Gulf Oil Corporation Takeover Summary

Gulf Oil Corporation Takeover Summary

Gulf Oil Corporation was a very successful company registering significant revenues and with great potential for further increase in profits. The management of the corporation placed great emphasis on investing in developing new technologies and improving the overall quality of the company. However most of their capital was held within the company, there were some other companies that possessed Gulf Oil stocks. This was the case of Mesa Petroleum, that held 9% of the corporation's stocks. Even if the shareholder had limited access to the corporation's decision making process, Gulf Oil feared their intrusion.

These feelings were a direct result of Mesa Petroleum's chief executive officer Boone Pickens to overtake the corporation. The Mesa Petroleum Company was renowned for purchasing oil and petroleum companies at underrated prices, exploiting them and then closing the companies. "Mesa chairman T. Boone Pickens Jr. expects primarily to cash in on Gulf's golden eggs, which are in the form of vast amounts of oil and gas. After obtaining the revenue there, he plans to slaughter the goose."

In order to prevent Mesa Petroleum Company to take over the Gulf Oil Corporation, the directors' board at Gulf Oil decided to commence the company's liquidation procedures, having the upper hand that they could still do it according to their own terms.

Gulf Oil Corporation decided to place new stocks onto the market. The shares would be sold throughout an auction organized by the seller and winner would be declared the investor with the highest bid. The starting price for a Gulf Oil share was established at $70.00 when the transaction price on the market, was of only $40.00 per share.

The main investors that showed interest in purchasing the Gulf Oil shares were the Standard Oil Company of California (SOCAL), represented by George Keller; the Atlantic Richfield Company (ARCO), Kohlberg Kravis Roberts & Company, represented be several bankers and Mesa Petroleum.

The main battle was expected to take place between SOCAL and ARCO. The latter was confronted with substantial debts and could only bid as much as $75.00 per share. Keller had doubts about the actual amount of money he could bit. His company had limited debts and they could easily receive a bank loan. But there rose the question of whether the Golf Oil Corp. stocks were worth the additional risks and whether they represented a secure source of future profit.

However, the outcome of the bidding was a surprise to most participants to the auction, as the winner was declared small company Mesa Petroleum. Throughout this biting, Mesa Petroleum had increased their share in Gulf Oil up to 13.2%.

But Boone Pickens' objective was to enter the corporation's board of directors and participate to the decision making process. Further on, Pickens borrowed $300 million and purchased 13.5 million shares, adding up to 21.3% of the corporation's stocks. Their corporation's growth after the transaction has materialized the company's partial repurchase of the previously sold stocks.

The company that now possessed 21.3% of Gulf Oil's stocks was an old competitor of the corporations'. The two companies, represented by Mesa CEO Boone Pickens and Gulf Oil's CEO James Lee had previously bid against each other in order to purchase Cities Service, auction lost by both companies.