Occidental Will Sell Assets, Cut Dividend in Big Restructuring : Energy: The Los Angeles firm will take a $2-billion charge in fourth-quarter earnings. The cost-cutting moves will mean layoffs, but company officials declined to indicate how many.
Any doubts around Occidental Petroleum Corp. that Armand Hammer really is dead were erased Monday with the announcement of a radical corporate restructuring and an end to some of the late chairman’s most cherished policies.
Occidental said it plans to cut its long-term debt of $8.5 billion by 40%, in part by selling $3 billion in assets. It will withdraw from unprofitable businesses and slash the long-generous annual dividend on common stock to $1 per share from $2.50. The dividend had been maintained at the $2.50 level at Hammer’s insistence, even though it far exceeded Occidental’s operating profit in recent years.
The Los Angeles-based company said costs of the restructuring will lead to a $2-billion charge against 1990 fourth-quarter earnings. The restructuring will bring layoffs, but company officials declined to indicate how many.
Ray R. Irani, Hammer’s successor as chairman and chief executive, announced the dramatic changes barely a month after Hammer’s death at 92.
In a meeting with securities analysts in New York, Irani proclaimed the creation of a “new Oxy.” He said the company henceforth will concentrate on its core businesses of oil, gas and chemicals. Irani confirmed that Occidental wants to sell its 51% stake in IBP Inc., one of the nation’s largest meat processors.
The new chairman also unveiled plans to divest many of the other far-flung ventures that became a Hammer hallmark. Among $300 million in unprofitable assets up for sale or closure are Occidental’s coal mining venture in China, a petrochemical venture in the Soviet Union, hotels in Nigeria and Beijing, an oil shale project, a film production business, Arabian horse breeding, hybrid seed research and a Black Angus cattle operation.
Irani affirmed to Wall Street that “we don’t have any sacred cows.” He predicted that the restructuring will boost net income by $200 million per year by 1992 and increase annual cash flow by $600 million. Occidental in 1989 reported net income of $285 million, helped by a one-time, $29-million tax benefit.
The new chairman avoided characterizing the changes as a repudiation of Hammer’s policies in his last years. But he said: “The need for a change in direction at Oxy is clear.” He added: “An objective analysis of Oxy shows that we have a collection of very strong businesses held together by a weak balance sheet.”
In interviews, Wall Street analysts uniformly lauded the announcement. In a view echoed by others, Michael Barbis of Wertheim Schroder & Co. said: “They’ve needed to do this for a long time.”
Despite the slashed dividend, investors too reacted favorably to the news. In a down market, Occidental’s stock finished the day up 25 cents in New York Stock Exchange composite trading at $17.625. At 2.72 million shares, it was the Big Board’s most actively traded stock.
Ratings agencies also signaled approval. Standard & Poor’s Corp. on Monday upgraded its rating of Occidental’s senior debt to BBB from BBB-.
Irani said the company has already held talks with potential buyers of some assets, but he declined to say which assets or give any details of the talks. The company quelled speculation that it might also sell Midcon Corp., a major natural gas pipeline company. But Irani said Occidental might consider selling off certain of Midcon’s assets.
The charge against fourth-quarter earnings also will include a $450-million writedown in the value of certain oil and gas assets; a $300-million writedown for idled coal mines in Kentucky and Virginia; creation of a $520-million reserve to cover “environmental costs” from all operations, including the continuing cleanup of Love Canal; a $300-million writedown for Occidental Chemical’s agricultural products division; and establishment of a $130-million reserve to cover expected severance costs and other unspecified restructuring and litigation costs.
Irani said he expects the company to achieve at least half the expected debt reduction by the end of this year.
Although enthusiastic about the moves, analysts expressed doubts about how quickly Occidental actually will be able to sell off assets at a time of recession and tight bank credit. Frank P. Knuettel, an oil industry analyst with Prudential-Bache, said: “Assets these days can’t be sold overnight.”
In a short press conference following the meeting with analysts, Irani acknowledged that some assets will be difficult to sell, particularly the company’s minority interest in the An Tai Bao coal mine joint venture in China, which is carried on Occidental’s books at $250 million.
During the last years of Hammer’s 34-year rein over Occidental, many institutional investors shunned the company’s stocks and bonds. On Monday, Irani made an open bid to woo them back.
As part of what he called “our new investor relations strategy,” Irani promised analysts that Occidental will make fuller disclosure about its performance, including releasing more details about the financial performance of its individual subsidiaries. Analysts and institutional investors had complained that disclosure by the company often seemed skimpy.
Irani said that in the future, Occidental intends to pay out about 50% of earnings as stock dividends.
More so than many large NYSE-listed companies, Occidental for years had a very large contingent of relatively small individual investors holding its stock, lured in part by the hefty dividend that gave them an annual return on their investment of more than 10% for some time.
Asked if he had any message for these shareholders, Irani asserted that the restructuring in the long term will lead to greater gain. “The new Oxy will give them higher overall value than if everything is dependent on the dividend.”
Occidental Petroleum Stock Prices Monday: $17.625, up 25 cents
