Arco-BP Amoco Merger Plan Gets FTC Green Light
It’s taken more than a year to make it down the aisle, but on Thursday Atlantic Richfield Co. and BP Amoco cleared the last impediments to their proposed $27.8-billion marriage.
The Federal Trade Commission gave its blessing to the matchup after considering proposed asset sales by BP Amoco. In addition, an agreement was reached Thursday to settle a nagging lawsuit filed by Exxon Mobil Corp. over one of those deals--the sale of Arco’s Alaskan operations--that could have delayed the merger.
When the deal closes at midnight Monday, it will bring an end to 13 months of limbo for all concerned.
For downtown Los Angeles, it will mean the loss of another large corporate headquarters--although BP Amoco has vowed to continue Arco’s level of charitable giving.
For BP Amoco, the Arco acquisition will bring a collection of lucrative refining and gas station assets in the West, strengthen its oil and natural gas production, and boost the market capitalization of the world’s third-largest publicly traded oil company to $200 billion. And analysts say BP Amoco has not finished its buying spree.
For Arco and its 16,600 employees, the FTC’s approval promises an end to their long wait. The oil giant has said that 2,000 jobs would be eliminated, primarily in Southern California and Texas.
Equal parts of anxiety and relief bubbled among Arco workers as they prepared to become part of the empire of BP Amoco and its cost-cutting chief executive, John Browne. One of Browne’s many nicknames is “Neutron John” (after the neutron bomb) because of his penchant for eliminating people while keeping hard assets.
In the 1998 merger between British Petroleum and Chicago-based Amoco Corp., the number of layoffs was initially understated, first at about 6,000 but later swelling to 16,000, said Fadel Gheit, senior energy analyst with Fahnestock & Co. in New York. Similarly, the 7,000 to 8,000 layoffs initially estimated when Exxon Corp. and Mobil Corp. merged in November have grown to about 12,000, he said.
Arco’s work force has shrunk in the last year through previously announced layoffs and attrition to about 16,600 employees worldwide, down from about 18,000 a year ago. In Southern California, Arco employs about 5,300 people, from top executives to gas station workers, and Browne has indicated that at least 600 of them--primarily headquarters staff in downtown Los Angeles--would lose their jobs.
Browne said Thursday that the company will “move quickly to deliver the significant value of this union to the shareholders of the new group.” BP Amoco has estimated it can achieve $1 billion in annual saving despite the divestitures and the delay in getting the deal through the FTC.
Under the proposed transaction announced April 1, 1999, each Arco share will be exchanged for 1.64 of BP Amoco’s American depositary receipts (adjusted from the original 0.82 because of a stock split).
BP Amoco’s ADRs closed Thursday at $51.50, down 63 cents, which values Arco’s stock at $84.46 a share. (Arco’s stock closed down 75 cents at $83.44 on the New York Stock Exchange.) Arco has 329.6 million shares outstanding, making the deal worth $27.8 billion.
Browne had hoped to close the acquisition by the end of last year, but the FTC challenged the deal in court, calling it anti-competitive. BP Amoco and Arco would control 70% of Alaska oil production and could manipulate the price of this key source of crude oil for California refiners, raising gasoline prices as well, the FTC argued.
The FTC was also bothered that the merger would give BP Amoco control of 40% of the pipeline and storage capacity at Cushing, Okla., where the benchmark West Texas intermediate crude oil is delivered.
To allay these concerns, BP Amoco and Arco last month agreed to sell Arco’s Alaska oil and gas subsidiary to Phillips Petroleum Co. for as much as $7 billion. Arco’s Cushing operations also are being unloaded.
Although the FTC voted 5-0 to approve the merger with the divestitures, commissioners were divided. Chairman Robert Pitofsky and Commissioner Mozelle Thompson in a joint statement expressed disappointment that the commission did not prevent BP Amoco and the buyer of Arco’s Alaska assets from exporting oil at a loss to Asia--one technique that the FTC contends BP Amoco has used to manipulate the price of oil.
Commissioners Sheila Anthony, Thomas B. Leary and Orson Swindle said they were unwilling to impose an export restriction that would be “unnecessary, unenforceable and otherwise inappropriate.”
“The sweeping wholesale divestitures called for by the consent order resolve the competitiveness concerns that initially led the commission to seek a preliminary injunction to block the proposed transaction,” said Richard Parker, director of the FTC’s Bureau of Competition.
California Atty. Gen. Bill Lockyer, who had opposed the merger, said that with the sale of Arco’s Alaska assets, “we can avoid a monopoly force on the North Slope and provide a new competitor that could benefit gasoline production on the West Coast.” California, Oregon and Washington dropped their objections Thursday.
But Sen. Barbara Boxer (D-Calif.) said she was outraged by the FTC’s approval of the merger.
“Today, the Federal Trade Commission failed to stand up for consumers in California and throughout the West Coast. The approval of the BP Amoco-Arco merger will strengthen the big oil companies’ chokehold over California’s gasoline market and make an already intolerable situation even worse.”
The final roadblock to the merger cleared Thursday when Exxon Mobil agreed to drop a lawsuit seeking to block the sale of Arco’s Alaska assets to Phillips. Exxon Mobil had said that a 1964 agreement gave it right of first refusal should Arco decide to sell certain North Slope holdings.
The settlement realigns ownership of the assets, turning Phillips into Alaska’s biggest oil producer and making BP Amoco sole operator of the giant Prudhoe Bay field.
Despite the divestitures and the time lost, the Arco acquisition is still worth the trouble for BP Amoco, said analyst Gheit, who predicted more acquisitions ahead. Smaller companies with large natural gas holdings, including El Segundo-based Unocal Corp., are probably in BP Amoco’s sights, he said.
BP Amoco’s Browne apparently harbors no ill will toward the FTC. Early Thursday, before the FTC action was announced, Browne told stockholders at the company’s annual meeting in London that the delay was not unreasonable.
“Given the number of oil combinations in the industry,” he said, “the degree of scrutiny is quite understandable.”
--- UNPUBLISHED NOTE ---
This story has been edited to reflect a correction to the original published text. Arco had 329.6 million, not billion, shares outstanding.
--- END NOTE ---
