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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-1
(Amendment No. 20)
Tender Offer Statement
Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934
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Pennzoil Company
(Name of Subject Company)
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Union Pacific Resources Group Inc.
Resources Newco, Inc.
(Bidders)
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Common Stock, par value $0.83 1/3 per Share
(Including the Associated Preferred Stock Purchase Rights)
(Title of Class of Securities)
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709903 10 8
(CUSIP Number of Class of Securities)
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Joseph A. LaSala, Jr., Esq.
Vice President, General Counsel and Secretary
Union Pacific Resources Group Inc.
801 Cherry Street
Fort Worth, Texas 76102
Telephone: (817) 877-6000
(Name, Address and Telephone Number of Persons
Authorized to Receive Notices and Communications on Behalf of Bidders)
Copies To:
Howard L. Shecter, Esq. Paul T. Schnell, Esq.
Morgan, Lewis & Bockius LLP Skadden, Arps, Slate, Meagher & Flom LLP
101 Park Avenue 919 Third Avenue
New York, NY 10178-0060 New York, NY 10022-3897
Telephone: (212) 309-6384 Telephone: (212) 735-3000
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<PAGE>
This Amendment No. 20 amends the Tender Offer Statement on Schedule
14D-1 filed on June 23, 1997 (the 'Schedule 14D-1') by Union Pacific Resources
Group Inc., a Utah corporation ('UPR'), and Resources Newco, Inc., a Delaware
corporation and a wholly owned subsidiary of UPR (the 'Purchaser', and together
with UPR, the 'Bidders'), with respect to Purchaser's offer to purchase up to
25,094,200 shares of Common Stock, par value $0.83 1/3 per share (the 'Shares'),
of Pennzoil Company, a Delaware corporation ('Pennzoil'), or such greater number
of Shares as equals 50.1% of the Shares outstanding on a fully-diluted basis, in
each case together with the associated Preferred Stock Purchase Rights, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
June 23, 1997 (the 'Offer to Purchase'), and the related Letter of Transmittal
(which, together with any amendments or supplements thereto, collectively
constitute the 'Offer'), which were filed as Exhibits (a)(1) and (a)(2) to the
Schedule 14D-1, respectively. Unless otherwise defined herein, all capitalized
terms used herein shall have the respective meanings given such terms in the
Offer to Purchase.
Item 3. Past Contacts, Transactions or Negotiations with the Subject Company.
Item 3 is hereby amended to add the following:
On September 8, 1997, Mr. Jack L. Messman sent to Mr. James L. Pate a
letter in the form attached to this Schedule 14D-1 as Exhibit (g)(13), which is
incorporated by reference herein.
Item 10. Additional Information.
Item 10 is hereby amended to add the following:
The following disclosure is provided in connection with pending litigation
involving Pennzoil Company (hereafter for purposes of this Amendment, the
"Company") and Union Pacific Resources Group Inc. (hereafter for purposes of
this Amendment, "Parent") in the United States District Court for the Northern
District of Texas, Fort Worth Division (see Section 11 of the Offer to Purchase)
(the "Securities Law Litigation"), although neither Parent nor Purchaser
consider the disclosure to be material or believes that any such disclosure is
required.
[Insert the following: (i) after the fourth full paragraph on page 18 of the
Offer to Purchase; (ii) after the fourth full paragraph on page 21 of the Offer
to Purchase; and (iii) after the second full paragraph on page 44 of the Offer
to Purchase (after adding a heading titled "Certain Tax Matters"):]
Before completing the Distribution in October 1996, UPC sought and obtained
a private letter ruling (the "Ruling") from the Internal Revenue Service (the
"Service") to the effect that the Distribution would be a tax-free spin-off
under Section 355 of the Code. Parent also entered into an agreement to
indemnify UPC against damages, among other things, in the event that any factual
information provided by Parent in connection with the Ruling was inaccurate. One
of the Service's bases for issuing Section 355 rulings was a series of
representations to the Service made by Parent and UPC, including a
representation that there had not been any "negotiations, agreements or
arrangements with respect to any acquisitions that would involve [Parent] stock"
which, if treated as consummated before the Distribution would result in the
Distribution not qualifying under Section 355.
