Arco Shares Fall on News That BP Deal May Hit Snag
Shares of Atlantic Richfield Co. on Tuesday fell 5%, in their biggest one-day drop since last November, on reports that federal antitrust regulators may try to block BP Amoco’s proposed buyout of the Los Angeles-based energy company.
Arco stock fell $4.56 to close at $87.63 on the New York Stock Exchange. Tuesday’s decline erased $1.4 billion of Arco’s market value.
The Federal Trade Commission, concerned that a combined BP Amoco-Arco would dominate Alaskan oil production, is considering suing to block the $33.8-billion deal, people familiar with the government’s review told Bloomberg News.
However, the stock would have fallen further had the merger deal been near collapse or fallen apart, analysts said.
“The market is saying the merger is delayed, but it’s still in reasonably good shape,” said Tom Burnett, president of Merger Insight in New York.
Arco stock would have fallen to $83 or $84, Burnett said, if investors thought the buyout was in serious trouble, and would fall to about $75 should it collapse.
BP Amoco’s American depositary receipts, each representing six ordinary shares, fell $2, or 3.5%, to close at $55.25 on the NYSE.
The combination would create the largest U.S. oil producer and refiner, and would join two companies that control 75% of Alaskan North Slope crude oil.
Much of the oil is refined on the West Coast into gasoline that meets California’s stringent environmental laws.
The FTC staff sees West Coast refineries that are geared to process crude oil pumped from Alaska’s North Slope as a separate market, the sources said.
Regulators fear the refineries would be forced to pay higher prices if the BP Amoco-Arco transaction is allowed to proceed without significant divestitures of oil production capacity, sources said.
“The FTC would not be going to court unless certain refiners in California were able to economically switch from Alaska North Slope crude to another product” from different oil fields, said Steven Newborn, a Washington antitrust lawyer.
He said there appears to be a “wide gulf” between the FTC and the companies, making the negotiations difficult.
The four-member commission would have to authorize any lawsuit.
BP Amoco said in a statement: “We believe our current deliberations will take into account the issue of supply of West Coast markets to the satisfaction of everybody.”
The price of California gasoline is a particularly sensitive issue for the FTC because motorists already pay 20 cents more a gallon than the U.S. average. The FTC and California’s attorney general have been investigating the recent rapid increases in gasoline prices.
