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	POINTS FOR CLEVELAND MERCER DEBATE MAY 3, 1988

[Handwritten addition: Closed today 64 1/4 up 1 1/8]

[Handwritten addition: Averaged $32 for 25 years before Goldsmith showed up]

[Handwritten addition: Coming into the lions den—Leigh Bob]

Thank you, [Text stricken: Barry Kellman.] [Handwritten addition: Sen. Gartan]

[Handwritten addition: Del. Sup. Court isn’t going to sit behind us are they & rule on this debate.]

I appreciate the opportunity to discuss the effects of corporate restructuring.

The subject cries for public debate. . .[Text stricken: appreciate Mr. Mercer coming out.] [Text stricken: [Handwritten addition: joining us tonite. It is not easy to get a CEO to debate.]]

There are two schools of thought surrounding public corporations. . .I’m from the free market side.

[Handwritten addition: You [Text stricken: are] have going to [Text stricken: hear a lot] I want to talk about jobs—Debt—all the above.]

[Text stricken: [Handwritten addition: Correction—built Mesa into the largest independent oil & gas co. not by investment in other companies but finding & prod. More]]

[Handwritten addition: gas and oil than any other independent—Mesa has 2½. We have 48 prod. Platforms in the Gulf of Mex. & produce up to 500mm cubic of gas a day.]

[Text stricken: I started] Mesa The company I work for Ltd was started [Text stricken: in] 1956 with $2,500. . .built it into the largest independent producer of domestic oil and gas in the United States.

When [Text stricken: I took] Mesa [Handwritten addition: went] public in 1964, it was clear [Text stricken: to me] that [Text stricken: I] [Handwritten addition: the Co.] had one mission. . .to create value for [Text stricken: my] [Handwritten addition: the] new [Text stricken: partners] [Handwritten addition: owners], the shareholders. . .[Text stricken: that’s the only reason they bought Mesa stock:]

Mesa has grown from that $2,500 start into a $2 billion company.

Went from 421 stockholders to 150,000. . .But [Text stricken: my] [Handwritten addition: the] mission remains the same. . .maximize returns for shareholders. [Handwritten addition: In other words size is meaningless—results everything.]

[Text stricken: My] [Handwritten addition: Our] mission hasn’t changed, but the means of accomplishing it has changed dramatically.

Mesa has continuously restructured its operations. . .major restructurings in ’70, ’73, ’79, ’82 and ’85.

[Handwritten addition: Change is the only constant—Mainstreet of any town can’t legislate the status quo. Can’t legislate economics—Plants into perpetual existence.]

Nobody had to pressure us to restructure. . .changed [Text stricken: with] [Handwritten addition: ahead of] the times.

It was tough. . .downsized, cut employees. . .but the result is a strong company in a weak industry.

[Handwritten addition: Had we not made the changes we would now be a part of a major oil company. We would have been acquired because we couldn’t have survived.]

[Text stricken: All changes made with owners interests in mind.]

The Free Market school has proven time and again. . .the system [Text stricken: collapses] [Handwritten addition: fails] if you put anyone’s interests before [Handwritten addition: the] owners’.

[Handwritten addition: Capitalists system—set up incentives serves the whole. That’s the engine that built the greatest economy in the history of the world.]

Making money for [Text stricken: owners] [Handwritten addition: stockholders] is consistent with responsibilities to employees, communities, customers and suppliers.

[Handwritten addition: As an example, Mesa’s dividend is $310mm annually—$87mm into our local economy—no city exists on pure altruism it takes a going concern free enterprise approach.]

To succeed. . .employees must be challenged and [Text stricken: properly] rewarded, customers must get the best product for the best price.

Then communities and suppliers thrive on the company’s success.

[Handwritten addition: By contrast. . .]

The other school says business is more complex than that.

They believe public companies exist to serve society instead of to focus on profits for their owners.

[Handwritten addition: Sure society benefits are derived from Mesa’s success but how much money to you think I would have raised in 1956 if I had told my investors that I was forming a company and our primary focus was serving society?]

As [Text stricken: Goodyear’s] [Handwritten addition: an example of this thinking] [Text stricken: Mr.] [Handwritten addition: Robert] Mercer told the L.A. Times on December 18, 1987:
—“Our No. 1 constituency is not the shareholder. You handle the customer first, then comes the shareholder, equally with employees, the communities where we operate and the suppliers — the whole litany of interests.”

[Handwritten addition: No one argues SH’s own Co.—all the stock in one room its your co.—but ownership fragmented—so by default managers have taken over]

[Handwritten addition: Mr. Mercer told us a lot with his opening sentence. “Our No. 1 constituency is not the shareholder. . . ”]

[Handwritten addition: It’s his company! He is an employee of the SH’s.]

This is the exact business philosophy that [Text stricken: led to most of Europe’s economic downfall.] [Handwritten addition: has caused the problems I see in Corp. America.]

