Demise
By 1980, Gulf exhibited many of the characteristics of a giant corporation that had lost its way. It had a huge but poorly performing asset portfolio, associated with a depressed share price. The stock market value of Gulf started to drop below the break-up value of its assets. Such a situation was bound to attract the interest of corporate raiders, although a corporation in the top 100 of the Fortune 500 was in the early 1980s thought immune to takeover risk.
Its undoing as an independent company began in 1982 when T. Boone Pickens, an Amarillo, Texas oilman and corporate raider (or greenmailer), and owner of Mesa Petroleum made an offer for the comparatively larger (but still considered "non-major" oil company) Cities Service Company (more generally known by the name Citgo) from Tulsa, Oklahoma which was then trading in the low 20s. Pickens first privately offered $45 a share for a friendly takeover and then later made a $50 a share public offer when Cities' CEO rejected the friendly offer. Gulf forestalled Mesa's takeover attempt by offering $63 a share in a friendly offer which Cities (by then trading at $37) accepted. Cities then bought out Pickens for $55 a share. Once Pickens was gone Gulf reneged on its buyout offer supposedly over a dispute regarding accuracy of Cities Services' reserves and the stock price of Cities plunged triggering stockholder lawsuits as well as distrust for Gulf's management on Wall Street and among financing investment banks who bet big in assisting Gulf to defeat Mesa only to be left broke when Gulf backed out. Cities Services was ultimately sold to Occidental Petroleum, and the retail operations were resold to Southland Corporation, the operators of 7-Eleven stores. Gulf's termination of the Cities Service acquisition resulted in more than 15 years of shareholder litigation against Gulf (and later Chevron).
With declining margins in the industry and left without Citgo's reserves, Mesa and its investor partners kept hunting for a takeover target, only to discover while fighting Gulf for Citgo how increasingly top-heavy its portfolio and declining reserves were undervaluing its overall assets. They subtly but quickly acquired 4.9 percent of Gulf Oil's stock by early fall 1983, just shy of having to declare themselves and their intent at 5 percent to the SEC. In the ten days allowed to prepare the SEC filing, Mesa and its investor partners accelerated buying to 11 percent of the company's stock, larger than the founding Mellon family's share, by October 1983. Gulf responded to Mesa's interest by calling a shareholders' meeting for late November 1983 and subsequently engaged in a proxy war on changing the corporation's by-laws to minimize arbitrage. Pickens made loud criticisms of the existing Gulf management and offered an alternative business plan intended to release shareholder value through a royalty trust that management argued would "slim down" Gulf's market share. Pickens had acquired the reputation of being a corporate raider whose skill lay in making profits out of bidding for companies but without actually acquiring them. During the early 1980s alone, he made failed bids for Cities Services, General American Oil, Gulf, Phillips Petroleum and Unocal. The process of making such bids would promote a frenzy of asset divestiture and debt reduction in the target companies. This is a standard defensive tactic calculated to boost the current share price, although possibly at the expense of long term strategic advantage. The target shares would rise sharply in price, at which point Pickens would dispose of his interest at a substantial profit.
Gulf management and directors took the view that the Mesa bid represented an undervaluation of the Gulf business as a long-term going concern and that it was not in the interest of Gulf shareholders. James Lee, Gulf's CEO and Chairman, even claimed during the November 1983 shareholders meeting to address the Mesa ownership that Pickens' royalty trust idea was nothing more than a "get-rich-quick scheme" that would undermine the corporation's profit potential in the coming decades. Gulf, therefore, sought to resist Pickens by various means, including refiling as a Delaware Corporation, voiding the ability of shareholders to cumulatively vote (fearing that Pickens would use his shares to gain control of the board) and listening to offers from Ashland Oil (which would double Gulf's price from its pre-Mesa level), General Electric (two years before it would shock the financial world by taking over the media company NBC/RKO) and finally Chevron to act as its white knight in late 1984. Gulf divested many of its worldwide operating subsidiaries and then merged with Chevron by the spring of 1985. The Mesa group of investors was reported to have made a profit of $760 million ($1.6 billion today) when it assigned its Gulf shares to Chevron. Pickens has claimed that after realizing a more than doubling of stock appreciation for Gulf shareholders (as well as its management that fought him at every turn) Mesa's shares were the last to be paid out by Chevron.
The forced merger of Gulf and Chevron was a controversy that was widely debated, with the U.S. Senate considering legislation to freeze oil industry mergers for a year—before the Reagan administration made it known it opposed government intervention in the matter and would veto any bill. However Pickens and Lee (Gulf's CEO) were summoned to testify before the Senate months before the merger was hammered out and the matter was referred to the Federal Trade Commission (FTC). The FTC only approved the deal subject to strict conditions. Never before had a "small operator" successfully taken apart a Fortune 500 corporation, or in Gulf's case a "Fortune 10" corporation. The merger sent even deeper shock waves through the long time exclusive "Seven Sisters" club of major integrated oil companies that defined themselves as elevated from the "non-major independents". A board member of Exxon even admitted in the mid-1980s that "mostly all we talk about in board meetings anymore is T. Boone Pickens". Chevron, to settle with the government antitrust requirements, sold some Gulf stations and a refinery in the eastern United States to British Petroleum (BP) and Cumberland Farms in 1985 as well as some of the international operations.
The affect on the Pittsburgh area was severe as close to 900 PhD and research jobs and 600 headquarters (accounting, law, clerical) jobs were transferred to California or cut, a payroll of $54 million ($120.8 million today) and corporate charity to 50 Western Pennsylvania organizations worth $2 million/year ($4.5 million/year today).. These losses were mitigated some with the donation of the once industry leading Gulf Labs in suburban north Pittsburgh to the University of Pittsburgh to be used as a research business incubator along with $5 million ($10.8 million today) in maintenance and seed money. The "Gulf Labs" research complex consisted of 55 multi-story buildings with 800,000 square feet (74,000 m2) on 85 acres (340,000 m2) and including several chemical labs, petroleum production and refining areas and even a nuclear laboratory complete with reactor in 1985 and employed close to 2,000 engineers and scientists operating with a $100 million budget ($223.7 million today) from Gulf/Chevron. After its donation it was renamed the University of Pittsburgh Applied Research Center or U-PARC and opened to small technology, computer and engineering firms as well as graduate level research.
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