Thomas Boone Pickens, Jr

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Thomas Boone Pickens, Jr.

T. Boone Pickens (born 1928) started the Mesa Petroleum Company with a $2,500 investment and built it into the largest independent oil and gas company in America. Then he shook corporate America with a series of hostile takeover attempts that earned him a reputation as a corporate raider. Pickens' ideas about corporate restructuring, and the tactics he used for achieving them, were controversial during the 1980s, but have become standard procedure in executive suites today.

Fortunemagazine called him the "most hated man in America" during the 1980s, but Pickens was a folk hero to many stockholders, who welcomed his criticism of large corporate executives whom he said were more concerned with their own salaries and perquisites than with shareholders.

Thomas Boone Pickens Jr. was born on May 22, 1928, in Holdenville, Oklahoma, the only child of Thomas Boone and Grace Pickens. Pickens' father was an oil company lawyer who claimed a distant kinship to Daniel Boone. Pickens' mother ran the Office of Price Administration (OPA) for three Oklahoma counties during World War II. The OPA was responsible for rationing gas and other goods that were in short supply during the war.

Pickens' parents, along with a grandmother and aunt who lived next door, instilled the young boy with old-fashioned values. They encouraged him to work hard and use his time and money productively. Pickens, who was known as "Boone," filled his time with Boy Scout activities, clarinet practice, sports, and a newspaper route.

In 1944, the family moved to Amarillo, Texas, where Pickens' father took a job in the land acquisitions division of Phillips Petroleum Company. In his 1987 autobiography, Boone, Pickens described how overwhelmed he felt in the city. He had been well known in tiny Holdenville High School; he felt anonymous at Amarillo High. He begged his grandmother to allow him to move back to Holdenville and live with her, but she accused him of not wanting to "face the competition in Amarillo." Looking back on the experience, Pickens said, "Moving to Amarillo was probably the best thing that ever happened to me, for I discovered I could compete on an equal footing without feeling inadequate." Within a year, Pickens earned a starting position on the school's basketball team.

Pickens attended Texas A&M University for one year, then transferred to Oklahoma A&M at Stillwater, majoring in geology. In 1949, he married Lynn O'Brien, whom he had dated on and off since high school. Within a year, their first child, Deborah, was born. The couple had three more children, Pam, Mike, and Thomas Boone III.

Pickens graduated in 1951 and took a job as an on-site geologist with Phillips Petroleum in Bartlesville, Oklahoma. By 1954, Pickens was frustrated with work in the fields. He quit his job and worked for a while as an independent oilman. In 1956, he invested $2,500 and, with two partners, formed Petroleum Exploration, Inc. (PEI).

Shrewd Financier

Financial World described PEI's early years as "a series of successful ventures in which [Pickens] demonstrated shrewd financial instincts and a creative approach to raising capital." The company went public in 1964 and was renamed Mesa Petroleum. During its first year, Mesa had revenues of $1.5 million and a net income of $435,310.

In 1969, Mesa merged with Hugoton Production Company, giving Mesa the leverage it needed to expand exploration and production operations. Pickens considered the acquisition the most important deal Mesa ever made. The next year, Mesa failed to take over Southland Royalty. Three years later, Mesa bought Pubco Petroleum. In 1976, he was outbid by Southland in his attempt to purchase Aztec, a gas company.

Pickens divorced in 1971 and a year later, he married Beatrice Carr Stuart, a divorcee with four daughters, whom he had first met in 1952. Bea was by Pickens' side throughout his subsequent career, serving as a confidante, adviser, and sounding board, according to his autobiography.

Spotted Trends

Pickens' ability to spot trends helped Mesa grow. PEI began oil exploration in Canada in 1959. Twenty years later, according to Financial World, Mesa "got out of Canada … at a time when the country looked like fertile ground for American oil concerns. But it wasn't long before Canada took everyone else by surprise by implementing a new energy policy greatly favoring Canadian enterprises." Pickens left the country with more than $600 million. Also in 1979, Pickens withdrew from the North Sea, netting $65 million. When he left, he avoided a new British tax on North Sea oil production.

Pickens formed the first large, publicly traded oil royalty trust using Mesa properties in 1979. Stockholders were issued one trust unit per Mesa share. Under this arrangement, the cash flow of properties held in trust are distributed to stockholders. Management cannot spend the cash flow from those properties.

By 1981, Mesa was a major independent oil company with assets of more than $2 billion. Oversupplies of oil at this time caused prices to drop and Pickens looked for new ways to make money. According to William C. Wertz of Financial World, "He [Pickens] became a financier instead of an oilman and turned dealmaking on Wall Street into a highly lucrative enterprise that inspired many imitators."

Pickens launched a series of attempts to take over other, often larger, oil companies. Among his targets were Cities Service, Superior Oil, General American Oil of Texas, and KN Energy. None of the acquisitions succeeded, but Pickens' overtures drove up the prices of his targets' stocks, netting him and other investors millions of dollars. Pickens became known as a greedy corporate raider and "greenmailer," an investor who threatens to take over a company by buying large blocks of stock, then selling the stock back for huge profits. Pickens preferred to describe himself as an advocate for stockholders. He targeted companies that he believed were mismanaged by executives who held little stock in their own companies.

