Essay on "Boone Pickens"

Essay 8 pages (2886 words) Sources: 7

[EXCERPT] . . . .

Boone Pickens

"The Business Roundtable says takeovers lead to job losses, but the Roundtable is only against hostile takeovers. Friendly deals are okay, regardless of how much debt is taken on and how many jobs are lost. The Business Roundtable says takeovers are hurting the U.S. economy, yet 76% of its members have carried out takeovers in the last three years. How hypocritical can you get? Over 125,000 jobs have been lost recently by the three biggest U.S. companies, none of which is threatened by takeovers…" (T. Boone Pickens, 1988).

Boone Pickens is among the best-known corporate dealmakers in America, and his reputation was actually established in the 1980s when he became known as one of the top corporate raiders in U.S. corporate circles. This paper reviews his life, the years when he was building up Mesa Petroleum, the takeovers he manipulated, the money he has given philanthropically, and some of the controversies he has been involved with.

Pickens' Biographical Information

Pickens was born on May 22, 1928, in the little town of Holdenville, Oklahoma. He was an only child and his father was Thomas Boone Pickens, Sr., and his mother was Gracee (Molonson) Pickens, according to the Gale Encyclopedia of U.S. Economic History. His father, who claimed to be a distant relative of the noted frontiersman Daniel Boone, was, at the time of Pickens' birth, an attorney who was employed by Phillips Petroleum Company in Phillips' land acquisitions department. In an interview with Time magazine in 1985, Pickens said he was "…very fortunate in my gene (genetic) mix… the gambling instincts I inherited from my father were matched by my mother's gift for analysis" (Gale, 1999, p. 1).

When the family moved from Oklahoma to Amarillo, Texas in the mid 1940s, Pickens played basketball in high school and according to Gale, he excelled in that sport. After high school Pickens attended Texas a&M University on an athletic scholarship but after breaking his elbow, and losing his scholarship money, he transferred to Oklahoma State University (OSU). He got his bachelor's degree in geology from OSU in 1951 and followed his father's footsteps by going to work in the oil business (Gale, 1).

In fact Pickens' job with Phillips was as an oil geologist, but in 1955 he left Phillips "…because he found the work boring and felt stifled by the company's conservative style" (Gale, 1). He boldly started his own company, Petroleum Exploration Company; he invested $2,500 of his own money and received a line of credit worth $100,000. According to the New York Times' reporter Lydia Chavez (quoted by Gale), Pickens had "…an uncanny ability to find oil and gas" (Gale, 1).

Without becoming involved in the hardware and technologies that go along with oil discoveries -- refineries, pipelines, and service stations -- Pickens simply discovered oil and gas reserves and sold those discoveries to existing oil and gas companies. But by 1964 he was well enough off and knowledgeable enough about the business to form Mesa Corporation. He headquartered the corporation in Amarillo, Texas. By the year 1969 he began buying out other companies, the Gale article explains; he bought the Hugoton Production Co (holdings included a "vast natural gas field in Texas") and in 1973 he added Pubco Petroleum to Mesa's portfolio. However the next year, 1974, Pickens lost $19 million in an awkward attempt to "diversify into cattle" (Gale, 1).

At that time Pickens was a believer in the "then-revolutionary view" that the most important responsibility of a CEO in a company was to "…create wealth for his shareholders and that the failure to do so might well result in the loss of his or her job" (Gale, 1). In the 1980s Pickens began what today he is famous for -- buying and trading stock in petroleum companies in a series of "…hostile takeover bids" (Gale, 2). Some of his tactics were "not entirely aboveboard," the Gale article points out. He would accumulate a "massive amount of cash by selling off some of his assets at just the right time"; what he did is called "greenmailing," and that involved a process of buying "huge blocks of a company's stock" as though he was reading for a takeover of that company. But wait, he really wasn't planning to take over that company, what he was doing was preparing to sell back the stocks "…at an inflated price so that the company can thwart the apparent buyout attempt" (Gale, 2). The first time he used that strategy was in May of 1982, when he attempted to purchase a controlling interest in a "medium-sized oil firm," Cities Service Company (Gale, 2).

Pickens' efforts touched off a "fierce bidding war" with other oil companies and that drop the price of Cities Service stock way up, and though he didn't purchase Cities Service, he had "strategically positioned Mesa to realize over $31 million in profit" on a later merger deal with Occidental Petroleum, which had made the best offer to Cities Service and had acquired that firm.

Pickens was known as a most successful corporate raider ("king of the corporate raiders") until, that is he began to have his power checked. For example in 1985, he tried to take over Unocal Corporation, but Unocal pulled a corporate trick on him. Unocal offered a "unique stock buy-back plan" but they made it available to every investor except Pickens. He proceeded to sue in the courts in Delaware, and won at that lower level; but the Delaware Supreme Court threw out the lower court's ruling and basically said that Unocal had a perfect right to "single out corporate raiders and treat them differently than other shareholders" (Gale, 2).

Basically the end of Pickens' high roller big money wheeling and dealing took a big hit in 1996 when he was "forced to resign" as CEO of Mesa, the company he built from scratch, because he had run the company in debt to the tune of a billion dollars (Gale, 2).

Boone's Reflections From His Book, "The First Billion is the Hardest"

At the outset of his book, Pickens urges readers to enjoy the book especially if a reader wishes to hear "…how one grateful Texan managed to give $700 million to the causes he loves" (Pickens, 2009, p. 2). By page 3 the oil tycoon is laying out the myths that he hopes to dispel. There are five myths: a) drilling in the Arctic National Wildlife Refuge makes the U.S. energy independent; b) the day will be saved through the use of Ethanol; c) "Big Oil is manipulating the price of gas at the pumps"; d) high gasoline prices in the U.S. are a result of not enough new refineries; and e) new technologies will provide the tools to discover "enormous untapped reservoirs of oil" (Pickens, 3).

He remembers his grandmother's large vegetable garden and each evening for supper her vegetables were served; occasionally meat was served with the veggies, "but we were never hungry," he notes (7). His mother Grace was a "disciplinarian" and instilled "important lessons in me early on, which prepared me for the challenges ahead"; his mother was the manager of the Office of Price Administration, responsible for rationing gasoline and other goods during WWII. He obviously was greatly influenced by his mother (and says very little about his father), who, if she said she would do something, "you could consider it done" (Pickens, 7).

Work for Pickens began mowing lawns as a young boy, and by the age of 12, he had a paper route. He had twenty-eight houses to deliver to when he started (on a street named Broadway of America); that was the smallest paper route in Holdenville. He got a penny per paper that he delivered, and showing his entrepreneurial spirit at a young age, he grabbed all other routes that came open. Hence, after talking his supervisor into letting him add route after route, he ended up five years later with 156 papers to deliver and had saved almost $200 (Pickens, 8). He jokes that this paper route expansion was his "first experience in the takeover field: expansion by acquisition" (8). He put the money in a hole under the floor of his closet.

Once he found a wallet while delivering papers, and seeing the name and the address of the owner, he delivered it to the man who gave him a dollar as a reward. He was thrilled and expected his mother and grandmother -- both were sitting on the porch when he announced his good deed and his reward -- to be equally pleased and excited for him. Quite the contrary, they sent him back to the man whose wallet had been returned: "You are not going to be paid to be honest," his grandmother insisted.

When he first was hired at Phillips he said he was basically working for "…a big and sluggish army of bureaucrats" and he hated the precise routines he was obliged to honor. A bell rang at five… READ MORE

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