When Unocal Won Over Pickens, Shareholders and Society Lost

Financier Vol. 9, No. 11, Pp 50-52, November 1985

8 Pages Posted: 15 May 2001  

Michael C. Jensen

Social Science Electronic Publishing (SSEP), Inc.; Harvard Business School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)


It is now difficult to launch a takeover against a Board willing to use the powers granted by the Unocal court to discriminate among shareholders. A determined Board could, in the extreme, pay out all the corporation's assets and leave the acquirer holding a worthless empty shell.

The Unocal victory over Mesa cost the Unocal shareholders $1.1, the amount by which the Mesa offer exceeded the $8.3 billion value of Unocal's victory. This loss is 26% of Unocal's pre-takeover value of $6.2 billion. As of October 11 Unocal's value had declined by another $754 million.

The $2.1 billion net increase in value to Unocal shareholders during the battle resulted from Unocal's $4.2 billion debt issue which, contrary to assertions, benefits its shareholders. It does so by bonding Unocal to pay out a substantial fraction of its huge cash flows to shareholders rather than to reinvest them in low-return projects, and by reducing taxes on Unocal and its shareholders.

For his services in generating this $2.1 billion gain for Unocal shareholders, T. Boone Pickens has been vilified in the press, and Mesa Partners II has incurred net losses, before taxes. In addition to Mesa's losses, shareholders of all Delaware corporations lose because the court's decision gives management a weapon so powerful it essentially guarantees that no Delaware corporation that uses it will be taken over by a tender offer.

Keywords: Unocal, Delaware Supreme Court, greenmail, benefit of takeovers, Mesa Partners, tender offer(s)

Suggested Citation

Jensen, Michael C., When Unocal Won Over Pickens, Shareholders and Society Lost. Financier Vol. 9, No. 11, Pp 50-52, November 1985. Available at SSRN: https://ssrn.com/abstract=244157 or http://dx.doi.org/10.2139/ssrn.244157

Michael C. Jensen (Contact Author)

Social Science Electronic Publishing (SSEP), Inc. ( email )

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HOME PAGE: http://ssrn.com/author=9

Harvard Business School ( email )

Soldiers Field
Negotiations, Organizations & Markets
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305-675-3166 (Fax)

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=6484

National Bureau of Economic Research (NBER) ( email )

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European Corporate Governance Institute (ECGI) ( email )

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