Bitter Struggle Leaves Open Wounds At Mesa Shaky Truce May Prevent Further Bloodshed In High-Stakes Battle For Control

It’s no wonder the power struggle at Mesa Inc. has made headlines on business news pages - the personalities behind the controversy make for a great story.

On one side is Boone Pickens, the natural gas company’s 67-year-old chairman and chief executive officer. Pickens gained an international reputation in the 1980s during several oil company raids and an unsuccessful two-year fight for a seat on the board of Japan’s Koito Manufacturing Co.

The challenger is David Batchelder, 46, a former Mesa president and top Pickens strategist who’s turned the tables on his former boss. Batchelder is financial adviser for investors Marvin Davis and Dennis Washington, who hold 9.4 percent of Mesa’s stock, compared to Pickens’ 7.5 percent.

The rebel shareholders pressured Mesa all summer to take serious steps to boost the company’s stock price, including considering a sale or merger.

The two sides called an armistice in September after months of wrangling and lawsuits. The rebel shareholders said that if Mesa’s board considers all options to maximize the company’s value, they won’t try to call a special meeting aimed at ousting Pickens before the company’s annual meeting next May.

“Now we have the opportunity to focus our full attention on this program in achieving some very important objectives,” Mesa spokesman Jay Rosser said.

Meanwhile, the question remains: What has been achieved so far by the fight over the Irving-based company?

Not much, says Mesa. And some analysts agree.

Citicorp Securities Markets analyst Roger King said the investor group is pressuring Mesa “to sell good assets in a bad market, which to me is not the best way to achieve the highest shareholder value.”

A year ago, the company’s stock was trading at $5.50 on the New York Stock Exchange; now it’s around $4.75.

The company maintains that Pickens, the largest Mesa shareholder, already had ample incentive to try to do what’s best for company stockholders.

But the investor group has said Pickens was unwilling to look at options that might have removed him as Mesa’s head.

Mesa had put up for sale its rich natural gas properties in the Hugoton field in western Kansas. However, the company precipitated the shareholder battle in June when it rejected the top Hugoton bid of $750 million; Mesa wanted at least $1 billion for the properties to wipe out most of its $1.2 billion in debt.

The company said it would go ahead with the next step - seeing how much it could get by selling the Hugoton properties piecemeal - but then the Batchelder group turned up the pressure.

The recent settlement agreement specifies that Mesa in coming months must sell the company or at least $640 million in assets; get a $250 million equity infusion; or form a joint venture or partnership that would create at least $350 million in new equity, or combine any of those steps.

“I think the only thing you can say is it’s forced Mesa into thinking about the sale of the whole company. That probably was one of the options that was there before, but certainly with the Batchelder group that has come to the forefront,” Rothschild Inc. analyst Rosario Ilacqua said.

“They may have accelerated the timetable,” Ilacqua said.

If not for the fight, Mesa might have trouble getting any attention at all. The 400-employee company had $228.7 million in revenue in 1994 - just over one-tenth that of the smallest Fortune 500 company - and lost $83.4 million.

In recent years, the biggest questions facing Mesa were when a really cold winter or some other incentive would make the company viable by boosting poor natural gas prices; and what it would do about its debt. Mesa is due to start making interest payments on much of its $1.2 billion debt at the end of this year, and has said it doesn’t think it could cover the obligations next year without taking some action.

Beyond its effect on Mesa, the shareholder struggle may have done lasting damage to Pickens’ reputation after years of championing stockholders’ rights. In July, Mesa adopted an 18-month “poison pill” takeover defense that would make a raid prohibitively expensive by letting shareholders buy stock for half price.

“I think the easy reading of this is the man was a hypocrite. Those may be strong words, but he was vociferous about, you know, that poison pills were a wrongheaded policy. Except when Mesa came under pressure, and then lo and behold Mesa has a poison pill,” said Charles Cox, former chairman of the now-dissolved United Shareholders Association, which Pickens formed.

Still, Cox thinks the Batchelder group has had a positive effect.

“I think that there’s been more openness by Mesa to consider the full range of steps or possibilities or alternatives of increasing value for shareholders,” he said. “I think that Mesa was taking a very narrow view until the pressure was put on the company, and now it seems to be taking a wider view.”