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	LAW & BUSINESS, INC. SEMINAR NEW TECHNIQUES IN ACQUISITIONS & TAKEOVERS “PUTTING THE SHAREHOLDERS’ INTERESTS BACK IN THE EXECUTIVE SUITE” NEW YORK March 6, 1984

9 A.M.

(TIME: 6 MIN.)

I. THANK YOU, ED (GREEN). I MAY BE NAMED ARB OF THE YEAR IN 1984.
A. IT’S A PLEASURE TO BE HERE TODAY.
B. (PERSONAL COMMENTS, HUMOR)
C. IT’S A GREAT DAY TO BE IN NEW YORK, BUT WITH AN $80 OFFER IT WOULD BE A GREAT DAY ANYWHERE.

II. I NOTICED IN THE PRELIMINARY SCHEDULE THAT MY TALK WAS LABELED AS A “CORPORATE REVITALIZATION SPEECH.”
A. IF THERE’S ONE THING THAT WILL “REVITALIZE” AMERICAN BUSINESS, IT IS PUTTING THE SHAREHOLDERS’ INTERESTS FIRST.
B. MAXIMIZING SHAREHOLDER VALUE WILL SOON BECOME ONE OF THE MOST IMPORTANT CONCERNS OF MANAGEMENTS THROUGHOUT CORPORATE AMERICA.
C. WE MAY GET SOME CREDIT FOR KICKING THIS PLAY OFF.
D. THE SHAREHOLDER IS THE FORGOTTEN PERSON IN CORPORATE AMERICA. . .YET THERE WOULD BE NO FREE ENTERPRISE SYSTEM AS WE KNOW IT WITHOUT THE SHAREHOLDERS. THEY ARE THE CORNERSTONE.
E. MAXIMIZING VALUES SHOULD ALWAYS HAVE BEEN MANAGEMENTS’ TOP PRIORITY, BUT UNFORTUNATELY, THAT HAS NOT BEEN THE CASE IN MANY COMPANIES.
F. TODAY, WE’RE SEEING A GROWING WAVE OF SHAREHOLDER DISCONTENT IN WHICH THEY ARE STARTING TO FORCE MANAGEMENT TO RECOGNIZE THAT SHAREHOLDERS ARE THE TRUE OWNERS OF THE COMPANY.
G. THIS DISCONTENT IS SURFACING IN A VARIETY OF BUSINESSES.
H. WE’VE WITNESSED IT AT GAF, CHOCK FULL O’ NUTS, TRANS WORLD CORP, AND SUPERIOR, TO NAME A FEW.
I. MORE RECENTLY, WE’VE SEEN IT AT GETTY.
J. THESE SO-CALLED SHAREHOLDER “UPRISINGS” MAY COME FROM FOUNDING FAMILY STOCKHOLDERS, A GROUP OF MAJOR SHAREHOLDERS. . .OR THEY MAY COME FROM INSTITUTIONAL INVESTORS.
K. I BELIEVE WE’LL SEE INSTITUTIONAL INVESTORS BECOME INCREASINGLY VOCAL.
L. THEIR FIDUCIARY RESPONSIBILITIES REQUIRE THEM TO ASSESS MANAGEMENT’S PERFORMANCE AND CALL FOR CHANGES IF THEY ARE NOT GETTING MAXIMUM VALUE FOR THEIR INVESTMENTS.
M. AND INSTITUTIONAL INVESTORS HAVE THE RESEARCH CAPABILITIES THAT ALLOW THEM TO JUDGE A COMPANY’S POTENTIAL FOR INCREASING VALUE TO SHAREHOLDERS.

