Houston-based independent exploration and production company, Noble Energy Inc., has agreed to acquire Denver-based Patina Oil & Gas Corp. for $2.76 billion in cash and stock. The deal, which is scheduled to be completed by April, is expected to raise Noble’s reserves and production by more than 50%.
Noble will pay approximately $1.1 billion in cash and 27 million of its shares, and assume some of Patina’s debt. Based on Noble’s closing share price of yesterday, the deal values Patina at about $37.89 a share, which is about a 20% premium over its closing price of yesterday.
Noble is acquiring Patina to add to its inventory of development opportunities. Patina’s assets are located primarily in the Rocky Mountain and mid-continent regions of the U.S., which are regions in which Noble already has substantial operations.
Noble’s Charles D. Davidson will remain chairman, president and chief executive of the merged company. Thomas J. Edelman, Patina’s chairman and CEO, will take a seat on Noble’s board along with one other director from Patina’s board. Mr. Edelman will also serve in a special advisory capacity to facilitate the integration of the two companies.

On the heels of Yukos’ chapter 11 filing late Tuesday in a Houston, U.S. Bankruptcy Judge Letitia Clark will continue hearing testimony on Yukos’ request for a temporary restraining order this morning. The TRO request is Yukos’ last ditch attempt to create a some type of legal impediment to the Russian government’s scheduled auction of Yukos’ primary oil and gas unit this Sunday.
The Russian government has already announced that it intends to proceed with the auction regardless of the outcome of the TRO hearing. However, my sense is that Yukos’ real intent in pursuing the TRO is to create hesitation in the business planning of Western financial institutions that may be planning on financing an acquisition of the Yukos’ unit in Sunday’s auction. Yukos has named a number of those financial institutions as defendants in the lawsuit in which it is seeking the TRO.
The threshold issue in the Yukos’ case is whether a U.S. Bankruptcy Court has jurisdiction because nearly all of Yukos’s assets and most of its creditors are outside the United States. In the court hearing yesterday, Yukos’ attorneys stated that Yukos did not file for bankruptcy protection in Russia because the company fears it would not get a fair hearing there. Although that it probably correct, that is not a basis for jurisdiction in an American federal court. Moreover, lawyers for various defendants pointed out yesterday that Yukos successfully argued in obtaining dismissal of a federal lawsuit two years ago that Yukos had virtually no ties to Texas.
Yukos countered by contending that it has a greater stake in Texas and the United States now. Yukos contended that it is U.S. investors own more than 10% of the company and that Yukos has about $10 million in domestic banks. Moreover, Yukos’ chief financial officer is now working out of his Houston home after fleeing Russia because of government intimidation, although I doubt that making Yukos a home-based business in Houston will have any effect on Judge Clark’s decision on jurisdiction.
The sale of Yukos’ main oil and gas unit — Yuganskneftegaz, but thankfully nicknamed “Yugansk” — is the latest chapter in Yukos’ ordeal with the Russian government over the past year and a half. The company’s troubles — which include an ongoing criminal corruption case against its former CEO and main shareholder, Mikhail Khodorkovsky — is part of a campaign by the Kremlin to deter Russia’s new wealthy capitalists from opposing the Putin government and to regain government control over strategic assets that were privatized during the demise of Russia’s communist economic system in the early 1990s (see well-time Wall Street Journal ($) op-ed here). Given the reduction in Yukos’ equity value during the past year and a half, the Russian government’s handling of Yukos is likely to have a lingering effect on Western capital investment in Russia, which the Russian government still desperately needed.
During the hearing on Wednesday, Judge Clark told Yukos lawyers that they would have to establish in the TRO hearing that the Russian government was attempting to to undervalue Yugansk in the auction, and commented that, for starters, Yukos should be prepared to show that that Yugansk is worth at least twice the $8.6 billion starting price that the Russian government has established for the auction.
Longtime Houston bankruptcy lawyer Hugh Ray, who is representing Deutsche Bank AG (which is financing Gazprom’s bid for Yugansk), generated chuckles in the courtroom yesterday when he observed that Yukos’s chapter 11 filing and request for a TRO is the equivalent of a “legal Hail Mary.”

