Buyers See Troubled Firm As 'Ripe for the Picken'

T. Boone Pickens, once a corporate raider, has put his independent oil and gas company up for sale

DURING the 1980s, corporate raider T. Boone Pickens championed shareholder rights and extolled the future of natural gas. By practicing what he preached at Mesa Inc., Mr. Pickens has led what was once the nation's largest independent producer of oil and gas to the brink of disaster. Depending on gas-price trends, ''a case can be made that the company is insolvent,'' says Robert Gillon, an analyst at John S. Herold Inc. in Greenwich, Connecticut. Shares of Dallas-based Mesa have eroded in value from $65 in 1984 to $4 and change today. Shareholders have not seen a dividend check since 1990. The company will run short of money next year to service its $1.2 billion debt. Something must be done by year end to ''aggressively attack our debt,'' says spokesman Jay Rosser. Otherwise, Mesa expects its auditors to question its ability to survive. The situation couldn't be more ironic for Pickens, Mesa's chairman: * During the 1980s he used Mesa to launch hostile takeover bids. Now Mesa faces the necessity of being swallowed in part or whole by competitors. * Pickens founded United Shareholders Association to lobby against anti-takeover provisions that his targets used to thwart his bids. Now Mesa has adopted a ''poison pill'' measure and a ''golden parachute'' executive-compensation package (that excludes Pickens) to block dissident shareholders. * The dissidents, savvy oil investor Marvin Davis and fellow billionaire Dennis Washington, charge Pickens with hypocrisy on shareholders' rights. ''Give me a break,'' Mr. Rosser says, pointing out that it was Pickens's effort to maximize shareholder value that landed Mesa in trouble. Pickens's 1985 takeover drive The saga began in late 1985. By then Pickens had tried to take over a series of petroleum producers, arguing that their massive exploration efforts wasted shareholder money in an era of falling prices. Like Pickens's other targets, Phillips Petroleum Company resisted his 1985 bid. Yet today its executives credit Pickens for their prospering company's timely restructuring and new focus on maximizing shareholder value. As for Pickens, his failed attempts nonetheless earned $440 million for Mesa when his targets bought back their stock. Next Pickens turned to making Mesa more valuable to shareholders - and he owned the most shares. Mesa became a limited partnership in 1985 to avoid the double-taxation of profits. (Mesa became a corporation again in 1991.) Dividends soared in order to distribute ''substantially all'' of the company's available cash, amounting to $1.1 billion from 1986 to 1990. That, Rosser says, has proved to be ''the real killer.'' For Pickens was counting on a rise in natural-gas prices to fund the dividends and service debt from purchases of additional gas reserves. But prices were slipping from the nearly $3 per thousand cubic feet (mcf) that Mesa averaged in 1984. Virtually the whole industry believed, as Pickens did, that temporary oversupply was depressing prices. One good, cold winter and the so-called ''gas bubble'' would pop. Low natural-gas prices continue But today many big players in gas have given up on winter or anything else to sustain a rise in prices. ''We don't rely on the market to make money for us,'' says Marianne Kah, manager of market analysis at Conoco Inc. in Houston. For one thing, new storage facilities have been built to deliver gas to the market quickly when temperatures plunge. That flexibility will dampen price shocks, Ms. Kah says. For another, producers have found new ways to cut costs and no longer need as high a price. Chevron, the nation's largest gas producer, cites new technology using computers for improving drilling success rates. Amoco, owner of North America's largest reserves, touts close coordination with drilling contractors and suppliers for savings of 25 percent. ''When the price reaches $2, everybody's drilling, so you can't get beyond that,'' Kah says. She expects gas to fluctuate in value between $1.70 and $2.20 per mcf. Last year Mesa managed to get just $1.67 per mcf. ''We placed a major bet on gas prices. They collapsed on us,'' Rosser says. So far this year Mesa has averaged a ''lousy'' $1.71. By last year Pickens knew that drastic steps were needed. But first he bought another 1 million shares of Mesa stock with borrowed money. That interested investment adviser David Batchelder, formerly a Mesa executive on Pickens's takeover team. Mr. Batchelder interpreted the purchase as a sign that Pickens was about to end Mesa's debt burden somehow, likely boosting the stock price. Batchelder advised Mr. Davis and Mr. Washington to take a stake. First Pickens tried to auction off properties accounting for two-thirds of Mesa's gas reserves. But the bids were inadequate. So in July, Pickens hired Lehman Brothers, a New York investment-banking firm, to find buyers for all or part of Mesa. Some 70 firms have shown interest. Bids are due in November. Meanwhile, Pickens faces Davis and Washington in court next week. The two distrust Pickens to sell Mesa outright, which they believe will obtain the most value per share. Pickens insists he wants maximum value as much as anyone, having lost $125 million on the value of his own Mesa investment.