The Company has alleged that Parent did not describe in the Schedule 14D-1
its possible indemnification liability to UPC arising out of the non-disclosure
to the Service of the Company's 1995 contacts with UPC regarding a possible
transaction involving the Company and Parent (as described elsewhere herein).
Parent believes that all of the requirements of Section 355 of the Code were
satisfied in connection with the Distribution. Parent also believes that its
representations to the Service in connection with obtaining the Ruling were
accurate in all material respects. Parent's view is that the unilateral
overtures of the Company to UPC with respect to a possible acquisition of Parent
by the Company in 1995 (described elsewhere herein) did not constitute a
"negotiation, agreement or arrangement" within the meaning of the Service's
ruling requirements. Accordingly, whether or not the Offer and the Proposed
Merger are consummated, Parent believes that there is no meaningful possibility
either that the Service could successfully take the position that the
Distribution did not satisfy the requirements of Section 355 of the Code, or
that UPC could successfully take the position that Parent has liability to UPC
under any indemnification agreement entered into in connection with the Offering
and the Distribution. The indemnification agreement has been described in
Parent's Registration Statement on Form S-1 in connection with Parent's initial
public offering and is filed as an exhibit thereto.
[Insert the following at the end of Section 10 of the Offer to Purchase:]
In the Securities Law Litigation, the Company has alleged that, in
comparing the value of the Offer and the Proposed Merger to the performance and
value of the Company, Parent is required to disclose its own internal
valuations, and those of Smith Barney Inc., Parent's financial advisor in
connection with the Offer, regarding the Company. In November 1995, Smith Barney
presented Parent with information concerning a number of acquisition ideas.
Parent had not then engaged Smith Barney as its financial advisor. Smith Barney
prepared a report containing a possible net asset valuation of the Company of
between $43 and $53 per Share, as well as net asset valuations of other
companies. In January 1997, Smith Barney presented Parent a report on the
Company. Such report contained a preliminary valuation range for the Company of
between $82.02 and $94.86 per Share based on a break down of the Company by
business segment. This valuation was determined by placing certain multiples on
then forecasted measures of earnings and cash flows of the Company's businesses
(each major segment on a stand-alone basis), except with respect to the
international exploration and production business outside North America. Such
international exploration and production business has insignificant earnings and
cash flow and its valuation was based on an estimate of the price at which such
international properties could be sold. The valuations in the January 1997
report (except for the valuation of the international exploration and production
business) were not reduced to give effect to any applicable tax consequences. In
early 1997, Smith Barney was engaged as Parent's financial advisor (the
"Financial Advisor"). Following the release of the Company's 1996 financial and
operating results, the Financial Advisor reported to Parent a reduced potential
valuation of the Company's various business segments of between $75.41 and
$86.14 per Share. In April 1997, an officer of Parent reported to Parent's Board
of Directors that Parent believed at that time that the potential valuation of
the Company to Parent was as much as the high $70s or low $80s per Share. On
June 4, 1997, the Financial Advisor reported to Parent a potential break-up
valuation based on various business segments of the Company of between $76.64
and $86.93 per Share. Similarly, none of the Financial Advisor's later
valuations (except for the valuation of the international exploration and
production business) were reduced to give effect to any applicable tax
consequences.
Neither Parent nor Smith Barney knows the basis of, or what methodologies
were used to compute, the 1995 valuation described above. (The individuals at
Smith Barney who prepared such report are no longer employed by Smith Barney.) A
company can be valued based on a number of different methodologies and
determinations, and neither Parent nor Smith Barney knows whether the 1995 and
1997 potential valuations were prepared using different or similar methodologies
and determinations. In addition, depending on the methodology and assumptions
used, valuations can produce a wide range of values.
