A Week on the Wild Side

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The offer was a fittingly dramatic move for Hammer, still an irrepressible empire builder at age 84. With Hammer at the helm, Occidental has grown in 25 years from a small, nearly bankrupt firm to an energy colossus with annual revenues of more than $14 billion. Much of the company's oil, however, comes from such politically unstable parts of the world as North Africa and South America. The firm has been anxious to increase its domestic holdings, yet it found few opportunities for obtaining energy property in the U.S. Hammer told TIME: "If you want elephants, you go where they are. But it has been one of our goals for a long time to make Occidental more domestic oriented." Cities Service has 10.6 million acres of undeveloped U.S. land, which are believed to hold at least 300 million bbl. of oil and 3 trillion cu. ft. of natural gas.

Despite the possible resolution of the Cities Service crisis, Wall Street is still bitter toward Gulf. Grumbles one trader: "How does a company with Gulfs standing in the corporate community dare to lock itself into a $5 billion deal and then change its mind?" Ironically, Gulf was originally cast as the hero in the Cities Service drama. In June Cities Service was trying to escape an unwanted takeover bid by Mesa Petroleum, a relatively small Amarillo, Texas, oil firm. Unwilling to be controlled by a company less than one-twentieth its size, Cities welcomed Gulfs merger bid of $5 billion, which Mesa could not match.

Gulf needed Cities Service's valuable energy reserves to bolster its declining oil production. Soon after Gulf made its bid, though, several Wall Street analysts said that the company had acted hastily and paid too high a price. Then the FTC raised antitrust objections. The agency argued that if Gulf bought Cities Service, the combined company would have too large a share of the gasoline and kerosene jet fuel markets in some areas of the Southeast and would own too much (31%) of the Colonial Pipeline Co., which transports petroleum products from Texas to New Jersey.

Waidelich knew the deal was in trouble but remained optimistic that Gulf and the FTC could reach a settlement. Minutes before Gulf's stunning announcement on Aug. 6, Waidelich anxiously telephoned Gulf Chairman James Lee. "Can't you tell me what is going on?" Waidelich asked. After some hesitation, Lee admitted that Gulf was canceling the merger. "Jim, that's terrible," Waidelich gasped. "I know. I feel terrible too," replied Lee.

Cities Service felt terrible enough to file a $3 billion lawsuit charging that Gulf was guilty of "intentional and malicious breaches of contract that are of a dimension unprecedented in the annals of American business history." Waidelich contends that Gulf used its dispute with the FTC as an excuse to back out of a deal that it no longer considered financially attractive. John Carley, the FTC'S general counsel, seemed to support that charge: "We were ready, willing and able to negotiate on any aspect of the proposed merger." But Gulf obviously was not. Said Chairman Lee: "I don't have the stomach to go through any such mess." Apparently Armand Hammer, even at 84, has a stronger stomach.

—By Charles Alexander.

Reported by Frederick Ungeheuer/ New York and Benjamin W. Cate/ Los Angeles