BP Amoco Reported Close to Takeover of Arco for $25 Billion

BP Amoco is close to announcing the takeover of Los Angeles-based Atlantic Richfield Co. in an estimated $25-billion stock deal, the Financial Times of London reported today.

If completed, the merger would be the latest combination in the rapidly consolidating oil industry and the second acquisition for the former British Petroleum Co., which completed its merger with Chicago-based Amoco Corp. in December.

London-based BP Amoco and Atlantic Richfield, or Arco, are expected to announce the merger later this week after the boards of the two companies vote on the deal, the newspaper said. Any pact would have to be approved by U.S. regulators.

Arco has been considered a ripe target. Although the company has rapidly increased its proven reserves and has key holdings throughout the world, it has been hit hard by lower crude prices. In the last six months it has announced plans to reduce capital spending, lay off employees, close foreign offices and move out of the landmark Arco Plaza tower, next to the virtually identical Bank of America tower in downtown Los Angeles, the company’s home since it relocated there in 1972.

Arco is the seventh- or eighth-largest oil company in the world, depending on how size is measured, and the third-largest corporation headquartered in Southern California, after Walt Disney Co. and Amgen, in terms of stock value. BP Amoco is the world’s third-largest oil company, after the combination of Exxon and Mobil, announced in November, and industry leader Royal Dutch/Shell Group.

Separately, the Wall Street Journal Interactive edition said Sunday that the two companies were in “serious talks.” Spokesmen for Arco and BP Amoco both said that they could not comment on rumors.

It’s unclear exactly how much the deal would be worth, though based on Friday’s closing stock price of $65.38 on the New York Stock Exchange, Arco has a market capitalization of about $21 billion. The Financial Times quoted people close to the negotiations as saying that Arco was looking for a premium of 20%, putting the price tag at about $25 billion.

Shares of BP Amoco rose $1.13 to $100.44 on the NYSE Friday.

One main advantage of the link is the savings and improved efficiency that may be gained by uniting the two companies’ Alaskan operations.

In Alaska, BP Amoco and Arco jointly operate the 13-billion-barrel Prudhoe Bay field, the 800-pound gorilla of U.S. oil discoveries. But from a 1988 peak of 2.1 million barrels a day, production has fallen to about 1.2 million barrels daily.

While BP Amoco produces more oil than Arco in Alaska, it’s Arco that has the best future prospects. The company expects to have its 360-million barrel Alpine field operating in about two years, and it also is eyeing acreage in the vast National Petroleum Reserve--Alaska west of Prudhoe for additional opportunities.

A combined BP-Arco also would own more than 70% of the trans-Alaska pipeline.

Arco earned $452 million in 1998 on revenue of $10.3 billion. It has more than 1,700 gas stations in the western U.S. and British Columbia, along with interests in such places as Indonesia, the Gulf of Mexico, the North Sea and Africa. But supply and sales are centered in Alaska and California.

BP Amoco sells its products through a network of about 27,000 stations.

Since the BP-Amoco deal was completed, the new company has announced layoffs totaling roughly 10% of the combined company’s work force.

Overall, BP Amoco earned $4.65 billion on revenue of $83.7 billion in 1998.

Oil companies worldwide have been devastated by the low cost of oil, causing them to lay off employees and otherwise reduce costs, including mergers.