What's Phillips Petroleum Worth?
What's Phillips Petroleum Worth?
STEVEN P. ROSENFELD
Feb. 06, 1985
NEW YORK (AP) _ In a period of little more than two months, shareholders of Phillips Petroleum Co. have been buffeted by two takeover offers and the company's own plans for an extensive restructuring.
The latest bid surfaced Tuesday, when financier Carl Icahn offered to buy Phillips for $8.09 billion, or $55 a share in cash and securities.
Earlier, the company scheduled a special shareholders meeting for Feb. 22 to vote on a restructuring proposal that includes plans to repurchase 38 percent of its outstanding common stock for securities with a face value of $60 for each share.
Phillips agreed to push the recapitalization proposal as part of a settlement reached with T. Boone Pickens Jr., chairman of Mesa Petroleum Co., who agreed in December to drop a bid for Phillips of $60 a share in cash and securities.
Here are some questions and answers about what the company is worth:
Q. What makes Phillips so attractive?
A. Phillips is a large and profitable company. Its cash flow, representing funds generated from operations, came to $2.24 billion in 1984. That is money that could be used to pay loans used to finance a takeover.
In addition, Phillips has a wide range of assets that could be sold to pay for a takeover without touching its rich reserves of oil, natural gas and natural gas liquids in the United States.
If Icahn is successful, he would acquire proven and developed petroleum reserves in the United States for approximately $7.20 a barrel. Some investors would consider that a bargain at a time when it costs efficient oil companies an estimated $14 a barrel to find and develop oil, while more costly ventures are in the neighborhood of $20 a barrel.
Q. So what is a share of Phillips' stock worth?
A. John S. Herold Inc., an appraising service, has valued the company's assets at $76.85 a share.
But with oil prices falling and the outlook uncertain for a rebound, shares of oil companies have been trading at well below the value of their assets, something else that makes companies like Phillips attractive.
On Dec. 3, 1985, before Pickens' group announced its offer, Phillips stock traded at $44.621/2 a share. After Pickens announced that he and his partners owned 8.8 million shares and would pay $60 a share for an additional 23 million, Phillips stock rose as high as $56.25 a share.
Q. If Pickens offered $60 a share, why didn't the stock rise to $60?
A. The stock traded below $60 a share because Pickens' cash offer was only for a portion of the company's shares. While his group said it intended to purchase all of Phillips' 154.6 million outstanding shares of stock, it indicated many shares would be acquired for securities with a face value of $60 a share. There was uncertainty about the market value of those securities.
When Pickens and Phillips reached an agreement to end the takeover, Phillips shares tumbled to $42.75 a share.
Q. How much is Phillips stock worth under the company's proposed recapitalization?
A. Under the plan, 38 percent of Phillips stock would be converted into notes and bonds with a face value of $60 a share. As envisioned by the company, the remaining stock would be worth about $48 a share, with the combined package designed to be worth $53 a share.
For example, a shareholder with 1,000 Phillips shares, would exchange 380 shares for bonds and notes and keep the remaining Phillips stock. If he or she bought the original shares for less than $60 a share, there would be a taxable gain on the portion of the stock exchanged for securities.
Some analysts have valued the deal at well below Phillips' estimate of $53 a share on the grounds that the company's debt load would be substantially increased by the restructuring and that its operating results would suffer.
But as speculation grew that a new offer would be launched, Phillips stock began recovering. It stood at $47.121/2 before Icahn's offer.
Q. What is Icahn offering?
A. Icahn has said that if Phillips cooperates, he will acquire the company's stock for $55 a share, evenly divided between cash and securities. Otherwise, he has said he will take his bid directly to shareholders, with an offer of $55 a share for 51 percent of the stock and $55 in securities for each remaining share.
In trading after the offer was disclosed, Phillips stock rose to $50 a share, a gain of $2.871/2 . Analysts said the stock was held down somewhat by uncertainty about Icahn's souce of financing and his plans for the company.