76 Products Co. Sold in $1.8-Billion Deal
76 Products Co., the $4-billion-a-year oil refining and marketing arm of Unocal Corp., has been sold to a Connecticut corporation in a cash and stock deal valued at more than $1.8 billion.
The sale to Tosco Corp., which owns a number of refineries and the Circle K chain of 24-hour markets, comes less than a year after 76 Products moved to Orange County from Los Angeles. A total of 850 workers from Unocal offices throughout the two counties were transferred to a lavishly refurbished high-rise headquarters in Costa Mesa.
Some of those workers now are likely to be laid off.
One employee said Monday that 76 Products President Lawrence Higby, a former Los Angeles Times and PepsiCo executive, told workers in a daylong series of meetings that some people probably would lose their jobs in the transition.
Tosco is known for cutting payroll to the bone and for extracting major concessions from labor unions at its newly acquired refineries.
“Tosco invests under the assumption that refining and marketing is a difficult business and that it will continue to be difficult. There is dramatic cost cutting ahead,” said John Hervey, an oil analyst at Donaldson Lufkin & Jenrette.
Higby, who once hoped to become chief executive of a publicly traded, independent 76 Products Co., would not comment on his or Tosco’s plans.
In a prepared statement issued Monday, Higby said only that the combination of Tosco and 76 Products would create “a strong, competitive West Coast petroleum refining and marketing operation” and that “we look forward to the opportunities and challenges that lie ahead.”
Included in the purchase of Unocal’s 76 Products Co. are refineries in San Francisco, Santa Maria and Los Angeles, more than 1,100 gas stations, the company’s credit card oil distribution unit--including a fleet of three tanker ships--and the familiar 76 brand name. Unocal said last month that it was spinning off the operation to concentrate on petroleum development in the Far East.
If completed, the deal would make Tosco the second largest refiner after Chevron and third largest seller of gasoline in California after Chevron and Arco. More impressive, the Unocal purchase will make Tosco the largest independent refiner in the nation with daily capacity of close to 1 million barrels of daily capacity.
Tosco officials said they intend to combine the 76 and Circle K operations--turning the convenience chain’s off-brand gas pumps into 76 pumps. The convenience stores that Higby had added to many 76 stations would become Circle K outlets.
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It’s unlikely that Tosco could move quickly to abandon 76 Products’ Costa Mesa headquarters because of the expense involved.
Higby moved the company from Los Angeles to Orange County as part of an effort to build the unit into a strong, stand-alone business. As part of his strategy, he consolidated employees from eight offices scattered throughout Los Angeles and Orange counties. He moved them into a nine-year-old, 12-story smoked-glass and granite building in one of Orange County’s priciest corporate neighborhoods, the so-called South Coast Metro area adjacent to the South Coast Plaza shopping mall.
76 products signed a 10-year, multimillion-dollar lease on the building last year and spent an estimated $15 million gutting it and turning it into a high-tech wonderland where employees work from communal workstations that are wired with state-of-the-art fiber optic cabling and equipped with software that lets them do everything from faxing pipeline contracts to ordering sandwiches from the in-house food service.
Even the egalitarian employee eating area, a ground floor “club room” with no private areas for the top executive to hide in, is wired. The booths come equipped with electrical outlets and high-speed data ports for employees to plug in their laptop computers.
The prevailing mood at 76 Products headquarters Monday was one of apprehension, several workers said, partly because the deal was announced so soon after Unocal said it wanted to get rid of the 76 Products operation and partly because few people know much about the buyer.
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Tosco has capitalized on the declining appeal of petroleum refining by buying up refineries at a fraction of their construction cost and making them profitable. Increasingly, large oil companies have bailed out of refining, discouraged by gasoline’s strict and costly environmental rules and its low-growth, low-margin economics.
Tosco already owns refineries in the East San Francisco Bay area, the Philadelphia area, and in New Jersey and Washington state. The company is also expanding its retail network. Earlier this year, Tosco acquired the 2,500-outlet Circle K convenience store chain for $900 million, a deal that gave it 7% of California gasoline retail sales.
The addition of Unocal’s 1,100 stations to the 286 Circle Ks that it already operates in California will thus raise Tosco’s statewide market share to 19% in gasoline retail sales. Top-ranked Arco and Chevron both have market shares of more than 20% statewide.
Formerly an obscure oil shale refiner based in Santa Monica, Tosco moved to Stamford, Conn. in 1990. Weighed down by losses, the company put itself up for sale in the late 1980s and found no takers.
But under chief executive Thomas D. O’Malley, the company has prospered since 1990 and is a Wall Street star, earning twice the profits of other oil refiners, said industry analyst Hervey.
Investors heartily approved of the deal. After Monday’s announcement, Tosco’s shares soared $12.375 to close at $72.50 on the New York Stock Exchange. Unocal rose $1 to $40.50.
For the nine months ended Sept. 30, Tosco reported a profit of $116 million on revenue of $7.2 billion.
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With a total payroll of 3,100 employees, 76 Products represents about one-quarter of Unocal’s total payroll. The unit’s 1995 revenue of $4.04 billion was about half of Unocal’s for the year.
El Segundo-based Unocal will take the cash from the 76 Products sale and invest in expansion of its huge natural gas project in Thailand, which is expected to produce close to a 1 billion cubic feet of gas per day in 1997, a spokesman said. The company also plans major expansion at projects in Indonesia, Azerbaijan and Myanmar.
Tosco will pay Unocal $1.4 billion for 76 Products fixed assets, which include the three refineries, gas stations and transportation assets, including terminals, tankers and pipelines. Tosco will also pay $400 million for inventories.
In addition, Unocal will receive up to $250 million over a seven-year period in possible participation payments should gas profit margins exceed certain agreed-to levels.
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Unocal 76 Products Co. at a Glance
* Background: Formed into a separate subsidiary by parent firm Unocal in 1994; consists of the firm’s gasoline production and sales operations
* Headquarters: Costa Mesa
* President: Lawrence M. Higby
* Employees: 850
* Purchaser: Tosco Corp. of Stamford, Conn., independent oil refiner and owner of Circle K convenience stores
* Sale price: $2 billion
* Sale includes: About 1,350 76-brand gasoline stations, 1,100 of them company-controlled; refineries in San Francisco, Santa Maria and Los Angeles; various terminals, bulk plants and pipelines; lubricants business; commercial and industrial petroleum products business; three oceangoing tankers and credit card systems
Source: Unocal, Times reports; Researched by JANICE L. JONES / Los Angeles Times
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