From time to time, employees and advisors of Parent have expressed various
views as to the merits of, and the prospects of prevailing in, different types
of litigation which could be brought in connection with an unsolicited
acquisition of the Company. In particular, an employee of Parent prepared a
memorandum, dated May 3, 1997 (the "Memorandum"), as part of a briefing package
to Jack L. Messman addressing various matters relating to a possible negotiated
acquisition of the Company, and a possible unsolicited acquisition proposal in
the event that the Company's Board of Directors and management refused to
discuss a negotiated transaction. In the Memorandum, the employee attempted to
summarize his understanding of the views of members of a team consisting of
certain Parent personnel, Smith Barney, outside counsel to Parent and public
relations consultant to Parent. However, the Memorandum was not discussed with
or reviewed by other members of the team and in certain respects does not
reflect the views of members of the team. At the time of the Memorandum, the
Shares were trading in the high $40s and Parent was contemplating a purchase
price per Share in the mid-$70s. The Memorandum, stated, among other things, the
following: "The tender offer would be accompanied by litigation to remove the
shareholder rights plan and to declare [Section] 203 [of the Delaware General
Corporation Law] unconstitutional. The likelihood of winning is nil, but the
litigation applies pressure to [the Company] and provides defense against an
unfriendly venue if [Parent] gets sued."
The author of the Memorandum (who is not a lawyer) has stated that the
statement quoted above represented his lay understanding of certain advice of
counsel relating to certain potential litigation. However, Parent has not
brought, and does not intend to bring, litigation challenging the
constitutionality of Section 203 of the Delaware General Corporation Law because
the constitutionality of such statute has been judicially upheld by every
federal court which has considered the issue. In addition, if the
above-referenced statement in the Memorandum is viewed as a comment on the
litigation currently being pursued by Parent against the Company in the Chancery
Court of Delaware in connection with the Offer and the Proposed Merger (see
Section 11 herein), it does not represent the view of Parent. Parent believes
that the outcome of such litigation will be based on, among other things, the
particular facts and circumstances regarding the Company's actions and plans and
the Offer and the Proposed Merger, many of which facts and circumstances
regarding the Company's actions and plans were not known to Parent at the time
the Memorandum was prepared. For example, the views expressed in the Memorandum
were made at a time when Parent was considering a proposal in the mid-$70s
instead of following the Company's rejection of an $84 per Share proposal. In
this connection, Parent has today written to the Delaware Chancery Court
requesting a November 1997 trial date in the Delaware Chancery Court action.
In discussing certain considerations relating to the timing of commencing
the Offer, the Memorandum noted as follows: "The risks of waiting until November
are (i) a positive movement in stock price which diminishes the perceived
premium paid, the pressure on the board to act and the reaction of the market to
the offer, and (2) the time that Mercury will have to prepare their reactions.
The Olympus team feels that there is considerable risk to waiting until November
if a hostile tender is required to motivate Mercury's board. There is more
likely good news than bad news for Mercury and a rising stock price is
ultimately their best defense. An early strike would somewhat preserve the
perception of our large current premium. The existence of our offer would blur
the market's perception of any subsequent increase in stock price, for which we
would naturally take credit." (References to "Mercury" are to the Company and
references to "Olympus" are to Parent.)
Parent had no ability to "blur" or intention of "blurring" the market's
perception of any increase in the price of the Shares. Parent determined to
proceed with the Offer in June rather than November 1997 for a number of
reasons, including, among others, the fact that the Company had made clear its
unwillingness to enter into negotiations with Parent, and Parent's concern that,
as more persons became aware of a possible transaction, a leak regarding
Parent's plan to pursue a premium priced offer and proposed merger would cause
the Company's stock price to rise. Parent believes that a company's stock price
performance is affected by numerous factors and that it is not possible to
accurately predict the performance of a company's stock price over time. In
addition, Parent does not believe it is possible to "blur" the market's
perception, given that the analyst community and other market participants can
properly assess these matters. Parent further believes that the Company's
shareholders should make their own determination as to the factors influencing
the price of the Shares.
In expectation in early May 1997 that Mr. James L. Pate, Chairman and Chief
Executive Officer of the Company, might be willing to meet with Mr. Jack L.
Messman, Chairman and Chief Executive Officer of Parent, to discuss a possible
business combination, the briefing package which accompanied the Memorandum
included a list of hypothetical role playing questions and hypothetical
responses to stimulate discussion. Such list was primarily prepared by a
consulting firm retained by Parent. None of the role playing questions or
answers were ever used, as Mr. Messman viewed the phone call merely as an
opportunity to arrange a future meeting. One question concerned the possibility
that Mr. Pate might react to a proposal that Parent acquire the Company by
asking, hypothetically: "Are you suggesting that somehow we have under performed
and you are going to come in and accomplish what we have not?" The suggested
hypothetical response in the Memorandum was: "Well, I'm sure you would agree
that you were not handed a company in strong shape when you took over. I
believe, and apparently so does the investment community, that you have done a
superb job of turning around the company. You have it on the right path.