His first large takeover attempt was Cities Service, a company 23 times as large as Mesa. In early 1981, Pickens owned four million shares of Cities Service stock, representing about five percent of the total. When Cities Service's management rebuffed his attempt at a merger, he sought partners for a hostile takeover. What followed was an 18-month struggle between the two oil companies. Mesa prepared a tender offer for 51 percent of Cities' stock. A tender offer was one of the takeover strategies of the 1980s in which a company offered stockholders of a target company a premium price for their stock. Before Mesa could make its offer, Cities Service made an offer for Mesa, putting Pickens in danger of losing his company. Pickens, who was a master at public relations, was now viewed in the media as an underdog. Eventually, both companies' offers fell through and Cities Service was acquired by Occidental Petroleum. Pickens made $30 million on his four million shares of Cities Service stock.

Battled Gulf Oil

In 1983, Pickens embarked on the most highly publicized deal of his career when he began acquiring stock in Gulf Oil. Gulf was the sixth largest oil company in America, with annual revenues of $30 billion. But the company's oil reserves were low and its stock was undervalued. Like many other oil companies, Gulf was investing a lot of money in exploration with little results. High Organization of Petroleum Exporting Countries (OPEC) prices had maintained oil companies' cash flows in previous years, but by 1983, prices were down, leaving the oil companies in trouble. Peter Nulty reported in the December 26, 1983, issue of Fortune, that Pickens described oil companies as being in a "state of liquidation" and suggested that they liquidate efficiently by "pipelining more cash flow to shareholders as a return of capital, and less to exploration and diversification." This, Pickens said, would force the companies' undervalued stocks to go up. The large oil companies disagreed with Pickens, arguing that oil prices would eventually go back up and that there would be more large oil finds and alternative energy sources to develop.

Pickens believed the oil industry needed to restructure and he set about being a catalyst for change. In the biggest fight of his career, he targeted Gulf Oil for "restructuring." He formed the Gulf Investment Group (GIG), which acquired 11 percent of Gulf stock. As Gulf's largest stockholder, GIG asked management to place part of its domestic oil and gas-producing properties in a royalty trust. Since Mesa created the first royalty trust, other oil companies had done the same. Stock prices for oil companies whose properties were put in trusts were generally higher than those without. Pickens stood to gain $219 million in profit on the plan. Management refused GIG's request and initiated a proxy fight, in which stockholders were asked to vote for or against management's decision.

The battle between Pickens and Gulf Oil was one of the most publicized business stories of the year and made Pickens' name synonymous with "corporate takeover." Gulf management told stockholders that Pickens had "a history of hit-and-run tactics" and that a royalty trust was a "get rich quick scheme" that would "cripple the company and severely penalize the majority of the stockholders."

Pickens had positioned himself as a champion of oil company shareholders, many of whom were retirees and pension holders. Texas Monthly's Gregory Curtis said that Pickens claimed to be "warring on the lazy or ineffective corporate managers who seemed to think they owned the company themselves rather than the stockholders, managers who cared more about their own salary and perquisites than they did about the best interests of the stock-holders.… Itwasa message the country was ready to hear."

When the proxy votes were counted in December 1983, Gulf Oil management won by a narrow margin. Within six months, Gulf was bought by Standard Oil of California. Gulf's 400,000 shareholders reaped profits of $6.5 billion, including GIG's $760 million profit.

The federal government reacted to the merger-mania when Congress attempted to pass a bill that would curb oil company mergers. Pickens lobbied against the bill, saying it was not the government's responsibility to protect companies with weak management. He also believed that the oil industry should be allowed to restructure itself. The bill was defeated.

Pickens subsequently battled other oil companies, including Phillips and Unocal, reaping millions for Mesa Petroleum. He later failed in an attempt to gain a seat on the board of a Japanese auto parts manufacturer. In August 1986, Pickens launched the United Stockholders' Association (USA), a non-profit group dedicated to defending shareholders' rights. Within three months, USA had 3,000 members.

Declining Popularity

Pickens' demonstrated his competitive spirit away from Wall Street as well. He has enjoyed tennis and racquetball throughout his life. He also plays golf and poker and hunts quail. He and his wife, Bea, were active in Amarillo. Bea worked on a project to build an ambulatory cancer center in the city. Pickens, a Republican, campaigned for Texas politicians and considered running for governor in 1990.

Pickens' popularity declined in the late 1980s. He became embroiled in political disputes and led a boycott of the Amarillo newspaper. He angered many people when he backed an unpopular president of West Texas State University, where he was chairman of the board of regents. Pickens moved Mesa from Amarillo to Dallas in 1989, disparaging the town he had lived in since he was a boy.

In 1996, after several years of debt, Pickens was forced to resign as Mesa's chairman. He and Bea divorced around the same time. Pickens retained two businesses, a natural gas trading company and a Southern California fueling firm, which he continues to operate. When Pickens left Mesa after 40 years, Joseph Nocera of Fortune noted that the once-controversial chairman, who dominated the front pages of newspapers ten years previously, had faded into obscurity. Nocera wrote, "more than any other raider … Boone changed the world." While corporate raiders have largely disappeared, takeovers are now even more common than in Boone's heyday, and they are largely driven by the CEOs who opposed Boone in the 1980s.