WASHINGTON - The story has a familiar ring. A Texas energy company
plummets in the stock
market. The CEO appeals to Washington for financial help. A federal securities probe is launched.
Reports focus on a merger that may have backfired, 10,000 laid-off employees, and a former chief
executive who walked away with millions of dollars in compensation.
But this is not Enron; it is the Halliburton Corp., and the former executive is VP Dick Cheney.
It has been nearly three years since Cheney left the helm of Halliburton
to become George W.
Bush's running mate, and the company's fortunes have not worked out the way Cheney or the
company might hope. Just three weeks ago, the company's current chief executive, David Lesar,
bluntly urged shareholders to descend upon Washington to win federal protection from
asbestos-related lawsuits. The vast majority of those 290,000 claims stem from a merger overseen
by Cheney that could make the company liable for billions of dollars.
In his campaign for the vice presidency, Cheney touted his leadership
of the 85,000-employee
Halliburton Corp. But since then, the firm's fortunes have faltered dramatically; on the day six
months ago that it became clear the company could be seriously hurt by asbestos claims, the stock
plummeted more than 40 percent in just a few hours.
According to stock analysts, the company's stock valuation today
might be as high as $18 billion -
instead of the current $8 billion - were it not for the potential liability shouldered after the
Cheney-engineered 1998 merger between Halliburton and Dresser Industries. The asbestos liability
is not the only concern. Last week, the company revealed that the Securities and Exchange
Commission has launched a preliminary investigation into an accounting practice - adopted when
Cheney was CEO - in which unapproved billings were counted as revenue.
While some of Halliburton's problems lie with the cyclical nature
of the oil business, the biggest
troubles stem from Cheney's decision to merge Halliburton with Dresser.
The merger ''was probably one of the most foolish decisions Halliburton
ever made,'' said lawyer
John Wall of Houston, who represents several dozen laid-off employees. ''Cheney would have had
to know'' about the potential asbestos liability, Wall said. ''That would be part of his due diligence.
If he didn't know, that would be total incompetence.''
A Cheney spokeswoman referred calls to Halliburton, where chief
financial officer Douglas L.
Foshee said the potential asbestos liabilities were known but were not considered significant enough
to deter an otherwise worthwhile merger.
The drop in the stock price from the potential asbestos liability
has been felt deeply in Boston.
Fidelity Investments, the mutual fund giant, last year was the largest shareholder of Halliburton
stock, with nearly 10 percent. But Fidelity had cut its holdings to just 4 percent as of March; the
company won't say whether it took a huge loss like many other investors who sold during the last
Another Boston company, the institutional investment firm of Wellington
Management LLP, has
stepped in to buy Halliburton shares and in March became Halliburton's top shareholder, with 8.2
percent of the stock. Wellington declined comment.
It was 1995 when Cheney, who served as the secretary of defense
under President George H. W.
Bush, parlayed his government experience into the job as CEO of Halliburton. In 1998, Cheney
went on a quail hunt in South Texas with Dresser chief executive Bill Bradford and the two began
talking about a merger.
In merging with Dresser, Cheney picked a firm with long ties to
the Bush family. Prescott Bush, the
father of the former President Bush, was the banking representative who helped finance the deal
that established Dresser and served on the company's board. The former president wrote in his
autobiography that Neil Mallon, the former president of Dresser Industries, ''was a mentor second
only to my father.''
It was Mallon who helped former President Bush get into the oil
business, and Bush worked for
Dresser for 21/2 years. The brother of the current President Bush, Neil, is named after Mallon.
Halliburton officials said that they knew nothing about the Bush
family's history with Dresser and
that they knew of nothing to indicate that the Bush family gained anything from the merger or held
any financial interest in either company. A spokesman for Cheney and former President Bush did
not respond to questions about the matter.
Cheney announced the merger with Dresser with great personal fanfare,
calling it ''one of the most
exciting things I've been involved in.''
