Tosco Says It Has 3 Multinationals as Possible Suitors
Tosco Corp., the largest independent oil refiner on the West Coast, has received offers from three multinational corporations interested in buying the Santa Monica-based company or its Northern California petroleum refinery, company officials said Tuesday.
The first feelers came in mid-October, said Michael E. Tennenbaum, vice chairman for investment banking at Bear, Stearns & Co. and a Tosco director. Since then, the Tosco board has hired Bear Stearns to investigate the offers.
The three inquiring companies “showed optimism about parts of our business and wanted to participate in some fashion,” Tennenbaum said.
“We didn’t pursue it to the point of saying, ‘Will you buy all or part?’ ” he said. “We didn’t get to that detail. . . . But we’re flexible about what we ultimately will do. And we’re not going to deal with anybody except a very large business entity who can put up large sums of capital.”
According to Tennenbaum, one force behind Tosco’s discussions with potential suitors is the company’s concern about possible changes in California law regulating diesel fuel and gasoline.
If the company chooses to manufacture lower-emission fuels like Arco’s new Emission Control gasoline, it will have to make some very costly changes in its Avon refinery, which is located in the San Francisco Bay Area near Concord.
“With the changes and proposed changes in California, particularly in relating to clean fuels, the Avon refinery deserves more capital than we had planned to give it,” Tennenbaum said. “These are opportunities. To run this thing optimally, it deserves to have a very large deep pocket owner who can take advantage of all of these opportunities.”
Thomas D. O’Malley, president of Tosco, agreed that “there are large capital expenses” associated with running an oil refinery. But O’Malley said the possible need to manufacture cleaner fuels “is not the driving force” behind Tosco’s interest in acquisition offers.
“There are a lot of macroeconomic factors that effect our business,” O’Malley said Tuesday. “But we are not at liberty to comment on them.”
Industry analysts contend that buying Tosco would be a smart move for many of the nation’s major oil companies. For starters, they said, Tosco stock is undervalued. And, they added, it is prohibitively expensive--and environmentally difficult--to build oil refineries in the United States any more.
“Suitors would want to buy now because the Avon plant survived the earthquake; it has been tested,” said Kenneth Funsten, energy analyst for Wedbush Morgan Securities in Los Angeles. “And with the chemical plant explosion in Pasadena, Tex., it has become more obvious that you cannot build refineries in this country any more.”
Tosco stock opened Tuesday at $18 in trading on the New York Stock Exchange and closed at $25.125. William Hyler, energy analyst for Oppenheimer & Co. in New York, said he values the stock at between $30 and $35 per share.
“It makes sense for any of the majors, Chevron, BP, Arco, Exxon, to look at Tosco’s assets,” Hyler said. “Tosco probably decided to test the waters based on the rising asset valuations.”
TOSCO AT A GLANCE
Tosco Corp. is an independent petroleum refiner based in Santa Monica. The company refines crude oil and markets wholesale petroleum products, primarily gasoline and diesel products, in the West. Tosco also develops and produces oil and gas and has interests in oil shale properties in Colorado and Utah.
The company owns and operates a petroleum refinery in Avon, Calif., and related distribution facilities.
Figures represent totals in millions for the fiscal year ending Dec. 31.
Net inc. Year (loss) Revenue (In millions) 1988 $55.0 $1,142.0 1987 28.0 1,187.0 1986 (56.0) 780.0 1985 9.0 1,513.0
Assets: $556 million (‘88) Shares oustanding: 55.8 million Employees: 859 12-mo. range: $15.00-$26.25 Tues. close: (NYSE) $25.125, up $7.25
