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A Heavyweight Fight

Fred L. Hartley


T. Boone Pickens

The Background

The Union Oil Company of California’s early history is complicated, with more than one attempt to take the company over. In the 1920’s, Royal Dutch Shell owned large amounts of Union stock. At one time in the 1950’s Gulf Oil could have taken over control of Union. In 1959, Phillips Petroleum started buying Union shares, and by 1960 they owned 15%, becoming Union’s largest shareholder.  In 1963, that block of stock was acquired by Daniel Ludwig, a wealthy ship-owner.

Shortly after Fred L. Hartley became Union Oil’s Chief Executive Officer in 1964, the situation changed. Union Oil took over Pure Oil in 1965, and suddenly stretched from coast to coast.

Fred Hartley was born in British Columbia in 1917. He earned a Chemical Engineering degree from the University of British Columbia, and started work for Union Oil in 1939. His early career was at the Los Angeles Refinery, which in the 1940’s included Union Oil’s Research Department.

Fred Hartley’s first actions as CEO were to close unprofitable service stations, and to reduce the payroll through layoffs.  The purchase of Pure followed soon thereafter.  Daniel Ludwig – by then a Director of the company - objected to the acquisition of Pure, and Union itself raised enough money ($146 Million) to buy him out.

Hartley was a chemical engineer, and most of his work experience was in refining, but he understood the need for oil and gas exploration.  In 1967, Fortune magazine quoted him:  “If we don't explore we'll go backward and if we don't explore with success we'll go backward and broke.”

By the start of the 1980’s, after 15 years under the leadership of Fred L. Hartley, Unocal was financially strong and giving shareholders a good return on assets. But Fred was approaching retirement age, and he had never groomed anyone to be his replacement.  Takeover rumors started surfacing on Wall Street from time to time.  Union responded by re-organizing, creating Unocal Corporation (incorporated in friendly Delaware) as a holding company, and adding some anti-takeover defenses.

T. Boone Pickens

Thomas Boone Pickens was born in Oklahoma in 1928. He graduated from Oklahoma A&M in 1951 with a degree in Geology, and went to work for Oklahoma-based Phillips Petroleum.  In 1956, he founded the company which later became Mesa Petroleum. During the early 1980’s he led Mesa on a series of attempted corporate takeovers. In 1984, Mesa started buying Unocal shares, using lines of credit originally acquired in the process of greenmailing Phillips Petroleum. Eventually, Pickens’ organization owned a 13.6% share of Unocal.

Fred Hartley kept Unocal’s focus on exploration spending, and resisted the idea of buying back Unocal stock to inflate the share price, although institutional shareholders urged him to.

In April of 1984, Fred L. Hartley and T. Boone Pickens met by accident as both of them waited to testify at Congressional hearings about mergers and acquisitions in the oil industry.  The exchange between them was reported to be:

  • Pickens extended his hand to shake, but Hartley refused it, saying “Go away.”
  • Pickens said, “Fred, you're talkin' to your largest stockholder!”
  • Hartley replied, "Isn't that a shame."

They each retreated to their own corner, and the fight was on.

Union Oil management first became officially aware of the hostile takeover attempt on Valentine’s Day, 1985.  That day, Pickens announced that he owned 15% of Union Oil’s stock.


  • Before the first of May, Mesa offered $54 per share in cash for the 37 percent of Unocal stock that it would need for a controlling interest and the same amount in debt securities for the remaining shares.
  • Unocal offered to buy back 49 percent of its stock for $72 worth of debt per share, but only if Mesa reached its target of 37 million shares.
  • Unocal excluded Mesa’s shares from that offer, confident that they could do so under Delaware law.
  • Mesa challenged that provision in a lawsuit, and started a proxy fight to delay Unocal’s annual meeting until Mesa nominated candidates for the Unocal board.
  • The shareholders voted with Unocal management, and Pickens lost the proxy battle.
  • At the (regularly scheduled) Unocal annual meeting in May 1984, Fred L. Hartley, age 67, was re-elected as the Chairman of the Board.
  • After the annual meeting, the Delaware Supreme Court ruled that Unocal had no legal obligation to include Mesa's holdings in its partial buyback offer.
  • To get rid of Pickens, Unocal offered to buy back one-third of Mesa’s shares for $72 per share.  Pickens admitted that he was only breaking even on the deal.  Later, in his autobiography, he attempted to put a more positive spin on the outcome – but the truth was that he had been defeated by Unocal.

The Aftermath

Unocal had won, but not without significant injury to itself.  At the time of the stock buyback, Fred Hartley referred to it as “Replacing the warm blood of equity with the ice water of debt.” Unocal’s corporate debt increased from $1.2 Billion before Pickens to $5.3 Billion afterwards. Money that could have gone towards oil and gas exploration had to go to interest on the debt instead. At the end of 1984, Unocal had 20,664 employees.  That was the peak – the decline in the following 20 years averaged over 700 employees lost per year.  At the end of 2004 – the last full year of Unocal’s existence – there were only 6,590 Unocal employees. The long-term corporate debt at the end of 2004 was $2.57 Billion – more than twice what it was when the Pickens-Hartley fight started.

Fred Hartley retired in 1988. He died in 1990, during Unocal’s celebrations of its centennial year.

Boone Pickens continues to be a dealmaker.  He currently controls the company BP Capital (BP as in “Boone Pickens, not as in “British Petroleum.”) BP Capital invests in, as its website says, “…in energy futures and stocks of public companies in various energy sectors and energy dependent industries.” Mr. Pickens has been in the news as an advocate of wind power. A cynic might note that a wind farm needs backup generators for times when the wind isn’t blowing, and that Mr. Pickens’ company has large investments in natural gas fields that could power those generators.