An Analysis of City

Services Takeover
28th May ’82 : Cities pre-announcement

1st June ’82 : Cities tender bid, Mesa friendly bid

7st June ’82 : Mesa Bids

8st June ’82 : Cities makes a friendly offer

14st June ’82 : Cities raises its tender bid

17th June ’82 : Gulf Oil agrees to acquire cities

21st June ’82 : Mesa-Cities settle differences

2nd Aug ’82 : FTC increases review period

6-9th Aug ’82 : Gulf terminates its bid

16-17th Aug ’82 : Occidental makes a friendly bid.

18th Aug ’82 : Occidental makes a tender offer

23 Aug ’82 : Other potential bidders moving

out

24 Aug ’82 : Occidental negotiations

continue

25 Aug ’82 : The Acquisition is complete

28th May’82 : Cities
Preannouncement
 Expected Acquisition: Bidder Known
 Uncertainty reduced
 Increased Competition
 No Pleasure/Displeasure sounded out.

Company Expected Actual

Cities Services Rise Rise
Mesa -------------- Rise
1st June’82: Cities Tender
Bid,Mesa Friendly Bid
 Two simultaneous events
 Mesa expects Cities to co operate
 Cities has got defensive (no actual intention to acquire)
 Cities already decided on rejecting Mesa bid: It sees some
fault in this merger beyond monetary consideration!!

Company Expected Actual

Cities Services Low Change Insignificant
Mesa Increase/Decrease Rise
7th June’82: Mesa Bids
 Low percentage(15%) & Lower price
 Mesa Bid Faltering
 Why to go for just 15% stake?
 Voting Right
 Proxy power
 Financing problems

Company Expected Actual

Cities Services Drop Drop
Mesa Drop Insignificant
8th June’82: Cities makes a
friendly offer
 Cities is attacking Mesa now
 Cities increasing its premium on cash part
BUT for rest 49% its price is actually lower!

Company Expected Actual

Cities Services Drop Insig. Drop
Mesa Rise Insig. Rise
14th June’82: Cities raises its
tender bid
 The friendly bid has been rejected
 The war continues!!

Company Expected Actual

Cities Services Drop Rise
Mesa Rise Insig. Drop
17th June’82: Gulf Oil agrees to
acquire Cities
 Very High price
 Mesa bid fails
 Cities bid for Mesa is still on though…

Company Expected Actual

Cities Services Rise Rise
Mesa Drop Rise
Gulf Oil Drop Drop
21st June’82: Mesa- Cities settle
differences
 All tenders withdrawn
 Cities purchases its stock back from Mesa at
$55(higher than what Mesa paid for it)
 Mesa will not attempt taking over Cities for 5 years.

Company Expected Actual

Cities Services Drop Insignificant
Mesa Rise Drop
2nd August’82: FTC increases
review period
 FTC asks for more data.
 Gulf Oil makes a press release stating it will oppose
the move as well as try settling wiith FTC.
 First indication that Gulf may backtrack on its
acquisition of Cities.

Company Expected Actual

Cities Services Decrease Decrease
Gulf Rise/Drop Insignificant
6th-9th August’82: Gulf terminates
its bid
 Gulf terminates its bid but doesn’t rid itself of Liability to
pay premium to Cities shareholders.
 All Cities share price gains on account of merger
announcement have been wiped out!
 Gulf hasn’t gained enough though to wipe out initial loss.

Company Expected Actual

Cities Services Drop Drop
Gulf Increase Inadequate
16th-17th August’82:Occidental
makes a friendly bid.
 Bid rejected
 Cities retains interest by encouraging Occidental to
inspect its sensitive data.
 Clearly Cities is unhappy with the price but not the
bidder.

Company Expected Actual

Cities Services Rise Rise
Occidental Drop Drop
18th August’82: Occidental makes
a tender offer
 Its friendly offer has been rejected inspite of it
having raised it to $42
 Stays in the bidding game but doesn’t want to
pay higher premium.

Company Expected Actual

Cities Services Rise Rise
Occidental Rise Rise
23rd August’82: Other potential
bidders are moving out
 Mobil Oil unhappy with price demanded( it now has
insider information)
 Amerada Has actually opts for only certain assets
purchase.
 The bidding war shows sign of ending.

Company Expected Actual

Cities Services Drop Drop
24th August’82: Occidental
negotiations continue
 Negotiations are now focussed on Who grabs a
bigger share of the Pie
 Signals that acquisition may actually happen.

Company Expected Actual

Cities Services Rise Rise
25th August’82: The Acquisition is
complete
 The deal is completed after negotiations in a friendly
merger.
 Everything goes as per expectations
 Tender and friendly merger are nearly equivalent in
value.

Company Expected Actual

Cities Services Insignificant Insignificant
Occidental Insignificant Insignificant
Summary
 Cities Services had lower than expected abnormal
gains due to the relatively small premium paid by
occidental
 MESA has a negative abnormal return as its bid fails
 Gulf lost out due to the contingent liability that it
still holds
 Occidental does not gain much from the Acquisition
and hence shows no significant abnormal returns.
Questions ??