How citizens and businesses rally round when a takeover threat strides into town
Unocal, CBS, Uniroyal. Right or wrong, the biggest merger boom in US history is sweeping across corporate America. The almost daily exploits of the hostile takeover kingpins -- T. Boone Pickens Jr., Carl Icahn, Victor Posner -- continue to grab the media spotlight. But there in the middle, caught in this flurry of economic change, are individuals, families, sometimes entire towns. Debate over the larger economic impact of mergers has gone on for years. But little, if any, attention has been given to communities affected by these takeovers.
Take Bartlesville, Okla., home of Phillips Petroleum.
Last December, Phillips management refused to cede control to the largest shareholder, Mr. Pickens. The two sides spent a month wrestling for control of the 11th-largest oil company in the United States. Then, for several months, Carl Icahn jumped into the ring.
Meanwhile, the Bartlesville economy ground to a halt. Fear gripped the small but relatively affluent town of 38,000. Pep rallies and nightly prayer vigils were held as the fate of 8,000 residents, many of them Phillips employees, seemed to hang on the takeover outcome. At the height of the holiday season retail sales slumped, the real estate market shriveled. ``Anybody trying to sell anything was hurt,'' recalls Joseph S. Seward, general manager of Martin's, a downtown department store.
It did not matter that perhaps Phillips management had been lax; that perhaps Phillips stockholders deserved a higher return on their stock; that the stockholders -- the owners -- may have had every right to decide the company's destiny; that perhaps lower oil prices were inevitably going to force mergers and layoffs; or perhaps in the long run the oil industry and the nation's economy would be better for these mergers.
Indeed, those are some of the broader arguments Congress is weighing as it looks at takeovers. But when your job, your way of life, is at stake, those issues don't seem awfully relevant:
``. . . a bunch of money-hungry strangers are trying to decide the fate of my town, my friends, and my family. It may be legal but it's not right!'' wrote Bartlesville resident Judy Morris in a letter to the House Energy and Commerce Committee.
``There is something fundamentally wrong in America that a $16 billion company who is financially strong and interested in long-range developments for itself, the country, and humanity on one day can then on the next day, after a run on it by Mr. T. Boone Pickens, be reduced to a debt-ridden, short-term, cost-cutting entity,'' wrote John R. Norell, president of a Phillips research subsidiary in Bartlesville.
By March, Phillips was free of the sallies of Mr. Pickens and Mr. Icahn. But it was saddled with $7 billion in debt. To reduce the debt, Phillips will sell some assets, and management is considering plans to trim staff through attrition and possibly early retirement.
Post-takeover Bartlesville is recovering -- but slowly. ``People are convinced now that there is going to be a community, although they're not sure if they're going to have a job,'' says David Oakley, of Oakley Pontiac Buick. Car sales are ``better now,'' he reports.
``On the surface there's a better attitude,'' says Mr. Seward at Martin's department store. But he adds, ``From the actual numbers standpoint,'' retail sales are off 10 to 30 percent.
Robert E. Lyons, president of the Peoples Federal Savings & Loan, confirms that the financial turnaround is lagging. ``We have customers from various enterprises reporting business is off 30 percent. You take a hardware store, a soft-goods store, and reduce sales 30 percent, couple that with a reduced Christmas season, and these people are really hurting.'' Home sales are slow, too, despite the fact that ``interest rates are the best they've been in years,'' Mr. Lyons says.
``I've been really amazed at the impact of this on all walks of our community,'' he adds. ``But on the other hand, we are a very small community. And we are a very religious community, we will survive.''
Certainly, a one-company town such as Bartlesville is an extreme case. In a larger city, the effects of a merger are less drastic and more difficult to measure.
A couple of years ago, Cities Service Company (based in Tulsa, Okla.) was taken over by Occidental Petroleum after a run-in with Mr. Pickens. One casualty: A Cities Service skyscraper slated as the new headquarters. After the merger, what was to be the tallest building in Tulsa -- the source of numerous construction jobs -- was capped at 16 stories. Some locals now call it ``The Stump.''
Of course, when two companies merge there is a consolidation of overlapping positions. At Cities Service, the Tulsa work force dropped from about 5,000 to 2,500. But much of that reduction was due to the sale of two local subsidiaries which are still operating in Tulsa. ``I'm sure there's been some reduction through attrition, but our people have gone to Occidental and Occidental people have come here, so it's difficult to say if there has really been an impact on Tulsa,'' says Linda Hauser, a Cities Service spokeswoman.