The Russian Government is being challenged with the rule of law, United States Bankruptcy Code style.
In a stunning development, embattled Russian oil giant Yukos has filed a chapter 11 case in Houston late Tuesday and requested a temporary restraining order against the Russian government’s auction of its main production unit that is currently scheduled for this Sunday.
H’mm. How would you like to try and enforce that TRO?
Here are earlier posts on the problems that Yukos has been experiencing with the Russian government. On one hand, Yukos’ defenders claim that the Russian government’s campaign against Yukos and its owners — particularly jailed CEO Mikhail Khodorkovsky — is an effort to silence political opposition to Russian president Vladimir Putin, while Putin and his supporters claim that the government is simply cracking down on Yukos because of shady bookkeeping and corruption. Mr. Khodorkovsky has been in jail over a year and is currently being tried in Russia on charges of fraud and tax evasion.
Russian tax authorities claim that Yukos owes the government a total of $27.8 billion in unpaid taxes, so the government is auctioning Yukos’ subsidiary Yuganskneftegaz (how’s that for mouthfu?) — which produces about 60% of Yukos’ oil production — on Sunday to pay at least a portion of the indebtedness. Yukos supporters contend that the government auction is a sham that is intended to transfer the unit to a government favored company such as state gas giant Gazprom. The starting price for the auction is $8.6 billion.
In its initial chapter 11 pleadings, Yukos claimed that its total assets are worth approximately $12.25 billion and that its total debts were about $30.75 billion.
The case information for the chapter 11 case is case no. 04-47742, Yukos Oil Company, Debtor and is pending before U.S. Bankruptcy Judge Letitia Z. Clark. A hearing on Yukos’ request for the temporary restraining order is scheduled for 11:15 a.m. this morning in Houston. Zack Clement of Fulbright & Jaworski is representing Yukos.

The simmering dispute of control of Colony, Texas-based Pizza Inn, Inc. boiled over yesterday as the Pizza Inn board fired CEO Ronald W. Parker for cause, which is a nice legal way of saying that he’s being canned with no severance payment. This move comes on the heels of this earlier move by the board to authorize a company lawsuit against the Dallas-based law firm of Akin Gump Strauss Hauer & Feld LLP for $7.4 million in damages for allegedly breaching its duties to the company in writing “golden parachute” severance package agreements for four senior Pizza Inn executives.

In his Wall Street Journal ($) Political Capital column today, Alan Murray reports that certain business interests that supported President Bush’s re-election are conducting a quiet campaign to persuade the White House to dump Securities and Exchange Commission chairman, William Donaldson:

The groups argue that the post-Enron crackdown on big business has gone too far, and now threatens to hurt the economy by discouraging companies from taking risks. Their hope is to replace Mr. Donaldson with a business executive who has a reputation for integrity, but also understands the problems that the corporate crackdown has caused for executives and their boards of directors. Mr. Donaldson, they argue, doesn’t.
The Business Roundtable, the U.S. Chamber of Commerce, the National Association of Wholesaler-Distributors and other business groups took an unusually active role in this year’s election, encouraging their members to reach out to employees and help register and turn out new voters likely to be sympathetic to the president. Bush campaign manager Ken Mehlman has given them generous credit for helping to re-elect President Bush.
In return, these groups are now looking for some easing of the harsher regulatory and enforcement climate that has grown up in the wake of the corporate scandals. . . [business leaders are] particularly bothered by efforts by the SEC, and by New York Attorney General Eliot Spitzer, to force large settlements out of companies by threatening charges.

But Mr. Murray notes that such matters are not discussed publicly because businessmen have become popular whipping horses:

The effort isn’t discussed much in public, and probably won’t get any attention at this week’s economic summit. That’s because polls show corporate executives still rank low in public esteem, and any effort to ease up on regulation or enforcement against them is likely to be politically unpopular.