Nevertheless, I believe that with our financial strength and unique skills we
can add value and accelerate your growth."
The foregoing hypothetical response did not and does not represent the view
of Parent's Chief Executive Officer or Parent. Parent's Chief Executive Officer
believes that the Company's Chief Executive Officer has not done a "superb job"
of turning around the Company and that the Company is not "on the right path."
The foregoing statement was never actually made by Parent's Chief Executive
Officer or anyone else on behalf of Parent. Despite repeated requests by Parent
for a meeting to discuss a possible business combination between Parent and the
Company, Mr. Pate has continued to refuse to meet with Parent.
The Company has alleged that Parent did not adequately disclose in the
Schedule 14D-1 the impact which the Offer and the Proposed Merger could have on
its credit rating. In particular, the Company has alleged that Parent had
previously disclosed during a conference call with investment analysts at which
this issue was discussed, that the combined company's credit rating after the
acquisition would be a "strong" Standard & Poor's BBB, whereas an attachment to
the Memorandum suggests that (if one excludes the two material matters described
below) the combined company could have a Standard & Poor's credit rating of
BBB-. Parent believes that following the Offer and the Proposed Merger it will
be able to obtain an investment grade credit rating of BBB+. The statement in
the attachment to the Memorandum regarding a Standard & Poor's BBB- rating
clearly indicated that it was based on a very conservative analysis in which
certain debt of the Company (the "Debentures") convertible into common stock of
Chevron Corporation held by the Company would be treated as a full debt
obligation of the Company. However, Parent believes that the credit rating
agencies will not treat the Debentures as debt for credit purposes because the
Chevron common stock into which the Debentures are convertible has significantly
greater market value than the principal amount of the Debentures and holders of
the Debentures would be expected to convert the Debentures into Chevron common
shares. In addition, even if the Debentures were to be treated as debt, which
Parent believes is highly unlikely, Parent's sale of a relatively small amount
of assets of Parent or the Company should suffice to maintain such investment
grade credit rating. Parent's conservative credit rating analysis also assumed
that Parent was given no credit for the significant value of its approximately
7.9 million acre Land Grant Area (which are recorded on Parent's balance sheet
at their historical cost which is significantly below its current market value).
Parent notes that credit rating agencies have advised Parent that they will not
commit to providing a rating prior to a definitive transaction, and, therefore,
there can be no certainty as to the rating that ultimately would be assigned.
[Insert the following after the second full paragraph on page 19 of the
Offer to Purchase:]
In a submission by UPC to the Service in June 1996 relating to obtaining
the Ruling with respect to the tax-free status of the Distribution (see above),
UPC noted its belief at that time that in order for Parent to achieve its
publicly-stated objective of average production growth of 10% per year, in spite
of the expected decline in its then-producing properties (as such properties are
depleted, as is the case with all oil and gas producing properties), Parent must
engage in a program of regular acquisitions, including large, strategic
acquisitions. UPC stated to the Service its belief at that time that Parent's
base five-year strategic plan, before the consideration of potential
acquisitions: "reflects significant negative trends for [Parent]. Over the past
five years, [Parent]'s increased activity in the Austin Chalk and the successful
infill drilling of its tight sand gas reservoirs in east Texas and the Rockies
were largely responsible for [Parent]'s production growth. Now, however, there
is significant uncertainty as to how much further the Austin Chalk production
can be economically extended. . . . Consequently, management has concluded that
[Parent] cannot maintain its current levels of production for existing
properties, and that acquisitions are necessary to do so. . . . Quite simply,
[Parent]'s current drill site inventory is not sufficient to keep [Parent]'s
overall production and reserves from declining significantly in the near future.
. . . ([Parent]'s management refers to the trend of steep declines in production
from existing properties as the `valley of despair,' and to the goal of 10%
growth per year, in spite of such declines, as `walking up the down
escalator.')" The reference to "valley of despair" and "walking up the down
escalator" were phrases coined by Jack Messman to help conceptualize for
employees and others the fact that in the oil and gas industry producing
properties are nonrenewable depleting assets and to reflect the need to
continually replace reserves and production.
