A showdown at Gulf Oil over T. Boone Pickens's breakup plan

By , Staff writer of The Christian Science Monitor

Maverick Texas oilman T. Boone Pickens Jr., of Amarillo, ponders the question for no more than an instant. ''We're in it to make money,'' he says frankly.

If Mr. Pickens is right, the money could be enormous. By splitting the Pittsburgh-based Gulf Oil Corporation into its constituent parts, these would be worth billions of dollars more to shareholders than the company as a single entity, he argues. The price of Gulf stock, which has traded this week in the $ 43-to-$45 range, could double; dividend taxes for many shareholders would diminish; and a separate stream of income, in the form of royalties from oil and gas, would be available to shareholders.

But so controversial is the plan that Gulf management has taken the unusual step of asking stockholders to allow the company to switch its corporate charter to Delaware from Pennsylvania.

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In Delaware, laws would enable Gulf to abandon cumulative voting, a system by which shareholders pool their votes in order to elect a single director. Cumulative voting could put Pickens and two or more allies on the Gulf board during the shareholders' annual meeting next May.

A showdown on this point is taking place at a special stockholders' meeting today in Pittsburgh, Gulf's current corporate headquarters. Results of the voting on the question of reincorporating Gulf may not be known until next week, but most analysts expected Gulf to have a tough time convincing shareholders they should yield their say in corporate affairs. For the past two months newspapers have been rife with highly critical advertisements by the Pickens-led Gulf Investors' Group - and equally critical counter-ads from the Gulf corporation.

If Gulf wins this preliminary battle, Pickens admitted in an interview with the Monitor Nov. 30, ''it would probably be harder for us to deal with Gulf management.'' If the Pickens faction prevails, Pickens and several of his associates will probably try to win seats on the 13-member Gulf board and continue to campaign for a major restructuring of the corporation. Failing that, Pickens could set up his group to be bought out by Gulf at a sizable profit.

Pickens in the past four months has bought heavily into Gulf and now owns roughly 12 percent of the company's 165.3 million shares. Why target Gulf? Pickens is asked.

The US oil and gas industry, he argues, is ''in liquidation.'' Most large oil companies are depleting their reserves. New reserves are tough to find. The international price of oil is in danger of dropping further. Oil companies like Gulf are awash in capital from their inventories of oil and are inefficiently using that capital to ''maintain an empire.''

''Gulf happens to be one of the most flagrant violators of protecting their reserve base,'' he says, ''and that's the primary asset of the Gulf stockholders. So there's some great urgency here to do something about these assets.''

Pickens wants to force Gulf management to spin off its oil and gas pumping operation and slim itself down. Under his theory, shareholders would directly receive units representing the income from oil and gas operations, and the total stock price and dividends would be twice the value Gulf has now.

This plan to carve a ''royalty trust'' out of the company appears to have paid off at Amarillo's Mesa Petroleum, of which Pickens is founder and chairman, and at several small oil companies. If used at Gulf, it would be its largest application to a vertically integrated oil and gas conglomerate - that is, a company that not only finds crude oil but manufactures its products and sells them at its own service stations. And if it works at Gulf, the concept would likely spread throughout the petroleum industry.

''We have a plan to enhance values which would cause the price of stock to go up,'' Pickens says. ''All stockholders should benefit. . . . All we want to do is spin off to the stockholders - the owners of the company - 25 percent of the company's cash flow (about $750 million a year) to be set up in a trust for stockholders.''

Gulf Oil officials differ vehemently. They argue that Pickens and the corporate investors he represents are the only ones who would benefit from Pickens's proposal; the ''royalty trust'' he proposes would not perform particularly well on the financial markets; the remaining corporate operations of Gulf would lose so many assets that the company's stock price would plunge to less than $10 a share; and individual shareholders (as opposed to corporate shareholders like Pickens and his allies) would suffer substantial taxation from the proceeds of the proposed royalty trust.

''All of the royalty trusts spun off so far,'' says Gulf corporate spokesman Keith F. Anderson, ''have been by small exploration companies.''

Anderson says today's meeting on the question of reincorporation and termination of cumulative voting is designed to ''close a loophole'' because of concern that one person or a small group of shareholders could exploit the voting arrangement and put disruptive members on the board of directors.

''It's just not a good idea to have dissidents on the board,'' Mr. Anderson says. ''Pickens says he is working for the interests of one group, the Mesa shareholders, and that can be detrimental to the majority of shareholders and detrimental to the conduct of our operations.''

Not so, says Pickens: ''There has to be somebody to look after the stockholders' interest. They make me out to be some kind of horned monster that's going to come in breathing fire and cause them all these troubles. Well, if the stockholder thinks about that they should think, 'By golly, why do they have concern about Pickens being on the Gulf board?' My record's good. I've made a lot of money for stockholders. I consider myself very much to be a stockholder's advocate.''

Gulf's top executives own very little stock in the company, Pickens complains , and ''consequently they never think like a stockholder.''

Corporate controversy is not new to Pickens. Past financial maneuvers have been as rewarding as oil and gas ventures. Mesa attempted to take over Cities Service Company, and in the end realized a 20 percent profit on the sale of 4 million shares of stock. Similar takeover moves involving General American Oil and Superior Oil brought Mesa shareholders substantial gains.

Pickens insists he is no crank stockholder. Besides being chairman of Mesa Petroleum, he is chairman of the board of West Texas State University, chairman of the board of the University of Texas' M. D. Anderson Medical Center, chairman of the Texas Research League, and serves on the boards of the Hughes Tool Company and Texas Commerce Bancshares.

''I serve on a lot of boards,'' he says, ''and I've never had a problem working with members.''

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