As noted in prior posts such as this one, the Bush Administration has not been particularly friendly to business interests. In addition to the wayward SEC, the Bush Administration’s Justice Department has been particularly poor in exercising prosecutorial discretion regarding business matters. If the Administration is not responsive to business interests over this clear abuse of power, the Democratic Party will have a great opportunity to modify its traditionally anti-business policies and win over a business community that is increasingly disenchanted with the Bush Administration’s regulation of business through criminalization of merely questionable commercial transactions.

Following on this earlier post about a hedge fund beating Carl Icahn at his own game, this NY Times article reports that Mr. Icahn is now doing what any red-blooded American businessman would do when he ends up on the wrong end of an investment strategy — hire uber-lawyer David Boies and file a lawsuit.
Note to Mr. Icahn — if you lose your case in the trial court, make sure that Mr. Boies’ paralegal calendars your appeal deadline correctly.

H.R. “Bum” Bright, a longtime Dallas-based businessman, died Saturday night at his Highland Park home after a long illness. Mr. Bright was 84 at the time of his death.
Although Mr. Bright was best known for his ownership of the Dallas Cowboys NFL football club from 1984 to 1989, Mr. Bright was one of Dallas’ most prominent businessmen for many years and also a longtime member of the Texas A&M University Board of Regents, of which he was chairman from 1981 to 1985. A&M was one of Mr. Bright’s main philanthropic causes and the beneficiary of a $25 million gift from Mr. Bright during the mid-1990s’. Mr. Bright’s other main charitable cause was the Children’s Medical Center Dallas, to which he made a key $5 million donation in 1999 that led to the creation of a facility at the hospital that specializes in treating ear, nose and throat ailments.
Mr. Bright was trained as a petroleum engineer, received his degree from A&M in 1943, and made his first forture as the independent exploration and production sector of the oil and gas business. However, Mr. Bright proceeded to build an even bigger fortune in a nationwide trucking business, real estate, banks, and savings and loans. It was the investments in financial institutions that led to some of Mr. Bright’s most notorious business failures.
Mr. Bright lost about $30 million in the failure of RepublicBank Corp. in the late 1980’s, and another $200 million in the 1989 failure of Bright Banc Savings Association. Federal regulators seized control of Bright Banc during the costly cleanup that followed the collapse of the Texas savings and loan industry. Years of litigation over the failures ensued.
Mr. Bright’s influence was also substantial in the sports world. Mr. Bright engineered the process that resulted in the firing of Texas A&M football coach Tom Wilson and the hiring of Jackie Sherrill to a then record contract in 1981. Although Coach Sherrill returned A&M to prominence in the Southwest Conference and college football, he was forced to resign five years later under the spectre of NCAA violations that ultimately landed the A&M program on probation.
Similarly, Mr. Bright’s sale of the Cowboys to Jerry Jones in 1989 was the beginning of the end for legendary Cowboys coach Tom Landry, who was unceremoniously canned by Jones immediately after closing of the deal.
To say that Mr. Bright’s politics drifted toward the conservative side is an understatement. Not well known is that Mr. Bright was one of the co-sponsors of a full-page newspaper ad written by local members of the John Birch Society that sharply criticized President John F. Kennedy on the morning of the President’s visit to Dallas on Nov. 22, 1963. Lee Harvey Oswald shot and killed the President in downtown Dallas later that day. Mr. Bright later stated that, despite the unfortunate assassination, he had no regrets about the ad because it simply reflected his political views.
Subsequently, Mr. Bright was one of the main financial supporters of fellow Texan John Connally‘s Presidential campaign in 1980, which raised and spent $11 million but flamed out after a few primaries. That $11 million expenditure could garner only one binding commitment from a GOP convention delegate. Mr. Connally left politics for good after that fiasco.
A private burial for Mr. Bright will be held at 2 p.m. Thursday, and a memorial service will be conducted at 4 p.m. Thursday at The Chapel of the Cross, 4333 Cole St. in Dallas.