III. THERE ARE A LOT OF REASONS THAT SHAREHOLDERS ARE BECOMING DISCONTENTED, AND THEY VARY FROM INDUSTRY TO INDUSTRY.
A. THE PETROLEUM INDUSTRY HAS A RATHER UNIQUE SET OF CIRCUMSTANCES, WHICH IS WHY WE’RE SEEING SO MUCH ACTIVITY IN THE OIL AND GAS BUSINESS TODAY.
B. PETROLEUM COMPANY SHAREHOLDERS OWN DEPLETABLE ASSETS—RESERVES OF OIL AND GAS.
C. THOSE ASSETS HAVE VERY IDENTIFIABLE VALUES, AND THE VALUE THE MARKET PLACES ON THEM IS OFTEN MUCH LESS THAN THE APPRAISED VALUE.
D. SOMETIMES, THE APPRAISED VALUE IS MORE THAN TWICE THE MARKET VALUE.
E. SHAREHOLDERS CAN SEE THIS, AND THEY ALSO REALIZE THAT MANY MANAGEMENTS AREN’T DOING ENOUGH TO BRING THE MARKET VALUE UP.
F. TO COMPOUND THE PROBLEM, SHAREHOLDERS CAN ALSO SEE THAT THESE ASSETS—RESERVES OF OIL AND GAS—ARE BEING DEPLETED AND NOT REPLACED, IN MOST CASES.
G. TAKE THE MAJOR OIL COMPANIES, FOR EXAMPLE.
H. WE HAVE A NEW NUMBER 3.
I. THEIR COMBINED EQUIVALENT PRODUCTION REPLACEMENT IN 1982 WAS 64%.
J. ON THE OTHER HAND, THE INDEPENDENT OIL COMPANIES REPLACED 125% OF THEIR COMBINED EQUIVALENT PRODUCTION.
K. GRANTED, SOME OF THE MAJOR OIL COMPANIES DO BETTER AT REPLACING THAN OTHERS.
L. SHELL OIL COMPANY, FOR EXAMPLE, REPLACED 109% OF PRODUCTION IN 1982, WHILE STANDARD OF CALIFORNIA REPLACED ONLY 60% AND TEXACO 28%.
M. MOST MAJOR OIL COMPANIES, HOWEVER, ARE NOT REPLACING THEIR RESERVES, AND THOSE RESERVES REPRESENT THE SHAREHOLDERS’ ASSETS.

IV. SO FAR, I’VE GIVEN YOU THE SYMPTOMS OF SHAREHOLDER DISCONTENT, BUT I HAVEN’T TOLD YOU WHAT THE REAL PROBLEM IS.
A. IN MY ESTIMATION, THE CRUX OF THE PROBLEM IS THAT FEW MANAGEMENTS HAVE A MEANINGFUL OWNERSHIP IN THEIR COMPANIES.
B. THEY DON’T HAVE THE SHAREHOLDERS’ INTERESTS AT HEART BECAUSE THEY ARE NOT SUBSTANTIAL SHAREHOLDERS, THEMSELVES.
C. I HAVE GOT TO TELL YOU THIS STORY WHICH TOOK PLACE LESS THAN A WEEK AGO IN WASHINGTON. (SENATOR - SEC - INSIDER — ETC.)
D. MANAGEMENTS BELIEVE THAT THEY—RATHER THAN THE SHAREHOLDERS—OWN THE COMPANY.
E. AS A RESULT, THEY REFUSE TO CONSIDER IDEAS TO ENHANCE SHAREHOLDER VALUE.
F. WHAT THEY’RE REALLY MORE CONCERNED WITH ARE BONUSES, POWER, PERKS AND MAINTAINING MANAGEMENTS’ POSITION IN THE COMPANY.
G. THAT ATTITUDE ISN’T TOO SURPRISING WHEN YOU STOP TO THINK THAT THESE PEOPLE ARE GENERALLY JUST PROFESSIONAL ADMINISTRATORS CONCERNED ONLY WITH PERPETUATING THE ORGANIZATION THEY INHERITED.
H. THEY DON’T HAVE THEIR OWN MONEY AT STAKE, SO THEY AREN’T CONCERNED WITH WHAT HAPPENS TO THE TRUE OWNERS OF THE COMPANY, THE SHAREHOLDERS.
I. BUT IT’S THIS KIND OF ARROGANCE OR IGNORANCE ON THE PART OF MANAGEMENT THAT IS BECOMING INCREASINGLY UNACCEPTABLE TO SHAREHOLDERS.
J. I’M ALSO CONCERNED ABOUT THE NUMBER OF DIRECTORS ON BOARDS THAT ARE BARELY STOCKHOLDERS AND BEHOLDEN TO MANAGEMENT.
K. MANY OWN LITTLE STOCK AND SOME OWN NONE AT ALL IN SOME MAJOR U.S. CORPORATIONS.
L. IT SEEMS REASONABLE THAT DIRECTORS SHOULD PUT EITHER A MAJOR PORTION OR ALL OF THEIR DIRECTORS’ FEES BACK INTO THE COMPANY’S STOCK.

