In an escalation of a takeover battle that has yet to be formally announced, Unocal Corp. on Tuesday sued its own longtime bank over loans the bank made to Unocal's undeclared suitor, Texas oilman T. Boone Pickens.
In addition, Fred L. Hartley, chairman of the Los Angeles-based company, sent a letter to Federal Reserve Chairman Paul A. Volcker blasting the "junk financing" being used to feed "a takeover frenzy that strikes at the economic well-being of this country."
Noting that Unocal "may be next on the list," Hartley urged Volcker to "act now to curb this abusive use of credit."
Sources in the banking community said Unocal's challenge to the financing of takeover attempts could bring to a head a growing controversy over banks' willingness to lend money to corporate raiders.
Pickens, chairman of Amarillo, Tex.-based Mesa Petroleum Co., and his investor group recently bought 9.7% of Unocal's stock on the open market, and they have declared an intention to purchase up to 15%--but only as an "investment."
Charges Breach of Contract
However, in the suit it filed along with its principal subsidiary, Union Oil Co. of California, Unocal characterized the Pickens group's purchases as "a hostile takeover."
The suit accused Los Angeles-based Security Pacific National Bank of "fraudulent, willful, malicious and oppressive" conduct by participating in loans to Mesa Petroleum Co. and Wagner ' Brown, a Midland, Tex.-based general partnership that is part of Mesa Partners II, the investor group allied with Pickens.
In the civil suit filed in Los Angles Superior Court, Unocal accused Security Pacific of breaches of contract and fiduciary duty and of fraud, misrepresentation and misuse of trade secrets.
Unocal is seeking at least $555 million in damages, plus other damages that haven't been determined, as well as injunctions prohibiting Security Pacific from continuing to extend credit to the Pickens group and from disclosing any confidential information about Unocal to any third party.
The lawsuit alleged that Security Pacific committed a total of $185 million of a $1.1-billion credit line extended by a group of banks to Mesa Petroleum and a $270-million credit line to Wagner & Brown.
Unocal said in the suit that it became concerned last December that the money might be used to buy Unocal stock or to attempt to take over the company, but had received assurances from Security Pacific Chairman Richard J. Flamson and other executives that the credit line was for general working capital and that the bank would fight in court any attempts to use the credit line for a Unocal takeover.
Unocal claimed that those "representations made by Security Pacific...were false when made and that Security Pacific knew that the representations were false when made."
Those statements were false, Unocal said, because the original credit agreement, which did prohibit the use of the Security Pacific loan to buy Unocal stock, had been amended as of the date of the discussions with Security Pacific to permit Mesa Petroleum to spend up to $50 million to buy "the stock of a 'limited investment subject,"' which the lawsuit claims was Unocal.
In addition, Unocal accused Security Pacific, its principal bank for 40 years, of misusing and disclosing "either directly or indirectly" confidential financial information about Unocal in connection with its credit line to Mesa Partners.
Flamson, chairman and chief executive of Security Pacific Corp. and Security Pacific National Bank, responded that "the suit is without merit and we expect to defend ourselves vigorously and successfully."
"We deeply resent the attack on the credibility of this institution and deny the allegations that Security Pacific used any confidential financial information about Union Oil for the benefit of others," Flamson said.
A Unocal spokeswoman said the company has not severed its banking ties with Security Pacific despite the lawsuit. "We are continuing to conduct company business assigned to them at the present time," she said, declining further comment.
During the more than 40 years during which they have done business, Security Pacific and Unocal have developed "a special relationship of trust and confidence," Unocal said. Security Pacific is a major source of bank financing for Unocal's production properties, is trustee for Union Oil's employee profit-sharing and stock ownership plans, handles most of Unocal's foreign exchange transactions, has extended Unocal a $10-million line of credit and even has operated a branch bank at Unocal's downtown headquarters for 27 years.
Pickens--who had in the past attempted takeovers of Phillips Petroleum Co., Gulf Oil Corp., Cities Service Co. and Great American Oil Co.--again denied that Mesa Partners is trying to take over Unocal.