Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations

Chapter 8The Art of the Corporate RaidA History of Corporate Violence

If a man creates in another man’s mind an immediate sense of danger which causes such person to try to escape, and in so doing he injures himself, the person who creates such a state of mind is responsible for the injuries which result.

—Lord Coleridge C.J. in Reg. v. Halliday (1889) 61 LT 701

defenestration \dee-fen-uh-STREY-shuhn\, noun:

To forcibly throw a person from a window.

—Comes from Latin de + fenestra, “window”.

T. Boone Pickens described Cities Service as a “case study in what was wrong with Big Oil’s management.”¹ Despite holding an incredible 10 million acres of exploration leases, after years of mismanagement it had depleted its huge oil and gas reserves. These problems were hidden by its enormous cash flow, which for nearly 10 years had climbed along with the price of oil. Its market price, however, reflected its future, and it was deeply undervalued as a result. Other companies in the oil and gas industry traded below the value of their proven reserves—many had made the joke that it was cheaper to drill for oil on Wall Street than it was in the oil patch²—but few were as undervalued as Cities in 1982, which traded for one-third the value of those underlying assets.³ Cities’ primary defense to a hostile takeover was its sheer size. In 1982 it was the nineteenth largest oil company in the United States and ranked thirty-eighth on the Fortune 500.⁴ Pickens wanted to go after Cities, but with ...