Gulf Oil Corp
Gulf Oil Corp.--Takeover
Summary of Facts o George Keller of the Standard Oil Company of California (Socal) is trying to determine how much he wants to bid on Gulf Oil Corporation. Gulf will not consider bids below $70 per share even though their last closing price per share was valued at $43. o Between 1978 and 1982, Gulf doubled its exploration and development expenses to increase their oil reserves. In 1983, Gulf began reducing exploration expenditures considerably due to declining oil prices as Gulf management repurchased 30 million of their 195 million shares outstanding. o The Gulf Oil takeover was due to a recent takeover attempt by Boone Pickens, Jr. of Mesa Petroleum Company. He and a group of investors had spent $638 million and had obtained around 9% of all Gulf shares outstanding. Pickens engaged in a proxy fight for control of the company but Gulf executives fought Boone 's takeover as he followed up with a partial tender offer at $65 per share. Gulf then decided to liquidate on its own terms and contacted several firms to participate in this sale. o The opportunity for improvement was Keller 's principal attraction to Gulf and now he has to decide whether Gulf, if liquidated, is worth $70 per share and how much he will bid on the company.
Problems
o What is Gulf Oil worth per share if the company is liquidated? o Who is Socal 's competition and how are they a threat? o What should Socal bid on Gulf Oil? o What can be done to prevent Socal from operating Gulf Oil as a going concern?
Competition
Major competitors for obtaining Gulf Oil include Mesa Oil, Kohlberg Kravis, ARCO, and, of course, Socal.
Mesa Oil: o Currently holds 13.2% of Gulf 's stock at an average purchase price of $43. o Borrowed $300 million against Mesa securities, and made an offer of $65/share for 13.5 million shares, which would increase Mesa 's holdings to 21.3%. o Under the re-incorporation, they would have to borrow an amount many times the value of Mesa 's net
Summary of Facts o George Keller of the Standard Oil Company of California (Socal) is trying to determine how much he wants to bid on Gulf Oil Corporation. Gulf will not consider bids below $70 per share even though their last closing price per share was valued at $43. o Between 1978 and 1982, Gulf doubled its exploration and development expenses to increase their oil reserves. In 1983, Gulf began reducing exploration expenditures considerably due to declining oil prices as Gulf management repurchased 30 million of their 195 million shares outstanding. o The Gulf Oil takeover was due to a recent takeover attempt by Boone Pickens, Jr. of Mesa Petroleum Company. He and a group of investors had spent $638 million and had obtained around 9% of all Gulf shares outstanding. Pickens engaged in a proxy fight for control of the company but Gulf executives fought Boone 's takeover as he followed up with a partial tender offer at $65 per share. Gulf then decided to liquidate on its own terms and contacted several firms to participate in this sale. o The opportunity for improvement was Keller 's principal attraction to Gulf and now he has to decide whether Gulf, if liquidated, is worth $70 per share and how much he will bid on the company.
Problems
o What is Gulf Oil worth per share if the company is liquidated? o Who is Socal 's competition and how are they a threat? o What should Socal bid on Gulf Oil? o What can be done to prevent Socal from operating Gulf Oil as a going concern?
Competition
Major competitors for obtaining Gulf Oil include Mesa Oil, Kohlberg Kravis, ARCO, and, of course, Socal.
Mesa Oil: o Currently holds 13.2% of Gulf 's stock at an average purchase price of $43. o Borrowed $300 million against Mesa securities, and made an offer of $65/share for 13.5 million shares, which would increase Mesa 's holdings to 21.3%. o Under the re-incorporation, they would have to borrow an amount many times the value of Mesa 's net