Merger Partners Willing to Haggle With FTC, Arco Says
With the merger between BP Amoco and his company under increasing threat, Atlantic Richfield Co. Chief Executive Mike Bowlin said Tuesday that the two oil giants remain willing to haggle with the Federal Trade Commission to come up with an acceptable deal.
But antitrust experts contend that BP Amoco has bungled the sensitive and highly political process of getting the necessary government approvals for the $27-billion combination.
Legal sources in Washington said that unless the companies come forward with a new offer to divest even more of their combined production capacity of Alaska North Slope crude oil than they already have promised, the FTC will indeed bring suit against the merger, which was proposed April 1.
A federal lawsuit would delay the merger at the very least--and could well sink it.
BP Amoco has negotiated approval from Alaska Gov. Tony Knowles and California Gov. Gray Davis in exchange for concessions in those states. But California Atty. Gen. Bill Lockyer still has reservations about the deal, and Sens. Barbara Boxer (D-Calif.) and Ron Wyden (D-Ore.) have complained to the FTC because they believe the merger would increase gasoline prices in their states.
BP Amoco’s latest aggressive maneuver--declaring that it will close the merger in early February unless the FTC sues to block it--carries risk all around but is especially treacherous for Arco, which has spent nearly a year in merger limbo.
The FTC has an unbroken winning streak when it comes to challenging deals in court. If this deal falls apart, then Los Angeles-based Arco would face an uncertain future on its own or in a search for a new partner.
Breaking months of silence on the beleaguered deal, Bowlin said in a interview that he fully expects the FTC to file suit shortly to block the proposed merger of Arco, the nation’s ninth-largest oil company by revenue, with the much larger BP Amoco, formed at the end of 1998 by the merger of British Petroleum of London and Amoco Corp. of Chicago.
Nonetheless, Bowlin said, he remains upbeat about the merger’s prospects because the companies are willing to continue negotiating a deal to reassure the FTC that competition will be maintained. He even predicts a resolution by midyear.
“We haven’t drawn a line in the sand and said, ‘Take it or leave it.’ That is the reason I remain optimistic,” Bowlin said.
However, he added: “Clearly, BP Amoco and Arco are ready to go the distance in litigation, and we believe we have a very strong case.”
The FTC has never publicly revealed what problems its staff sees in the proposed combination.
Bowlin said the FTC staff is most worried about “the impact of the upstream on the downstream”--specifically that the combined company’s control of 70% of daily production of the Alaskan North Slope would enable BP Amoco to influence gasoline prices on the West Coast. About 40% of the crude oil used by West Coast refineries comes from Alaska.
Bowlin said gasoline prices are high in California because of the specialized pollution-fighting fuel mandated in the state and because of relatively high taxes.
Alaskan North Slope crude is purchased primarily by sophisticated refiners that would quickly switch to another type of oil if the price of Alaskan oil were not competitive, he said.
To appease opponents in Alaska, BP Amoco agreed to a package of measures, including selling 175,000 barrels of daily production to a third party, thereby reducing the combined company’s share to 55% of North Slope production, and unloading 620,000 leased acres.
The companies last week offered to allocate an additional 210,000 barrels a day to small refiners under 10-year contracts. That would reduce the combined control of production to 40%--about 400,000 barrels, or just enough to meet the daily requirements of Arco’s two West Coast refineries, in Carson and in Ferndale, Wash., near the Canadian border.
A Washington antitrust attorney theorized that BP Amoco could successfully negotiate a settlement with the FTC if the company agreed to sell all of its North Slope production, rather than merely tying it up with long-term contracts.
Another Washington attorney said BP Amoco and Arco have bungled their approach to getting approval for the deal. First, he said, the companies dealt with Alaska, not the FTC.
“That’s like dealing with the flea, not the bear,” he said. “And then when they came to the federal level, they went before the commission without dealing with the staff. That’s not smart.”
In California, the lawyer said, the companies dealt with Davis but not with Lockyer, the attorney general. “It has been very badly handled,” he said.
Lawrence Goldstein of the Petroleum Industry Research Foundation in New York said, “If it goes to court, there are no winners.”
One analyst, Michael Young of the investment firm Deutsche Banc Alex. Brown, speculated that Arco stock would fall more than 10% if the proposed merger were called off. Its shares are off 12% already this year. They closed unchanged at $76.06 Tuesday on the New York Stock Exchange.
If shares did drop, Arco would be ripe for another takeover offer.
Meanwhile, Arco will have passed a year in a kind of suspended animation.
Bowlin, however, said it has been a year well spent, as the world will see Thursday when the company reports what he said will be excellent, though not record, financial results for 1999.
“I’m amazed and extremely proud of the employees,” Bowlin said. “We have operated well and extremely efficiently.”
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Oil Nears $30
Crude oil futures surged 83 cents to $28.85 a barrel on Tuesday, the highest since 1991, amid frigid East Coast weather and growing conviction that major oil exporters will stick with last year’s production cuts. See story, C4. Monthly closes and latest for oil futures:
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Tuesday: $28.85 per barrel
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Source: Bloomberg News
