By Michael Kranish
Globe Newspaper

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 Vice President 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 year.

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 duplicate positions.

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 company.''

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 kranish@globe.com

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