Oil and Liquor

Conoco gets takeover fever

Flush with cash after having rung up one-third of all U.S. corporate profits last year, the nation's oil companies have been gobbling up companies on Wall Street like rich kids turned loose in a candy store. In March, Standard Oil of California made the largest takeover bid on record: $3.9 billion for 80% of the stock of Amax Inc., a diversified mining concern. A few weeks later, Standard Oil Co. of Ohio swallowed Kennecott Corp., the nation's largest copper producer, by offering stockholders a total of $1.9 billion for their shares.

Last week it was suddenly the other way around. The nation's ninth largest oil company, Conoco Inc. of Stamford, Conn. (1980 sales: $18.8 billion), became the reluctant target, rather than the proud suitor, in a corporate takeover raid. The predator was none other than Joseph E. Seagram & Sons, U.S. subsidiary of Canadian-based Seagram Co. Ltd., the world's largest liquor distiller, with 1980 global revenues of $2.5 billion.

Seagram Chairman Edgar Bronfman, 52, has been shopping for an acquisition in the U.S. since late last year, after having received $2.3 billion from the sale of a Seagram subsidiary, the Texas Pacific Oil Co., to Sun Co. of Pennsylvania. Earlier this month, Bronfman proposed a "friendly" bid to Conoco's chairman, Ralph Bailey, 57. Bronfman offered to pay $70 per share for 28.6 million Conoco shares, about one-third of the outstanding stock, though the company's shares were trading at only about $53. At the time, Seagram also promised that it would not seek full management control over Conoco for at least 15 years.

After weighing the offer for a mere two days, Conoco's directors rejected it. One reason: though generous in terms of the stock's market value on Wall Street, the offer amounted to only about half of the company's actual net worth. Among other assets, Conoco owns the U.S.'s No. 2 coal producer, Consolidation Coal Co. of Pittsburgh, Pa., and is a major North Sea oil producer.

To fend off any further takeover efforts, Conoco searched frantically for a merger partner. On rumor alone, the stock prices of Diamond Shamrock, Newmont Mining and Cities Service all leaped as investors speculated that Conoco was preparing to institute merger proceedings with them.

In fact, quiet talks were actually going on only with Tulsa-based Cities Service, whose president, Charles Waidelich, had rushed from Oklahoma to a hotel suite at New York's Waldorf-Astoria for private meetings with Conoco's Bailey. Cities Service was seeking a merger for a reason surprisingly similar to Conoco's: to avert an attempted takeover of its Canadian oil and gas properties by another Canadian company, Nu-West Group Ltd., an Alberta real estate and energy exploration firm. Though less than half Conoco's size, Cities Service holds exploration rights to 10 million acres in the U.S., as well as additional acreage in Canada. A merger of Conoco and Cities Service would have created a $26 billion energy colossus, the seventh largest U.S. oil company.

The talks progressed so smoothly that journalists were alerted to stand by for a joint announcement last Thursday afternoon. But just hours before the statement was due, Seagram unexpectedly intruded with a new and even juicier bid for Conoco: a public offer to buy up to 35 million Conoco shares at $73 per share, a rise from $2 billion to $2.56 billion in the total that Seagram was willing to spend.

The offer was so attractive that the company's startled managers felt compelled to cancel the Cities Service merger announcement and at least reassess Seagram's bid. A failure to do so might have opened Conoco's directors to civil suits by disgruntled shareholders.

With Waidelich of Cities Service jetting back to Tulsa in dismay, and Conoco's board now set to meet again this week for a formal reply to Bronfman's latest offer, the liquor tycoon suddenly seemed closer than ever to spending his itchy billions. But at week's end, Conoco's investment advisers at the New York investment banking firm of Morgan Stanley & Co. Inc. were scrambling for yet new ways to thwart the takeover effort. Said one insider: "The next couple of weeks are going to be very active."

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