While the above-referenced terms are not used by the industry, the risks
referred to by these terms are an industry-wide phenomenon. In the oil and gas
industry, production and reserves from oil and gas properties decline over time
at varying rates and, unless such production and reserves are replaced, a
company will experience a "valley of despair" (as referenced above). This term
reflects the risk posed by the inevitable decline in all producing properties
and the consequences a company will face if it does not replace that production.
There are a number of ways production and reserves can be maintained or
increased, including additional drilling on existing properties, farm-ins,
exploration drilling, producing property acquisitions and strategic
acquisitions. Parent is pursuing all of the foregoing. If any company in the
industry does not replace its production and reserves through one or more of the
methods described above, such company will experience a decline of reserves and
production. Parent outlined this risk, in particular with respect to projected
steep production declines in the Austin Chalk, in its submission to the Service
and, based upon its 1996 Long Range Plan for the years 1997-2001 (the "1996
Plan"), large, strategic acquisitions were seen as essential to achieving
Parent's production growth objectives. However, Parent has continued to pursue
all avenues to increase production and reserves outlined above. Since the
submission to the Service and issuance of the Ruling, there have been a number
of developments and successes which have lessened both the perceived need and
urgency to make strategic acquisitions. Parent does not currently believe that
an acquisition of a company the size of the Company is necessary to achieve its
production growth objectives.
Parent increased its capital expenditure program in 1996 by $212 million,
or 32% over the amounts projected in the 1996 budget included in the 1996 Plan.
Parent expects its capital expenditure program in 1997 to be $680 million, or
81% greater than the amount projected for 1997 included in the 1996 Plan. Much
of this increase is attributable to greater exploration expenditures.
Parent has also increased its spending on the development of its existing
properties. These increases have resulted in a significant increase in the
number of rigs used to drill oil and gas wells. Today, Parent is operating 61
rigs, which is up from 35 rigs in mid-1996 and approximately 25 more than
the next most active driller in North America.
Parent's increased capital expenditures for exploration and the development
of existing properties have helped achieve production growth through drilling
rather than acquisitions.
For example, Parent's reserve, production and drill site profile has
improved in the Austin Chalk through the successful extensions of the Austin
Chalk into Louisiana and the Deep Giddings areas. Parent's new discoveries in
the Austin Chalk extension areas are yielding greater production and reserves
per well than in the past, and the rate of decline is not as steep on some new
wells as experienced in the past. Parent projects that 1997 volumes for the
Austin Chalk will be 11% higher than forecast in the 1996 Plan. Austin Chalk
reserve additions for the period 1997-1999 are projected to increase over the
amounts reflected in the 1996 Plan by 32%. For the six months ended June 30,
1997, Parent's volumes from producing properties have increased by approximately
14% compared to the comparable period in 1996.
Since mid-1996 Parent has successfully completed a series of acquisitions
which have added new production volumes and drill sites. In addition, since mid-
1996 UPR has increased its North American undeveloped acreage position by
approximately 600,000 net acres and continues to have the largest undeveloped
domestic acreage position of any independent exploration and production company.
Parent believes that acquisitions will continue to be an important part of
its production growth plan and that one or more large, strategic acquisitions,
such as an acquisition of the Company, would be desirable depending on the
characteristics of the acquired company's operations and assets and the terms on
which Parent could effect such transactions. However, Parent does not currently
believe that an acquisition of a company the size of the Company is necessary
for it to meet its growth objectives. No assurance can be given as to whether
Parent will be able to meet its growth targets.
