Byplay for Phillips Petroleum put lift in otherwise down market

It's becoming an annual event. With winter approaching, the stock market goes into hibernation, and the little heat that is generated comes from takeover bids.

At the center of the latest bids are familiar characters.

T. Boone Pickens of Mesa Petroleum in Amarillo, Texas, has a stake in Phillips Petroleum of Bartlesville, Okla. Mr. Pickens says he's preparing to tender for more and contends he wants to run the company.

But as with his earlier bids, he just might settle (aw, shucks) for a big buyout of his position.

Investor Irwin L. Jacobs has bought big blocks of ITT Corporation, which is also seen as a prime takeover candidate. Mr. Jacobs's intentions are unclear.

If recent history is a guide, conditions could be right for these takeover moves. The Dow Jones industrial average has been in fairly steady decline (closing at 1,163.21 Friday, down 25.73 points for the week.)

A steep drop in the price of Union Carbide stock after the disaster in Bhopal , India, contributed to the Dow's slump. It is one of the 30 stocks in the index. But activity involving Phillips, Mesa, and ITT broke the fall somewhat.

Weak stock prices and lower interest rates help corporate raiders in their bloc purchases.

Earlier this year, when the stock market was sliding as it is now, takeover specialists moved in, too. Gulf, Texaco, Walt Disney, and a score of lesser eminences in the corporate world came under attack from corporate raiders such as Pickens, the Bass brothers of Fort Worth, and Saul Steinberg of Minneapolis.

Prudential-Bache market strategist Hildegard Zagorski notes that takeover activity increases as interest rates come down, allowing big investors to finance their stock purchases more easily.

That Pickens would make a bid for another big American oil company was an open secret. The Texas oilman-cum-financier has freely fessed up to his strategy.

Six weeks ago, well before it was public knowledge that he was buying a stake in Phillips, Pickens talked frankly with the Financial Analysts Federation in New York. He was candidly reconstructing the bid he made for Gulf and the bonanza that fell to him and thousands of other Gulf shareholders when ''white knight'' Chevron bought the company.

''This game is not one that is new to us,'' Mr. Pickens said. He was referring to a string of similar, if less complex, moves he and his Mesa Petroleum associates had made in recent years against Aztec Oil, Superior Oil, City Services, and General American.

''The most undervalued situation in our industry is the majors,'' Mr. Pickens said, referring to the major oil companies.

Pickens urged financial analysts not to forget the ''fiduciary responsibility of institutional investors to their shareholders,'' which he said is to maximize return on investment and not to hold a particular stock out of a sense of loyalty to a corporation. That is an important point, it turns out, in the fight he is now waging.

Phillips is largely held by institutional investors, and Pickens's bid to take control of the company may require their support.

He and his partners plan to ask Phillips shareholders for their consent to remove the Phillips board of directors, as part of the group's bid to acquire the 10th-largest US oil company, according to a filing with the Securities and Exchange Commission.

The Mesa group, which holds 8.8 million Phillips shares, said Friday it would like to buy 23 million shares. Late in the week an Oklahoma court issued a temporary restraining order blocking the Mesa move, but a Delaware court issued a conflicting order. If he controls Phillips, Pickens could use its assets to acquire outstanding stock in a leveraged buyout. All of this caused Phillips's stock to rise toward $60. Mesa was active, too, as was Kerr-McGee, which some analysts say could be purchased by Phillips as sharkproofing.

Market technician Philip B. Erlanger of the Advest brokerage in Hartford, Conn., has long viewed Phillips, Mesa, and certain other oil companies (Pennzoil , for instance) as attractive because of the continuing large purchase of those stocks.

He sees these particular takeover-type stocks as ''relatively insensitive to market activity,'' which he currently has great trepidation about.

''I've been watching the positive volume figures in these stocks, and as an investor I've held on,'' says Mr. Erlanger.

What do you do now? Given the possible complications that can occur (a legal ruling or a ''sharkproofing'' maneuver by Phillips), Erlanger recommends holding onto Phillips stock but perhaps buying ''puts'' as a hedge. If Mesa makes out as it did on the Gulf deal, he says, then one might roll over the money into Mesa or even Pennzoil.

Looking at the market as a whole, Ms. Zagorski of Prudential-Bache says her brokerage's technical analyst thinks it possible the Dow could drop to the 1,120 -to-1,140 range before it turns upward. She notes that uncertainty about tax policy and corporate profits have caused many investors ''just to sit on their hands.''

But news such as the decline in the November unemployment level to 7.2 percent, she says, indicates the economy may not be slowing as much as some investors have feared.

''We really don't expect a very good market for the rest of the year,'' she says. ''But as things fall into place, the '85 market should pick up.''

Interest rates Percent Prime rate 11.25 Discount rate 8.50 Federal funds 8.63 3-mo. Treasury bills 8.63 6-mo. Treasury bills 9.10 7-yr Treasury notes 11.62 30-year Treasury bonds 11.68 Source: Bank of Boston

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