[Text stricken: And it’s been leading American business into decline.]

Today’s corporate restructuring reflects a return to the basic principles of capitalism:
[Handwritten addition: takeovers, LBO’s etc. not every deal is a good deal.]
—Going back to Adam Smith [Handwritten addition: Set up system where free enterprise can thrive—society is served as a result]
—Create value for owners, not empires for management.

Corporate America is now well into the process of change:
—Some saw it coming, helped bring it about
—Others were nimble enough to adjust or were fortunate enough to have it forced on them. . .[Text stricken: like Goodyear.]
—Another group, the iron-headed crowd, is being run over by change

The data has been analyzed, the results are in and the restructuring philosophy has been almost universally adopted. . .[Text stricken: it’s even moving through Europe.]

[Handwritten addition: Whole industry created. . .]

[Handwritten addition: Jobs—R&D 100% since ’82—unemployment 5.6% lowest in 14 years 95%]

But just like every period of change, there’s a group that has to be dragged kicking and screaming into it. [Handwritten addition: —That’s the crowd that becomes vulnerable to takeovers. . .and the ones that are running to state legislators for an umbrella. Irony, same crowd that in the ’70’s said mergers etc. . .just business—strategic. Big ones getting the little ones.]

They’re oblivious to the transformation going on around them.

[Handwritten addition: Or—there not served by the status quo.]

They move only when they’re pushed out of the freight train’s path, then they gripe because someone pushed them.

[Handwritten addition: Stop here          page 19]

[Text stricken: If you look at Goodyear’s performance since Jimmy Goldsmith forced its restructuring, only a fool could claim it wasn’t the right move.]

The companies whose managements continue to resist change are simply going to [Text stricken: perish.] [Handwritten addition: suffer.] [Handwritten addition: This is going to happen, it’s inevitable, it’s well on its way.]

And their loss will be a blow to the shareholders and the entire American economy.

[Handwritten addition: Three from back spin]

Thank you.

[Handwritten addition: A state should come up w/ SH’s statutes—no shareholders lobby for these laws.]

[Handwritten addition: Raider—is a misnomer]

[Handwritten addition: 900,000-13 billion]

[Handwritten addition: that is not creative]

[Handwritten addition: I’ll leave it to you]

[Handwritten addition: Give examples of lousie jobs in takeovers.]

[Handwritten addition: Over 50% BRT have made takeovers]

[Handwritten addition: Goldsmith—I wasn’t going to mention but now you have]

[Handwritten addition: “Unload your stock” gardner. . .]

[Handwritten addition: Speaking of unloading ownership]

[Handwritten addition: I have not resigned from USA, non-profit $700,000]

[Handwritten addition: B’ville—my statement was. . . .I will leave it to you to decide]

Mercer; 9,954 shares after 41 years. . .17-thousandths of 1%. (2-88 Proxy)

[Handwritten addition: Had 13,164 in ’87—biggest seller in management group]

Mercer got $1.26 million in 1987, a 33% increase over 1986, after telling a UPI reporter (1-2-87) he and other execs would take a pay cut.

37 Goodyear directors and officers own 2-tenths of 1%. [Handwritten addition: Consistent BRT]

Stock price averaged $32 for 6 months before Goldsmith’s October 1986 bid. . .went to $76.50 just before crash; it’s been near $64 for past month.

Mercer told the Washington Post in September 1986, “I think if we raise our dividend, which we’ll have to do one of these days, you’re going to see the stock probably go up as a result.”

Mercer told Investor’s Daily (12-2-87) that Goodyear so far had sold 12% of assets, with which it bought back 50% of stock, raising stock price 100%.

Debt will be reduced to post—bid levels if the pipeline is sold for $1 billion. . .Mercer expects $1.3 billion.

Goodyear hasn’t built a new tire plant in a decade. . .(WSJ 3-15-88) Since the restructuring, it has announced plans to build three new plants (two outside the U.S.) and to greatly expand a fourth. . . .After shutting 34 facilities in the decade before Goldsmith’s bid (Mercer’s testimony before the HJC Hearing).

[Handwritten addition: Debt—not telling us the whole story.]

[Handwritten addition: Goldsmith built a fire under Goodyear mgmt.]

[Handwritten addition: —Sell offs]

[Handwritten addition: —breakup—bust up]

[Handwritten addition: Corporate killers field dead CO’s]

[Handwritten addition: over pay]

[Handwritten addition: David]

[Handwritten addition: 5% involving takeover study—1950-1977]

[Handwritten addition: Source of gains]

[Handwritten addition: Rise of stock market was a fad]

[Handwritten addition: World War II—effects on stockholders—on boards—]

[Handwritten addition: —Targets—bidders—yes—not always rational matter mergers—friendly deals agree on bust-ups of incentives extrapolates that not effect.]

[Handwritten addition: Conglamerate rollups this is what the restructuring of the 1980’s is responding to.]