[Insert the following after the second full paragraph on page 32 of the Offer
to Purchase:]
Parent currently estimates that the Offer and the Proposed Merger, if
completed by the end of 1997, would, based on various assumptions, increase
Parent's discretionary cash flow per share by approximately 16% for the full
year 1998, while decreasing Parent's earnings per share by approximately 65% for
the full year 1998, as compared to the consensus 1998 estimates for Parent from
the First Call financial report as of September 4, 1997. The term "discretionary
cash flow" means the sum of net income, depreciation, depletion and
amortization, deferred taxes and exploration expenses (including exploration
overhead). These estimates are based on a review of publicly available
information regarding the Company and Parent's current forecast for Parent's
operations in 1998 after completing a transaction with the Company. On this same
basis, Parent's current estimates for per share results in 1999 are an increase
in discretionary cash flow per share of 36% and a decrease in earnings per share
of 3%, compared to the consensus 1998 estimates for Parent from the First Call
financial report as of September 4, 1997. The same comparisons for estimated
results in 2000 are an increase of 53% in discretionary cash flow per share and
an increase of 44% in earnings per share. Parent believes that as an oil and gas
exploration and production company it is primarily valued by the marketplace
based on its cash flow per share rather than its earnings per share.
Parent's estimates are based on a number of assumptions, all of which
Parent believes are reasonable. These assumptions include the following: (i)
that approximately $8.2 billion (which is the sum of the purchase price of
approximately $6.5 billion, including the Company's indebtedness, and
approximately $1.7 billion of deferred tax liabilities attributable to
differences between the assigned fair values of the assets of the Company and
the tax basis of such assets) will be allocated to the assets acquired on the
basis of their fair values in accordance with the purchase method of accounting;
(ii) that the portion of the purchase price allocated to the fixed assets would
be amortized for financial reporting purposes over appropriate useful lives of
the assets, which average approximately 20 years; (iii) that the portion of the
purchase price allocated to goodwill associated with the non exploration and
production business would be amortized for financial reporting purposes over 40
years; (iv) that the portion of the purchase price allocated to currently
producing oil and gas assets would be depreciated for financial reporting
purposes using the Units of Production method of accounting, with an average
rate of $9.90 per barrel; (v) that the portion of the purchase price allocated
to non-producing oil and gas properties would be depreciated for financial
reporting purposes by providing for an annual charge for surrendered leases and
using the Unit of Production method of accounting as such properties become
producing oil and gas properties; and (vi) that the average annual interest rate
on the borrowing incurred by Parent to finance the purchase of Shares in the
Offer would range between 5.8% and 7.0%.
These estimates and assumptions involve numerous uncertainties, including,
among other things, assumptions regarding Parent's and the Company's future
drilling and development activities, anticipated capital expenditures, commodity
prices, cash flows, operating and administrative efficiencies, possible business
transactions and other matters. Actual results may vary materially for the
reasons detailed in reports filed with the Commission, including Parent's annual
report and Form 10-K for 1996 and Parent's Form 10-Q for the quarter ended June
30, 1997, and in the Company's Form 10-K for 1996 and the Company's Form 10-Q
for the quarter ended June 30, 1997. In addition, these estimates are based only
on publicly available information about the Company.
Item 11. Material to be Filed as Exhibits.
Item 11 is hereby amended to add the following:
(a) (20) Press release dated September 8, 1997, relating to Pennzoil
strategic plan.
(g) (13) Form of letter, dated August 14, 1997, from Mr. Jack L.
Messman to Mr. James L. Pate.
<PAGE>
SIGNATURES
After due inquiry and to the best of our knowledge and belief, we
certify that the information set forth in this statement is true, complete and
correct.
UNION PACIFIC RESOURCES GROUP INC.
By: /s/ JOSEPH A. LASALA, JR.
------------------------------------------
Name: Joseph A. LaSala, Jr.
Title: Vice President, General Counsel
and Secretary
RESOURCES NEWCO, INC.
By: /s/ JOSEPH A. LASALA, JR.
------------------------------------------
Name: Joseph A. LaSala, Jr.
Title: Vice President, General Counsel
and Secretary
Dated: September 8, 1997
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ---------- ----------- --------
(a) (20) Press release dated September 8, 1997,
relating to Pennzoil strategic plan.
(g) (13) Form of letter, dated September 8, 1997,
from Mr. Jack L. Messman to Mr. James L. Pate.
Union Pacific Resources Group Inc.
