And the Winner Is. . .

By Alexander L. Taylor III

Du Pont acquires Conoco after a historic takeover battle

Shortly after midnight last Wednesday, five cases of Dom Perignon 1970 champagne (price per bottle: $100) were uncorked in a banquet room of the Hotel Du Pont, located in the same gray granite building as Du Pont and Co.'s headquarters in Wilmington, Del. Chairman Edward Jefferson had gathered some 60 top advisers, secretaries, chauffeurs and the pilots of the company's jets to celebrate Du Pont's victory in the greatest takeover struggle in American corporate history. Only 160 miles to the north, in Stamford, Conn., Conoco executives met in Chairman Ralph Bailey's office for their own celebration. One vice president walked up to the bar and jocularly ordered, "Seagram's on the rocks."

Thus ended five weeks of financial maneuvering, courtroom battles, noisy public name-calling and political infighting, all aimed at acquiring the nation's ninth largest oil company. Du Pont had won Conoco by outbidding Seagram, the world's biggest liquor distiller, and Mobil Oil, the second largest American petroleum firm. "There's never been a merger contest like it," said Joseph Perella, a member of the team of investment bankers from First Boston that advised Du Pont on its winning strategy.

Du Pont won its hotly contested prize through skill and guile. After making the initial takeover bid on Conoco, Du Pont stood by quietly as Mobil and Seagram aggressively justified their positions in newspaper ads and Conoco filed harassing lawsuits against both. At the same time, Du Pont was executing a clever financial play that enabled it to acquire a majority of Conoco shares at a lower price than Mobil was offering.

Du Font's secret weapon was a device called the "double-barreled two-step." The plan allowed Conoco shareholders to choose whether to receive $98 per share in cash or tax-free units of 1.7 Du Pont shares worth about $80. The offer was attractive to many investors because it had no strings attached and provided them two forms of payment.

Mobil, on the other hand, set limits on its offer. Although it raised its bid from $90 to $105, and finally last week to $115 and $120 per share, Mobil's proposal was conditional on its obtaining 51% of Conoco's shares. Mobil also had a severe handicap because it was never able to shake the fear that the Justice Department would block the merger of two oil companies on antitrust grounds.

During the last two weeks of bargaining for Conoco, Seagram was no longer a serious contender. In spite of its nearly $3 billion bankroll, the Canadian distiller could not stay in the bidding with even better-heeled rivals. Seagram's final proposal was $92 per share.

When last week's deadline for investors to sell stock approached, Du Pont had received 47.3 million shares, or 55%, of Conoco stock. Mobil had managed to acquire only 736,000 shares, while Seagram had almost 27 million shares. After its takeover bid had failed, Mobil sold its Conoco stock to Seagram. When Seagram finally converts all its Conoco holdings into Du Pont shares, it will own about 20% of the company and be the second largest shareholder next to the Du Pont family. The stock purchase took Seagram out of bidding for any other oil company in the near future. Said Felix Rohatyn, the veteran deal maker who advised the Canadian company: "Seagram has ended up with a major investment in a tremendous chemical and energy company."

The end of the battle for Conoco has probably not meant the end of the bidding war for oil companies. Those oil firms remain very attractive takeover candidates because of their rich natural-resources reserves. Moreover, more than half a dozen corporations have some $34 billion in bank credit lines that can be used for a proposed merger. The same day last week that Du Pont claimed victory, all ten of the most active stocks on the American Stock Exchange were oil and gas firms. Some of the possible acquisition targets for the major energy companies: Pennzoil, Mesa Petroleum, Superior Oil, Marathon Oil, Amerada Hess and Murphy Oil. Texaco, which was an early suitor of Conoco, is reportedly considering a bid for Kerr-McGee, an Oklahoma-based oil company.

Those smaller oil firms can be expected to fight just as hard as Conoco to stay out of the hands of the larger energy companies. Said Bailey last week: "Had Mobil been permitted to acquire Conoco, there would have been other such mergers initiated by the major oil companies. A real threat existed that a large number of oil companies in the middle tier, like Conoco, would have been eliminated." Several of those firms, including Cities Service and Marathon, have already arranged their own lines of bank credit to fight off unfriendly takeover attempts.

The great unknown remaining after the fight for Conoco is the Justice Department's attitude toward a merger between two oil companies. Two weeks ago, Antitrust Chief William Baxter gave the green light to a Du Pont-Conoco deal. Yet, despite heavy pressure from Mobil, he did not express an opinion on a Mobil-Conoco merger. In fact, he appeared to be indicating that he might block it, when he said: "If they think we're generally soft on mergers, they're going to be in for a big surprise." If Mobil, Texaco or another member of Big Oil goes after one of the smaller energy firms, Baxter may be forced to produce his big surprise. --ByAlexanderL Taylor III.

Reported by Frederick Ungeheuer/New York

With reporting by Frederick Ungeheuer/New York

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