Well, fans, shareholder value advocate Pickens last week made a deal to rescue his company–and himself–in a way that sharply erodes the value of Mesa’s stock. Assuming the deal is approved by holders, financier Richard Rainwater will get effective control of Mesa by buying new shares for about 25 percent below Mesa’s stock price Thursday, the day the deal was announced. Had Pickens not announced a deal by Thursday, dissident shareholders would have been able to mount a proxy campaign to oust Pickens. Now the dissidents, who declined comment, are delayed at least 60 days. Under terms of their standstill agreement with Mesa, they can’t campaign against the proposed deal, or try to trump Rainwater by offering a higher price.
Although many things aren’t clear–for instance, how much Pickens was motivated by raising $265 million of fresh cash for Mesa, and how much by fear of losing control–one thing is irrefutable. To wit: Mesa, which has been financially troubled for years, is a classic case of how bottom fishers, even very smart ones, can lose their bait. The dissident holders include billionaires Dennis Washington and Marvin Davis, who paid about $5 a share for their 9.4 percent stake. The price Rainwater will pay: $2.26. Another example of bottom fishers getting bombed is Morrison Knudsen, the construction company run into the ground by now departed chairman William Agee. The company seems to have made a deal to refinance its heavy debts–but it will issue so many new shares as part of the deal that existing holders will be largely wiped out. The risk of buying stock in such companies is not only that the company will go bankrupt, but also that it will have to dilute its stock substantially to save itself.
Which brings us back to Mesa. If everything goes as planned, Rainwater will pay $2.26 a share for a Mesa stake that will range from 33 to 65 percent. Mesa’s existing holders will own only about 35 percent of the company, but will have a chance to buy new stock on the same terms as Rainwater. But even if holders snap up all the new shares, Rainwater’s 33 percent stake will be enough to control the company.
How does Pickens explain selling control at a below-market price? Beats me. He maintained his perfect record of never having ever responded to any of my calls over the years. He said at the news conference Thursday that without the $265 million this deal will raise, Mesa would have gone bust. Could well be. But of course, it’s Pickens who put Mesa, a natural-gas company, in danger in the first place. He had Mesa borrow heavily in the 1980s to pay for acquisitions and $1.1 billion of shareholder payouts. He bet on rising gas prices. Instead, they fell.
Mesa’s spokesman, Jay Rosser, pointed out lots of smart things Pickens has done at Mesa–such as building high-grade gas reserves and making big bucks trading energy futures. But I think Thursday’s deal is in effect an admission of failure. After all, as any professional skeptic will tell you, it’s a lot easier to tell someone else how to run his or her business than it is to run your own.