News Release [UPR Logo]
- --------------------------------------------------------------------------------
UPR CHALLENGES PENNZOIL TO REVEAL HIDDEN "STRATEGIC PLAN"
AND SHOW HOW IT EXCEEDS THE VALUE OF UPR'S OFFER
To Eliminate Pennzoil Smokescreen, UPR Voluntarily Files with SEC
Additional Information Sought by Pennzoil
UPR Requests November Trial Date in Delaware Litigation
To Remove Pennzoil "Poison Pill"
Fort Worth, TX - Sept. 8, 1997 - In a letter today to Pennzoil CEO James Pate,
Union Pacific Resources Group Inc. (NYSE: UPR) challenged Pennzoil to reveal its
hidden "strategic plan" -- and to demonstrate how it could possibly create value
in excess of UPR's $84 per share tender offer.
The letter from UPR Chairman and CEO Jack Messman points out that Pennzoil has
refused for ten weeks to allow shareholders to benefit from UPR's offer, based
on a hidden strategic plan cited in advertisements, letters and press releases.
Mr. Messman notes that, although Pennzoil has repeatedly touted the "potential,"
"long term" value of its plan, it has refused to let shareholders see the plan,
to reveal its assumptions or to demonstrate how the company could execute it
successfully.
Mr. Messman writes, "If you seriously believe your plan will be any more
successful than your failure to create value throughout the 1990s -- and will be
superior to our proposal -- you should stop trying to hide it from your
shareholders. If you don't reveal your plan, you cannot possibly justify your
rejection of UPR's offer to Pennzoil shareholders."
UPR also said that, in order to eliminate the smokescreen Pennzoil has used for
not revealing its strategic plan, it is voluntarily filing with the SEC
additional information sought by Pennzoil.
In addition, UPR announced today that it has asked the Delaware Chancery Court
to set a November, 1997 trial date in UPR's litigation to remove Pennzoil's
anti-takeover defenses, which include its "poison pill."
Following is the full text of the letter sent today to Pennzoil CEO Jim Pate by
UPR's CEO Jack Messman:
Dear Jim:
For the past ten weeks, you have refused to allow your shareholders to benefit
from UPR's $84 per share tender offer. You have justified that resistance by
claiming, in advertisements, letters, and press releases, that you have a
"strategic plan" that can deliver greater "potential" value to Pennzoil
shareholders over the "long term" than will our proposal.
Although your "just say no" defense rests on this plan, you have not let
Pennzoil shareholders see it. You have not revealed its assumptions, shown its
details or demonstrated how Pennzoil could finance and execute it successfully.
Most important, you have failed to show your shareholders how this plan could
realistically deliver value in excess of our offer. The time has come to provide
Pennzoil shareholders your plan in sufficient detail to justify your claim that
it can create value beyond UPR's $84 per share tender offer.
The repeated failures of Pennzoil's various efforts over the last seven
years to create value even approaching $84 per share have convinced us that
Pennzoil on its own cannot create sufficient value to match our proposal. The
recent results of our tender offer show that your shareholders agree with us.
They overwhelmingly supported UPR's proposal by tendering 61.5% of their shares
into our offer. Yet, you and your Board continue to cling to your "just say no"
defense and refuse to disclose any information about your current plan or
earlier failed plans.
At the same time, however, you have sought to have UPR disclose additional
information regarding its proposal. We believe that this information is
irrelevant and immaterial to the vital question of whether Pennzoil, on its own,
can achieve the value of UPR's proposal. Nevertheless, today we are voluntarily
filing with the SEC the information sought by Pennzoil, because we want to
eliminate any possible pretext Pennzoil may use to avoid that one central
question it must face up to: exactly how does its Board think Pennzoil can
deliver value in excess of UPR's $84 per share tender offer?
No excuse for rejecting our proposal is credible to your shareholders unless
you describe the plan that is the foundation of your "just say no" defense.
Shareholders deserve the right to decide for themselves whether your plan is
both believable and achievable.
This past March, you told me that you thought Pennzoil's stock could possibly
reach $80-$100 per share over the course of the next four to five years,
assuming Pennzoil successfully implements its strategic plan. Our proposed
transaction offers shareholders certain value today that is substantially above
the present value of your own projection over four to five years. Yet, you
continue to deny your shareholders the opportunity to benefit from our proposal.
Pennzoil shareholders have the right to see your plan so that they can decide
for themselves whether it is worth the risk and uncertainty of continuing to
wait while you try once again to achieve your objectives.
