Struggle for Sinclair

Acquisitive as his company is, President David N. Judelson has insisted that Gulf & Western Industries wanted no part of any corporation "where the management doesn't welcome our entrance." On that basis, Gulf & Western agreed last month to sell its 33% interest in Allis-Chalmers Manufacturing Co., which had resisted the very idea of a merger. That done, Gulf & Western promptly showed that its policy can change along with the prize. Last week the company was involved in a struggle to acquire Sinclair Oil, which vowed to "vigorously oppose" the move and made its point even clearer by agreeing to merge instead with one of its competitors, Atlantic Richfield Co.

To Gulf & Western, the stakes were obviously worth fighting for. Under Judelson and Chairman Charles Bluhdorn, who put the firm together a decade ago and who remains very much the man in charge, Gulf & Western has become a $1.3 billion-a-year conglomerate by buying up some 70 companies in fields as diverse as metals (New Jersey Zinc) and movies (Paramount). But it has never been in the oil business. For its part, Sinclair is the nation's tenth biggest oil company; its 1967 sales were $1.5 billion and its profits $95.4 million. Because it has a relatively small amount of common stock outstanding (12,500,000 shares) for a company its size, Sinclair is particularly vulnerable to takeover attempts.

Production Binge. Gulf & Western's bid came in the form of a tender offer involving securities that it valued at more than $1.4 billion. Sinclair President O. P. (for Orlando Pendleton) Thomas' counterproposal of a get-together with Atlantic Richfield called for an exchange of stock worth slightly more than the Gulf & Western package. The extra money was not Thomas' main motive. In a letter to shareholders, his company questioned Gulf & Western's

"financial structure," argued that the conglomerate's plan to finance the acquisition with convertible securities would leave it badly overextended.

Sinclair had other reasons to opt for Atlantic Richfield. Although it boasts a solid refinery and marketing operation, Sinclair suffers from limited production capacity and must buy large amounts of crude oil at a premium from outside sources. Fast-growing Atlantic Richfield (1967 sales: $1.56 billion) has meanwhile been on a production binge, and its recent oil find on the North Slope of Alaska promises to be one of the largest in U.S. history. A merger that would enable Atlantic Richfield to move its oil through Sinclair refineries would obviously benefit both companies.

Final Decisions. Gulf & Western remained unimpressed by the merits of the Atlantic Richfield deal. Instead of giving up the fight, it called a special meeting of its directors, who decided to go ahead with the tender offer for Sinclair stock. It was only fitting, argued one Gulf & Western official, that Sinclair shareholders should make "the final decision" about their company's merger possibilities.

More likely, however, the final decision will be made by the U.S. Justice Department, whose antitrust division is apt to take a dim view of a Sinclair-At-lantic Richfield merger. Seldom in recent years has the department given its blessing to "horizontal" mergers--those between competitors--and there is no reason to believe that it is ready to soften its position. For that matter, Government trustbusters have lately been having doubts about conglomerate-style mergers involving companies in different fields. They could conceivably oppose even the proposed union between Sinclair and Gulf & Western.

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