James Flanigan's Feb. 13 column ("Insider Scandal Shows Hartley Knew the Score") lauding Unocal Chairman Fred L. Hartley shows clearly Flanigan's inability to draw logical conclusions from factual data. Flanigan praises Hartley when he says that Hartley "wasn't fooled. He said investment bankers were pulling a con job on the American people two years ago when his firm was under siege from the Pickens-led investment group, Mesa Partners."
The fact is that Hartley was fooled. Goldman, Sachs & Co. was Hartley's investment banker, not Mesa's. Hartley paid Goldman, Sachs $20 million for advice that enabled him to keep his job--advice that he had a right to expect would be kept confidential. Charges recently filed by U.S. Attorney Rudolph W. Giuliani would indicate that a key Goldman, Sachs adviser fooled Hartley by not keeping this information confidential. It is alleged that this adviser illegally passed inside information on Unocal's strategies to a Kidder, Peabody & Co. executive who used the information to make millions of dollars in illegal profits.
Flanigan's assertion that this most recent insider trading allegation indicates that "Hartley was probably right two years ago when he said there was something rotten about the hostile takeover game" is ludicrous. No system can guarantee that individuals within the system will not engage in illegal activities. Surely Flanigan would not assert that something is rotten with democracy because, periodically, elected officials have engaged in illegal activities. There have been numerous studies by highly accredited organizations and individuals showing that takeovers are beneficial to our economy, and thereby to our society.
Flanigan laments the denunciation of poor Hartley "for exploring for new oil and investing in oil shale, instead of giving up on tomorrow and paying all the profits out to shareholders today." What hogwash. Excessive investments in exploration for new oil during the early 1980s were in large part responsible for the economic and social calamity of 1986, when oil prices fell by almost two-thirds from 1985 levels. These investments violated the basic economic laws of supply and demand. Hartley's investments in shale oil have now cost Unocal shareholders more than $1 billion with absolutely no return, and the bleeding continues.
Flanigan's admiration for Hartley for fighting and saving the firm can't stand up to rigorous analysis. Michael Jensen, a Harvard University business professor, showed that Hartley fought and saved his job, but at a cost to the shareholders of $1.1 billion.
As to Flanigan's assertion that Mesa's bid for Diamond Shamrock failed "amid indications that financing just wasn't as available as it used to be," let me assure you that that was not the case. Our bid was stymied by the sale of preferred stock with "lockout" provisions, a poison pill and a refusal by Diamond's directors to let the stockholders vote on the matter. The money was there if we had been able to make our offer directly to the owners of the company.
The blinders Flanigan wears may prevent him from understanding the vital role that takeovers play in our economy. Takeovers assist in the efficient allocation of resources by freeing misallocated capital trapped in stagnant corporations and making it available for higher valued uses. The capital freed from Unocal is in the stock market today, available to anyone with a better mousetrap and the ability to instill confidence in investors. This capital is also available to Unocal. One can only wonder at the reason that Unocal has chosen to remain highly leveraged rather than to compete for this equity capital.
T. BOONE PICKENS JR.
Mesa Limited Partnership