Clyde Cole, head of the Tulsa Chamber of Commerce, says, ``We were never hit in the way Bartlesville was.'' He points out that Cities Service is just one part of an oil industry segment that accounts for only 10 to 15 percent of the Tulsa economy.
In Pittsburgh, the headquarters of Gulf Oil, the story is similar. Gulf Oil and Chevron merged recently after an aborted Pickens takeover attempt. Since Chevron is the lead company, an estimated 1,900 Gulf executives and support staff have retired early, relocated, or found employment elsewhere, or will do so. The Gulf offices in Pittsburgh will be closed.
The impact on Pittsburgh's economy? ``I don't see this as a big deal,'' says Ben Fischer, director of the Center for Labor Studies at Carnegie-Mellon University. ``There are over 1 million jobs in the area. The drop at Gulf is almost an accounting error. On the other hand, with the state of the economy here, any negative development is fairly serious.''
Irving Rubinstein of the Pittsburgh Private Industry Council confirms that ``There has been no impact yet in terms of unemployment. The kind of people you find at Gulf headquarters are flexible and employable people.''
But ask the Pittsburgh Symphony Orchestra if it will miss Gulf. ``Of course it's upsetting,'' says Mary Ellen Miller of the Symphony Society. Gulf was among the top 10 corporate supporters. ``Over the past 10 years we received close to $800,000 from Gulf. We're receiving a gift for symphony operations in 1985, but I understand that will be the last from Gulf.''
Ms. Miller notes that Chevron has a matching employee contribution program, but it is less generous than Gulf's.
A drop in corporate support for the arts is not uncommon when a merger occurs and the headquarters is switched. Some 70 percent of a corporation's philanthropic donations typically go to the city where it is headquartered, according to a study of 130 companies by Katherine Maddox McElroy, an economist at TCS Management in Nashville, and John J. Siegfried, at Vanderbilt University. Their findings are part of the book ``The Impact of the Modern Corporation,'' published by Columbia University Press in 1984.
In 41 percent of the mergers with a headquarters switch, however, corporate donations increase. ``The reason is that most mergers involve a large firm with a substantial systematic contributions program that acquires a smaller firm with a small, unstructured contributions history. The extension of the larger firm's more generous policy frequently benefits the community of the acquired firm,'' the study's authors write.
This study raises a relevant point in determining the impact of a takeover. In the long run, it may not be that merger itself is detrimental or beneficial to a community. Rather, the deciding factor is management policies and attitudes -- the social sensitivities of the company.
For instance, despite the furor in Bartlesville, Mr. Pickens has maintained, in each takeover bid, that his Mesa Petroleum staff would relocate to Bartlesville, Tulsa, or Pittsburgh as the case may be.
As for saving jobs, it is merely speculation as to whether the assets Pickens would have sold to cover his debts would be different from those sold by Phillips management to cover its debt.
In any case, selling an asset doesn't necessarily result in lost jobs. As Carl Icahn said in a recent House subcommittee hearing, ``If you sell a refinery, it does not mean all of the people go out of work. If we sell a refinery, someone else is going to use that refinery. . . .''
At one point, the 54-building Gulf research center near Pittsburgh appeared to be a casualty of the Chevron takeover. This month, however, Chevron announced it was donating the $150 million facility to the University of Pittsburgh. ``Gulf was considering this before the merger because they were moving a lot of their lab work to Texas,'' says Wesley W. Posvar, president of the University of Pittsburgh. Dr. Posvar points out that Chevron isn't just dumping the center, either -- it's kicking in an extra $3 million. With an additional $3 million in state funds, the university plans to turn the center into a corporate research park and lease the facilities. Posvar hopes to bring employment at the center (now at several hundred) back to its Gulf peak of 2,000 within five years.
Measuring the local effects of a takeover is often muddied by other economic noise. For instance, the drop in oil prices has forced tens of thousands of layoffs at Gulf, Phillips, and Cities Service in the last four years. Would managers of these companies be cutting staff now even if Pickens or Icahn hadn't come along?
Frederick M. Scherer, a Swarthmore College professor, has done some of the most thorough research on mergers over the last decade. But he says, ``Hostile takeovers are such a recent phenomenon, there's a dearth of data. There is not a lot of research being done. The fact of the matter is that it's very hard research to do. There is anecdotal evidence but little statistical evidence.''