V. THE SOLUTION TO THIS PROBLEM IS OBVIOUS-GIVE MANAGEMENT A CHANCE TO OWN A MEANINGFUL AMOUNT OF STOCK AND THEN BE SURE THAT THEY DO OWN A MEANINGFUL AMOUNT.
A. OWNERSHIP IS OUR PHILOSOPHY AT MESA, AND THAT INCLUDES OFFICERS AND OUR BOARD OF DIRECTORS.
B. WE ALSO BELIEVE THAT EACH EMPLOYEE SHOULD HAVE THE OPPORTUNITY TO BECOME A STOCKHOLDER.
C. IN THAT WAY, EVERY PART OF OUR BUSINESS IS GEARED TOWARD ONE GOAL—MAXIMIZING THE VALUE OF THE SHAREHOLDERS’ INVESTMENT.
D. AND IT WORKS BECAUSE EACH MANAGER, DIRECTOR AND EMPLOYEE GAINS WHEN THE SHAREHOLDER GAINS.

VI. THE DISCONTENT SEEN AMONG SHAREHOLDERS IN THE LAST FEW YEARS IS ONLY THE BEGINNING.
A. THE FACT THAT MANY SHAREHOLDERS HAVE SPOKEN UP AND DEMANDED THEIR RIGHTS AS TRUE OWNERS OF THE COMPANY HAS STIMULATED THE MINDS OF MANY OTHERS.
B. IT WAS INTERESTING HOW FAR WE GOT WITH THE GULF STOCKHOLDERS. NOT SURPRISING. . .WE HAD A SALEABLE, A BIT COMPLICATED MAYBE, BUT NONE THE LESS A SALEABLE IDEA.
C. AT FIRST, WE WERE VERY SUSPECT IN THEIR EYES.
D. BUT AS TIME PASSED, THEY BEGAN TO UNDERSTAND THE ISSUES. . .THAT WE WERE SERIOUS WHEN WE SAID WE’D SHARE IN THE GAINS WITH EACH STOCKHOLDER AND THAT WE WERE TRYING HARD TO MAXIMIZE VALUES FROM AN ERODING RESERVE BASE.
E. AND I WOULD HAVE TO REPORT THAT ALL THE GULF STOCKHOLDERS ARE BETTER OFF BY A MEASURABLE AMOUNT. (EXPLAIN $5.8)
F. YOU’D BE SURPRISED AT THE NUMBER OF LETTERS I RECEIVE FROM STOCKHOLDERS OF OTHER COMPANIES, TOO.
G. THEY USUALLY SAY SOMETHING ABOUT, “HAVE YOU TAKEN A LOOK AT OUR COMPANY AND WOULD YOU CONSIDER BECOMING A SHAREHOLDER—AS SOON AS POSSIBLE.”
H. I RECEIVED ONE RECENTLY FROM A WOMAN WITH TEXAS INTERNATIONAL.
I. NOT ONLY DID SHE ASK ME TO TAKE A LOOK AT THE COMPANY, BUT SHE ALSO GAVE ME A PLAN TO FOLLOW THROUGH ON. (JUST RUMOR IT UP WILL REALLY HELP, AND IT DOESN’T LOOK LIKE YOU ARE DOING ANYTHING RIGHT. WE WOULD BE FOREVER GRATEFUL AND WOULD WORK FOR YOU IF YOU DECIDED TO GO INTO POLITICS.)

VII. I THINK WE’LL SEE MORE AND MORE SHAREHOLDERS PRESSURING MANAGEMENT TO TAKE STEPS TO MAXIMIZE VALUE, ESPECIALLY IN THE OIL AND GAS INDUSTRY GROUP.
1. REMEMBER, THOSE ASSETS ARE DEPLETING.
A. COMPANIES WHOSE MANAGEMENTS RECOGNIZE THIS AND ACT ACCORDINGLY WILL DO WELL.
B. THOSE WHO CHOOSE TO IGNORE THE PROBLEM MAY FIND THEMSELVES CHALLENGED IN THE FUTURE, MAYBE SOONER THAN THEY THINK.