He said at the time: ''The merger is designed to result in long-term
benefits for the company's
stakeholders - its customers, employees, and shareholders.''
As often happens in major mergers, the initial impact was both
good and bad - good initially in
stock market reaction, but bad for the 10,000 people who almost immediately lost their jobs. The
company said that the synergies between the two firms enabled the new entity to eliminate many
Two of the thousands who lost their jobs were Grover Don Henry,
51, who worked at Halliburton
for 23 years, and Patrick Gonzales, 54, who worked there for 27 years. Both former machinists
are represented by Wall, the Houston lawyer, and said they were unfairly laid off. From their
viewpoint, Cheney, who left Halliburton with an estimated $18.5 million in stock option profits plus
other benefits, did not understand the harsh impact of the merger on long-time employees. ''Cheney
didn't know what was going on in the company,'' Gonzales said.
Henry is in the midst of an arbitration case against Halliburton
in which he claims that the company
shredded his personnel file; the company says that the documents were duplicates and that the
clerical worker who destroyed them acted alone.
As for the asbestos issue, the key question is whether Cheney
knew about the potential liability, and
adequately considered the problem. Foshee, the Halliburton chief financial officer, said that
''everyone was aware'' of the asbestos situation but that the initial view was that Halliburton was
indemnified from the claims. Foshee, asked whether the company evaluated the possibility that the
indemnification would fail, responded: ''The answer is: It was considered and evaluated, as you
would do in any acquisition where you have an indemnity.''
But the indemnity failed when a former Dresser Industries subsidiary
facing most of the claims said
it could not pay them, eventually shifting the onus back to Dresser and thus to Halliburton.
The company's view is that Congress should cap asbestos liability
because the matter is ''a national
health issue,'' Foshee said, stating that many people who aren't sick now are filing claims and thus
bogging down payments to people with proven illnesses.
But Cheney, whose ties to the government once were hailed at Halliburton,
now could be hurting
the company's cause. ''I don't think there will be legislative tort reform on asbestos while Dick
Cheney is still an elected official,'' said a Banc of America Securities analyst, Jim Wicklund. ''Any
tort reform that is proposed by Republicans will be seen as people trying to help out Cheney's old
Still, in a May 15 meeting with stockholders, Halliburton CEO
Lesar urged activism. ''If you are as
concerned as I am about this, then please contact your representative in Congress about asbestos
liability reform,'' Lesar told the stockholders.
Halliburton, meanwhile, faces another problem; on May 22, The
New York Times reported that
the company adopted accounting procedures during Cheney's tenure that resulted in uncollected
revenue being counted before it was received from disputed claims. The company has confirmed
that the Securities and Exchange Commission has opened an investigation.
Halliburton's accounting firm at the time was Arthur Anderson
LLP, the same company under
investigation because of its work with Enron. Halliburton officials said they had no problem with
Anderson's work but nonetheless dropped the firm earlier this year.
Halliburton officials stressed that their company is in the service
industry and much different from
Enron, which was involved in energy trading and filed for bankruptcy amid allegations of accounting
irregularities. Foshee, the Halliburton chief financial officer, said that even with all of the problems
from the merger, the acquisition of Dresser has created a company that continues to be one of the
world's leading oil field service companies and has a bright future.
During his 2000 vice presidential debate against Senator Joseph
Lieberman of Connecticut, Cheney
touted his experience at Halliburton as giving him ''a different perspective on Washington.'' He
added, ''I've been out in the private sector building a business, hiring people, creating jobs.''
As it turns out, Cheney's departure from Halliburton to run for
the vice presidency was fortuitous
for him financially. On Friday, Halliburton's stock price closed at $18.55 far below the minimum of
$52.28 at which Cheney sold his stock options upon leaving the company to run for the vice
presidency. If Cheney had held onto the options, the company's stock drop would have made the
options currently worthless.
Michael Kranish can be reached at firstname.lastname@example.org