By Erwin Seba

HOUSTON (Reuters) - Independent western U.S. refiner Tesoro Corp's <TSO.N> board of directors adopted a poison pill after investor Kirk Kerkorian's Trancida Corp rejected a deal that would have limited Tracinda's percentage of Tesoro's shares, said Tesoro Chairman and Chief Executive Bruce Smith.

A Tracinda spokesman declined to discuss Smith's comments.

Tracinda withdrew its tender offer last week after the poison pill was adopted. The poison pill required a friendly agreement be negotiated with Tesoro's board before any shareholder could increase its ownership beyond 20 percent.

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"We offered him the opportunity to acquire 20 percent without the pill in place, but with an agreement that he would stand still at that level and offered him a board seat," Smith said during a Wednesday conference call. "He declined that."

Advisers to Tesoro's board recommended the directors adopt the poison pill in part because the directors do not have staggered terms or different classifications, he said.

Staggered terms and classified boards limit the ability of a potential acquirer to take over a company.

"Given the fact that we do not have a classified board, we could not allow somebody to acquire more than 20 percent without sharing that premium with all shareholders if someone were truly going to gain control of the company," Smith said.

"It was a decision not against Tracinda, not against somebody who wanted to acquire control, it was really driven by making sure all shareholders had benefit of change of control," he said.

In a November 15 filing with the U.S. Securities and Exchange Commission, Tracinda said Smith discussed a possible board seat and a shareholder's agreement "although specific terms were not proposed or discussed" at a November 13 meeting with Tracinda representatives, who told Smith they had not considered either possibility.

Tesoro was "surprised" by Tracinda's offer to buy an additional 16 percent of the company's stock, Smith said.

Tracinda already owns 4 percent of Tesoro's shares.

The tender offer would have made Tesoro Tracinda's first vehicle in energy markets, Smith said.

"The flattering part of it was they saw us as the vehicle for doing it," he said.

When it withdrew the offer, Tracinda said the poison pill inhibited shareholders' rights to sell or acquire shares as they saw fit.

Tracinda launched the bid to buy up to 21.9 million shares in October at an offer of $64 per share.

Tesoro shares ended down 1.5 percent at $47.04 on the New York Stock Exchange on Wednesday.