If you seriously believe your plan will be any more successful than your failure
to create value throughout the 1990s -- and will be superior to our proposal --
you should stop trying to hide it from your shareholders. If you don't reveal
your plan, you cannot possibly justify your rejection of UPR's offer to Pennzoil
shareholders.
Let's have an open and honest debate: let your shareholders compare the details
of Pennzoil's strategic plan to UPR's premium offer.
Sincerely,
Jack L. Messman
This press release is not an offer to purchase shares of Pennzoil, nor is it an
offer to sell any UPR common stock which may be issued in a merger involving
Pennzoil and a subsidiary of UPR. The cash tender offer by a subsidiary of UPR
to acquire 50.1% of Pennzoil's common shares will be made solely by the Offer
to Purchase and the related Letter of Transmittal. Any issuance of UPR common
stock in any merger involving Pennzoil and a subsidiary of UPR would have to be
registered under the Securities Act of 1933, as amended, and such UPR common
stock would be offered only by means of a prospectus complying with such Act.
# # #
Media Contact: Investor Relations Contact:
Walter Montgomery Michael Liebschwager
212-484-6721 817-877-6531
[UPR Logo]
Jack L. Messman
Chairman & CEO
September 8, 1997
Mr. James L. Pate
Pennzoil Company
700 Milam
Houston, TX 77252
Dear Jim:
For the past ten weeks, you have refused to allow your shareholders to
benefit from UPR's $84 per share tender offer. You have justified that
resistance by claiming, in advertisements, letters and press releases, that you
have a "strategic plan" thay can deliver greater "potential" value to Pennzoil
shareholders over the "long term" than will our proposal.
Although your "just say no" defense rests on this plan, you have not let
Pennzoil shareholders see it. You have not revealed its assumptions, shown its
details or demonstrated how Pennzoil could finance and execute it successfully.
Most important, you have failed to show your shareholders how this plan could
realistically deliver value in excess of our offer. The time has come to provide
Pennzoil shareholders your plan in sufficient detail to justify your claim that
it can create value beyond UPR's $84 per share tender offer.
The repeated failures of Pennzoil's various efforts over the last seven years to
create value even approaching $84 per share have convinced us that Pennzoil on
its own cannot create sufficient value to match our proposal. The recent results
of our tender offer show that your shareholders agree with us. They
overwhelmingly supported UPR's proposal by tendering 61.5% of their shares into
our offer. Yet, you and your Board continue to cling to your "just say no"
defense and refuse to disclose any information about your current plan or
earlier failed plans.
<PAGE>
At the same time, however, you have sought to have UPR disclose additional
information regarding its proposal. We believe that this information is
irrelevant and immaterial to the vital question of whether Pennzoil, on its own,
can achieve the value of UPR's proposal. Nevertheless, today we are voluntarily
filing with the SEC the information sought by Pennzoil, because we want to
eliminate any possible pretext Pennzoil may use to avoid that one central
question it must face up to: exactly how does its Board think Pennzoil
can deliver value in excess of UPR's $84 per share tender offer?
No excuse for rejecting our proposal is credible to your shareholders
unless you describe the plan that is the foundation of your "just say no"
defense. Shareholders deserve the right to decide for themselves whether your
plan is both believable and achievable.
This past March, you told me that you thought that Pennzoil's stock could
possibly reach $80-$100 per share over the course of the next four to five
years, assuming Pennzoil successfully implements its strategic plan. Our
proposed transaction offers shareholders certain value today that is
substantially above the present value of your own projection over four to five
years. Yet, you continue to deny your shareholders the opportunity to benefit
from our proposal. Pennzoil shareholders have the right to see your plan so
that they can decide for themselves whether it is worth the risk and uncertainty
of continuing to wait while you try once again to achieve your objectives.
If you seriously believe your plan will be any more successful than your failure
to create value throughout the 1990s -- and will be superior to our proposal --
you should stop trying to hide it from your shareholders. If you don't reveal
your plan, you cannot possibly justify your rejection of UPR's offer to Pennzoil
shareholders.
Let's have an open and honest debate: let your shareholders compare the details
of Pennzoil's strategic plan to UPR's premium offer.
Sincerely,
Jack L. Messman
cc: Pennzoil Board of Directors
