We were reversed at the top.RN: Because?SP: Because they got the pressure fromoutside. Youwon't believe the pressuresthat are involved here. For instance, inone case, I knew I had one block of stockthat was committed to us in the Gulfdeal. But there was pressure put on thatparticular investment adviser to go withGulf management. This pressure wastotallyremoved fromGulf. It was anothercompany.The CEO called the investmentadviser and said, vote with the Gulfmanagement, because we're thinkingabout investingsomeofourpensionfunds,and we're looking at your firm right now.It's that kind of pressure that is comingto bear on these money managers.RN: For years, fiduciaries have been satis-fiedwith very lowrates of return. I mean,the record of the New York banks on

InteMJiew

their trust returns is about 5 percent overthe years. There's nobody, really, to puttheir feet to the fire.SP: That is what bothered Unruh. You'vegot these California state employees,retirees, and present employees-whatkind of results are those people getting?That's the 5 percent you're talking about.That's ridiculous.RN: But my point is, nobody will makethem accountable. They've been gettingaway with it for years. What I'm talkingabout is: isn't it more likely that thechange here couldcome from the leadingtakeover advocates such as yourself, interms ofan advocacymovementfor share-holder rights? Isn't that where the realpower can come from? The institutionalholders - they should have an interest, Iagree- but they've been sitting on theirduffs for years.SP: Again, though, a lot of them aregraded on performance. This is one ofthe really funny parts of this whole thing.For instance, you've got retirement ac-counts over at Unocal, and the companyhas them scattered around with five orsix different money managers. They'recomparing performance all the time. It'sreally interesting, because corporateman-agers will say, listen, Pickens is just forshort-term performance, not the longterm. And then they're overwith the pen-sion fund manager saying, you'd betterget yourperformance up, orwe're movingthe funds away from you.RN: SOyou don't think it's necessary forthe leading takeover specialists to forma shareholder defense group, given thewave of antitakeover defenses and theDelaware court, and all the other prob-lems that are coming on the horizon-the backlash?SP:Well, let me think about that. That'sa new one for me, because these peoplewho have made offers for companies-the aggressiveones that have made thingshappen-are all individuals. When youstart taking those people and trying toput them into a group, they generallydon't work well together.RN: Do you contact them often?SP: I talked to Carl leahn probably sixweeks ago, and I talked to Irwin Jacobsthree weeks ago. So we're not in constantcontact at all. In fact, I don't even knowwhat deals Irwin's in right now. I knowhe's reported to be the largest stock-holder in ITT.RN: Isn't that ironic?SP: And Pioneer Corporation. And I lookat Carl's TWAdeal. Can you believe thoseads they ran against Carl? Here he owns34 percent of the company, and they say,we're not going to let you take over "our"company. It was signed by the CEO. Hedoesn't own any stock.RN:What about the argument, the claim,that you're really not interested in ever

d

D

managing these companies, that yourinterest is to primarily provoke them intobeing better managers?BP: We wanted to run everyone of thecompanies.RN: You really did?BP: Absolutely. I'd love to run one of them.Man, if only we'd gotten our hands onCities Service, or Gulf, or Phillips, orUnocal. The last two offers, Phillips andUnocal, were for the entire company, andnobody topped the offer. It was a $60offer for Phillips. How they explainedthe lower price of their recapitalizationto the stockholders, I do not know I mean,if I were a stockholder, I'd be all overthem on that deal. And with Unocal wemade a $54 offer, and the blended pricenow is 10 points under that. So they'recosting their stockholders today $2 billion.And why the hell somebody doesn't jumpon them, I don't know.RN: Give us your response to the argu-ment that now that these oil companiesare heavy in debt, the next time thatthere's an energy crunch and they'reasked to explore and produce they'regoing to say, Washington, you're goingto have to pay for it because we're toomuch in debt and we don't have anymoney.BP: That's a myth. Let me tell you whatthese oil companies were doing, the onesthat have been recapitalized. Most ofthem are spending money, and not get-ting very good results for it. In fact, inmost cases it has been pitiful. And theconsumer will suffer anytime you haveinefficiencies. Eventually, the consumer'sgoing to get stuck for it. In the case ofPhillips, that company had $2.5 billiona year in cash flow. They had moremoney than they had investment oppor-tunities. Consequently, they were makingbad investments. What you've done hereis transferred equity to the owners. Thestockholders of the company have justreceived the equity out of the deal. Andso now you have debt in the company,which has plenty of cash flow to amortizethat debt. All that does is make the com-pany more efficient. That's it.RN: Why were they putting their moneyin inefficient investments? There are alot of other things they could acquireoutside of oil.BP: Well, you didn't like that when Mobilacquired Marcor. You didn't like it whenReliance Electric was acquired by Exxon.And you didn't like it when Kennecottwas acquired by Sohio. And you didn'tlike it when Anaconda was acquired byArco. The people have proved that theyare not good managers - certainly of as-sets away from their industry= and it'squestionable whether some of them aregood managers of assets within their ownindustry. So again, we're back to the pointthat there's more money here than thereis in investment opportunity.RN: You think Exxon is performing theway you want it to perform now? ~

