Arco Will Close East Coast Stations in Huge Cutbacks : Thousands Slated to Lose Jobs
Atlantic Richfield Co. announced today a vast restructuring that includes a $1.3-billion write-off against 1985 earnings, a $4-billion program to repurchase its own stock, the layoff or early retirement of thousands of its 39,400 employees and the closing of up to 2,000 stations in the East.
The Los Angeles oil giant said much of the reorganization is in reaction to a continuing drop in the price of oil, which it said could fall to as low as $18 per barrel from the current stated price of $29.
The company said it will also reduce exploration by nearly $250 million a year “in light of diminished expectations regarding future crude oil prices.”
But analysts on Wall Street and elsewhere believe that elements of the plan were designed as a defense against takeover attempts similar to that being waged currently by T. Boone Pickens against Los Angeles-based Unocal.
The plan to repurchase its own stock, which comes on the heels of Arco’s purchase of 22 million of its own shares earlier this year and late in 1984, increases the company’s long-term debt by $4 billion and represents an obstacle to corporate raiders.
Increase in Dividend
“The only reason for that is to ward off a hostile takeover,” said Sanford Margoshes, an analyst for Shearson Lehman Bros. in New York. The company is also increasing its annual common stock dividend to $4 from $3, after a 25% increase last year.
The stock purchase program and higher dividend are expected to increase the price of Arco stock. Shares jumped in value by $5.50 to $58.50 in early trading today on the New York Stock Exchange. Still, petroleum industry analysts place the liquidation value of the company at about $122 per share.
Arco is the third major oil company to consider such a major restructuring. Phillips Petroleum has boosted its debt dramatically in the process of fighting off a takeover assault by Pickens, and Unocal intends to do the same.
Pickens himself minimized the threat he represented to Arco, however, noting that he is still involved in a battle with Unocal.
“It’s unfair as hell to say Arco’s doing this from fear,” he said from his Amarillo, Tex., office. “While we’re up to our armpits in a deal right now, Arco knows they don’t have anything to fear from Boone Pickens.” He praised the reorganization as a case of “management looking after the shareholders.”
Will Sell Refinery
Among other major actions, the company will withdraw from all petroleum refining and marketing east of the Mississippi River. This will involve Arco’s sale of its Philadelphia refinery and the removal of Arco’s name from about 2,000 service stations and convenience stores in 10 Eastern states and the District of Columbia. Arco will maintain about 2,000 retail outlets in Arizona, California, Nevada, Oregon and Washington state.
The $1.3-billion write-off in 1985 represents the cost of Arco’s withdrawal from a number of scarcely profitable businesses, including copper and molybdenum mining and the petrochemical business. About half the amount comes from the company’s withdrawal from the chemical business, analysts said.
Arco officials said the company hopes to save $115 million a year after taxes in 1986 and beyond through reductions in “staff and overhead.” The company today was planning an extensive severance and pension program to promote resignations and early retirements, but company spokesmen would not say how many employees they hope to pare from the payroll or how much the program will cost.
In all, Arco said its cutbacks would save $500 million annually starting in 1986. Because increased borrowings would raise interest costs by $250 million a year, the net effect is $250 million in annual savings.