Unocal Changes Its Bylaws to Thwart Pickens Group

Unocal Corp. said Tuesday that it has changed the quorum rule for its annual meeting in response to a takeover threat by an investor group led by Texas oilman T. Boone Pickens Jr.

It is the second bylaw change in less than a month triggered by the threat of Pickens’ group, Mesa Partners II, to take over or restructure Unocal, parent of Union Oil Co. of California. The Pickens group has spent about $1.1 billion accumulating 13.6% of Unocal’s 173.7 million common shares.

The latest change, announced in a filing with the Securities and Exchange Commission, reduces to one-third the proportion of Unocal’s shareholders needed for a quorum at the company’s annual meeting April 29.

Under Delaware Law

Los Angeles-based Unocal previously hadn’t spelled out its quorum requirement. Hence, the quorum automatically became 50% plus one of the company’s shares under the laws of Delaware, where Unocal is incorporated.

Meanwhile, Unocal Chairman Fred L. Hartley testified before a congressional subcommittee in Washington that the tax system is balanced in favor of corporate raiders.

“We will compete with anyone when the game isn’t rigged,” Hartley told a joint hearing of two subcommittees of the powerful House Ways and Means Committee.

Hartley said professional corporate raiders use “junk financing” that allows them to “borrow 100% of the cost of an acquisition in advance, with little or no security, on the promise that they will bust up the target to repay the loan.”

“There’s easy money to be made in attacking oil companies, and to hell with tomorrow,” Hartley said, arguing that corporate raiders’ actions lead to more mergers that result in less exploration for new oil and gas reserves.

This is detrimental to the long-term energy needs of the United States, Hartley said.

Pickens Testifies

Pickens, testifying at the same hearing, said that proposed efforts to change the tax laws to halt hostile takeovers might backfire. He said mergers “create wealth” and help “allocate capital efficiently.”

To set up tax barriers against them, he said, could tie up investment capital and weaken security markets by making corporate stock less attractive to investors.

“This would aggravate the existing bias in the tax law in favor of debt as compared to equity financing--ironically, the very condition that some proponents advance in support of anti-merger tax legislation,” he said.

Pickens and Hartley encountered each other in the hallway outside the Ways and Means Committee room. Their conversation proved brief and less than chummy.

“Hi Fred, how ya doin’,” Pickens was overheard saying. By Pickens’ account, the conversation continued this way:

Hartley: “Go away.”

Pickens: “Be careful. You’re talking to your largest shareholder now.”

Hartley: “Isn’t it a shame.”

Hartley, in comments to a Times reporter, later described Mesa Petroleum, the firm Pickens heads, as “a pipsqueak outfit.” He said of Pickens and Mesa: “He’s not an oil company. He’s a financial firm.”

Unocal said its latest bylaw change was made by Unocal’s board “in response to the announcement by Mesa Partners II that it plans to solicit proxies from Unocal shareholders and may use such proxies to prevent a quorum.”