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Interview

BP: I'd say they're doing a lot better jobthan they have in the past. Can youbelieve that the best decision Exxon hasmade in the last 10 years is that theybought their own stock ? You don't needa hell of a lot of people around to comeup with that decision. How much betteroff do you think Exxon would be if theyhadn't bought Reliance Electric and hadbought more of their own stock instead?That was a $2 billion mistake, that's all.RN: Why haven't more of the companiesyou've gone after turned around -likeCities Services-and tried to gobble youup?BP: Because we've got all the shark re-pellents in there. That question wasasked of me in the Senate hearings earlierthis year. You know what my responsewas? Any offer that's not a counterofferwill go to our shareholders. If today RalphNader wants to make an offer for Mesa,then I won't spend a dime of the stock-holders' money to stop that offer fromgoing to stockholders. And we will re-move all the golden parachutes. Now, we'lltake our stock options and our deferredbonuses. We'll go ahead and let thosemature, because those were earned byprior performance. But as far as my gold-en parachutes are concerned, I've said,listen, the day that you take over thecompany, you don't have to pay me pastfive o'clock that day.RN: SO you'd use repellents only whenit's a counterattack?BP: That's right. That's all. We've gotgood barbed wire in there for them. Andthey've all looked at it and decided thatthey can't work through it fast enoughbefore we take them over. But that's theonly reason they haven't come after us.RN:What about the proposal that anybodywho has more than 5 percent of a com-pany's stock should be able to sit in ona board meeting? Or 10 percent?BP: Anytime anybody makes an invest-ment like that in Mesa Petroleum, I cantell you what I'll do. I'll call him up andsay, listen, you're a big owner and youmade a big commitment here. I'd like toget with you and find out what you wantto do, and I believe you ought to comeon this board. That's the way I'd do it. Idon't see anything wrong with sayingthat anytime anybody had 5 percentinterest or greater they should have anopportunity on the board. You know, theGulf board owned less than one-hundredthof 1percent of the company, and we owned13 percent. If they had asked me to comeon the board, I would have said, I'll beglad to come on the board, but I think tomake this thing right we ought to havethe majority of the board members. Ofcourse, they would have screamed likehell on that. Out of 13 board members,I would have sawed off with them andsaid, if you want to give me three mem-

bers then I'll come on there. But oneagainst 12 is not much of a deal.RN:How is the Business Roundtable goingto go after your type of activity? What'stheir strategy?BP: They're working diligently to try toget anti takeover legislation, just like thepeople you've interviewed.RN: SOit's reflected in the bill that they'resupporting?BP: They're supporting anything that willentrench management. Of course, the firstthing they do is yell about national secu-rity. They say, this is against nationalsecurity, this is against America. They'realso saying, we can't have any researchand development because these peopleforce us to concentrate on the short termand not the long term. Well, those areabsurd arguments, and they can be brokendown quickly. Have you got ProfessorMichael Jensen's study from Harvard? Hegoes through there and just points outmyth after myth. What's happening is,the Hill is catching on to all this. Theyhad Fred Hartley up there earlier thisyear. He went on for about 20 minutes injust a rambling diatribe. He called me ajackass and ...RN: At this hearing?BP: Yes. He said that any jackass can dowhat Pickens has done, something likethat. Then he made the Unocal deal thewhole subject of his testimony, and thatwasn't what they had asked for. And thenhe pointed to Senator Alfonse D'Amatoand said, you have to do something aboutthese barbarians that are destroying Ameri-ca! You have to! And D'Amato laughedat him and said, what do you have inmind for us to do, Mr. Hartley? You know,as if it was a joke. Hartley said, you heardme! You know what's wrong: if Pickenstook over Unocal, 22,000 people wouldlose their jobs.And so when [European takeover spe-

cialist James] Goldsmith had an oppor-tunity to talk, he said, I've got to speakto that. He said, I didn't plan to get intothis, but if Pickens took this companyover and he couldn't make it go, 22,000people wouldn't lose their jobs- Pickenswould lose his job and somebody elsewould take it over. When I got to say some-thing, I said that I had to analogize toThe Caine Mutiny. I said, I think we'vejust seen Captain Queeg testify here today- he all but had those three steel ballsin his hand.RN: Are you going to write a book on allthis?BP: Yes, we're writing right now.BT: SOyou've kept your records, if not adiary?BP: Oh yeah. It will be out in the springof '87.RN: In your book are you going to namenames?BP: Oh yeah. I'll have it all in there.RN: Any movies being done on you?BP: On me? Yeah, I'm in one. TarzanReturns. m

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REGARDIE'S 91