BP Amoco in Talks to Acquire L.A.-Based Arco

Atlantic Richfield Co. and Britain’s BP Amoco confirmed Monday that they are negotiating a combination of the companies that is rumored to be worth $25 billion in stock.

If Atlantic Richfield were to disappear into the corporate folds of BP Amoco, it would join such names as Security Pacific Bank, Carter Hawley Hale Stores and First Interstate Bank--once well-known but now absent from the local business landscape.

Arco’s absorption would be a landmark in the long-running decline of California’s oil industry and would turn the state’s Big Four energy companies into the Big Three: Chevron Corp., Unocal Corp. and Occidental Petroleum Corp. All could also be takeover bait.

The talks between Arco and BP Amoco are the latest in the ongoing consolidation of the price-shocked oil industry, representing an audacious move by BP Chairman John Browne, whose London-based company is still digesting Chicago-based Amoco. Those two companies completed their $48-billion merger on Dec. 31, and within weeks were negotiating a new deal with Arco.

“This is incredible,” said oil industry analyst Fadel Gheit of the Fahnestock & Co. New York investment firm. “This is like getting married and then starting to date a week later.”

BP Amoco and Arco stressed in a terse joint statement that no definitive agreement had been reached to sell the Los Angeles oil company, nor was one assured. The boards of directors of the two companies are meeting this week to consider acquisition terms and an announcement is expected before the weekend.

Wall Street is betting that the two companies have serious intentions. Arco’s stock shot up $8.69 to close at $74.06 on the New York Stock Exchange. BP Amoco’s American depositary receipts rose $4.56 to close at $105.

BP Amoco and Arco would be the fourth large merger since oil prices began their wild downhill ride began 18 months ago.

In addition to BP and Amoco, Exxon Corp. agreed to buy Mobil Corp. last November, and Total of France has combined with Petrofina of Belgium.

Analysts said Arco and BP Amoco would fit together nicely with little overlap to alarm regulators. Arco would bring BP Amoco a strong presence in the lucrative West Coast gasoline refining and retailing business, as well as extensive holdings in the U.S. Gulf Coast and Alaska, where BP Amoco also is a big producer.

An Arco acquisition probably would be bad news for thousands of employees, many in the Los Angeles area, who could lose their jobs in the cost-cutting frenzy that always follows these sorts of combinations. Layoffs approached 10,000 in the merger between BP and Amoco.

Arco’s presence is felt in philanthropic circles through its Arco Foundation, which is slated to give $12 million to local programs and institutions this year, down from $14 million in each of the two previous years.

If a deal is reached, Los Angeles city officials would work to mitigate any employment losses, said Rocky Delgadillo, deputy mayor for economic development. But the city also sees mergers as an opportunity to court the resulting corporations and their employment and corporate spending, he said.

“Large mega-global corporations are choosing headquarters less for place and more for corporate image,” Delgadillo said. “We believe that Los Angeles provides a significant enhancement to corporate image . . . as the city of the future.”

Anita Zusman, vice president of legislative affairs for the Los Angeles Area Chamber of Commerce, noted Arco’s “tremendous contribution” to Los Angeles, but also pointed out that the region’s economy has changed so that large corporations are less influential than they were a few decades ago.

“The Los Angeles economy is booming, and that economic engine is driven without question by small and growing companies,” Zusman said. “Large companies are merging, but many smaller companies are emerging.”

If Arco is taken over, it will mean another in a long string of major corporate headquarters departures from Southern California. Just last month, Rockwell International Corp., the nation’s largest maker of factory-automation equipment, said it would move its headquarters from Costa Mesa to Milwaukee.

Likewise, in recent years Los Angeles lost the headquarters of its two major banking companies, Security Pacific and First Interstate, to acquisitions. Supermarket chains Vons and Ralphs also were snapped up by out-of-town buyers, and department store retailer Carter Hawley Hale fell into bankruptcy.

Five years ago, Southland aerospace giant Lockheed Corp. was purchased by Martin Marietta, and the combined Lockheed Martin’s headquarters was consolidated in Bethesda, Md.

The 1980s saw the departure of three substantial Los Angeles’ air carriers, Western Airlines, Continental Airlines and Tiger International, and two oil companies, Getty Oil and Pauley Petroleum.

Although thriving small businesses and the entertainment industry have helped revive the Southern California economy over the last few years, the corporate exodus still stings. To a large extent, “It’s a prestige thing,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

When local officials try to court industry, he said, “What we find is that people will say, ‘You’ve lost all of these headquarters. What’s wrong with you?’ ”

The likely acquisition of much or all of Arco would stand as a major landmark in the deterioration of the oil industry in the Los Angeles area.

Employment in the industry has been declining in the region since the 1980s. Last year, there were only 4,100 jobs in “oil and gas extraction,” down from 11,600 in 1983. In petroleum refining, the job total declined over the same 15-year period to 5,400 from 11,200.

Oil first emerged as a Southern California industry in the mid-1890s, when partners Edward L. Doheny and Charles Canfield established the first commercial free-flowing well in Los Angeles near the intersection of State and Patton streets.

Before long, “everyone and their neighbor thought they could be a millionaire overnight by drilling in their backyard,” said Margaret Leslie Davis, author of the 1998 book “Dark Side of Fortune: Triumph and Scandal in the Life of Oil Tycoon Edward L. Doheny.”

Atlantic Richfield as it exists today did not appear on the Los Angeles scene until 1972, when it relocated from New York to the 52-story Arco Tower in downtown Los Angeles. Atlantic Refining Co. in 1966 bought Richfield Oil Corp. of Los Angeles, become Atlantic Richfield.

Arco has been particularly vulnerable to falling oil prices, which hit historic lows in December, because it has divested most of its non-oil holdings.

In a effort to save money and preserve its independence, Arco last October launched a cost-cutting program that included layoffs, eventually reaching more than 1,200, the closure of 20 foreign offices, the sale of its corporate jets and a move out of Arco Tower.