Given the federal government’s increasing propensity to regulate business through criminalizing questionable business transactions, it’s easy to overlook the instances where the criminal justice system actually punishes a real bonafide business crook.
Martin Frankel was a small-time New York money manager in the early 1990’s who was paralyzed with fear from trading stocks. Accordingly, rather than trade equities, Frankel arranged for the acquisition of a group of financially-troubled insurance companies throughout the 1990’s. He then used the assets of those insurance companies to pull off a several hundred million dollar scam, which is one of the largest insurance frauds in American history.
With investigators closing in on him in May, 1999, Frankel bought millions of dollars worth of diamonds, wired money to accounts all over the world, torched any remaining paper trail, and fled the country for Germany under a blaze of publicity. He was apprehended in Germany several months later, spent a year and a half in a German prison, and then was extradicted to the United States to face criminal charges here.
Although largely forgotten in the wake of Enron and other large business meltdowns, Frankel turned out to be a fascinating character. He was a gawky misfit with an obsessive terror of germs who nevertheless was able to induce attractive young women to fight over him. Although intensely reclusive, Frankel was able to build an intricate Ponzi scheme that was in no small part attributable to his talent for luring prominent people — such as Texas Democratic powerbroker Robert Strauss — into his scam. He even created a phony Catholic charity that went into business with a group of priests with close Vatican ties.
The Wall Street Journal’s Ellen Joan Pollock was a lead writer on the reporting team that covered the FBI’s four-month international manhunt for Frankel, and she eventually wrote a good book about the affair called The Pretender. With the right treatment (are you listening Professor Ribstein?), Frankel’s story of risky business deals, duplicitous businessmen, con artists, jewelry traders, women looking for love, women looking for money, revengeful husbands, and slick private detectives is a potential blockbuster movie just waiting for the right screenplay.
At any rate, as this NY Times article reports, Frankel’s affair came to a typically bizarre close yesterday, as he was sentenced to almost 17 years in the slammer:

The most bizarre 45 minutes took place when the judge allowed Mr. Frankel to address the court. He used the opportunity to settle old scores, quote the Bible, crack a joke and plead for leniency. He said most of his misdeeds were caused by his love for a co-conspirator, Sonia Howe, and his desire to earn enough money to protect her two children from harm. The judge was a bit incredulous.
“So, you stole $209 million in order to take care of the children?” she said.
“No,” he said. “Can I explain it to you?”
“I’m begging you to explain it to me,” the judge said.

Meanwhile, as the admitted perpetrator of one of the largest insurance scams in American history was sentenced to 17 years in prison, a mid-level accountant who did what his bosses told him to do in regard to a merely questionable business transaction continues to serve a 24 year prison sentence.
Folks, you cannot ask for a starker example of the injustice that results from government criminalizing dubious business transactions to assuage public animus toward business failures such as Enron. If government cannot tell the difference between Martin Frankel and Jamie Olis, then it is unlikely that it can tell the difference between Martin Frankel and you or me.

You gotta love Southwest Airlines, Inc.
While most of the legacy airlines are trying to figure out either how to avoid bankruptcy or find financing to exit bankruptcy, Dallas-based Southwest just continues to execute its methodical business plan of expanding its low-cost operations in markets that respond to it.
Yesterday, Southwest bid more than $100 million for some key assets of bankrupt airline ATA Holdings Corp., including six of ATA’s 14 gates at Chicago’s Midway Airport.
The addition of the six ATA gates would increase Southwest’s capacity at Midway by nearly a third. The airline operates about 150 daily flights from Midway and has already announced it would add 25 more by the middle of next year even without the ATA asset acquisition. The company has more than 2,500 employees in Chicago, which is its fourth largest operation.
Southwest is battling for ATA’s assets with another low-cost airline, AirTran, which has submitted a $90 million bid. The Midway gates would give either carrier an increased presence in Chicago, which is the key high-traffic city in the central United States. The fight over Indianapolis-based ATA’s holdings began last October when it filed its Chapter 11 case, which is the first large low-cost carrier to file bankruptcy during this latest period of carnage in the always tumultuous American airline industry.

Bobby Cox Companies, Inc. of Ft. Worth — owner of the Rosa’s Cafe, Taco Villa and Texas Burger chains among its other far-flung assets — bought the assets of Schlotzsky’s franchise deli sandwich company out of bankruptcy yesterday in San Antonio. The purchase price was about $28.5 million. Here are the earlier posts on the Schlotzsky’s bankruptcy case.