By DANIEL TAUB and JASON BOOTH
Is Atlantic Richfield Co. getting itself ready to be acquired?
Analysts say the staff cuts announced last week by the Los Angeles-based oil company coupled with the company's recent divestiture of its chemical and coal holdings and a management shakeup make Arco a more attractive takeover target than ever.
Arco officials insist nothing could be further from the truth.
"That's not why we're doing it, and I don't know if it helps or hurts in that regard," said Mike Bowlin, chairman and chief executive. "That has not been contemplated at all. It does not have any consideration at all in what we're doing. I have said publicly that I expect us to be an ongoing independent company, and that's what I expect us to be."
Nevertheless, analysts say that as Arco reduces its overhead, the company becomes more attractive as a target for another oil company seeking to expand its holdings.
"All it means is, if these were jobs that had to be cut, then an acquirer will look at it and say, 'They've already done some of our dirty work for us,'" said Norman Rosenberg, an analyst with S & P; Equity Group. "Maybe that was not the intention, but it is a byproduct of it."
Though Bowlin characterized last week's cuts which included several hundred positions in L.A. as a response to depressed earnings caused by declines in crude oil prices, analysts say it is impossible to know whether Arco is looking for a buyer or just fending off a takeover.
"If six months ago you had asked me whether Amoco (which was bought by British Petroleum in August) was looking for a buyer, I would have said, 'No way,'" said Jack Aydin at McDonald & Co. Investments in Jersey City, N.J. "But at this point, I wouldn't rule out anything."
There is little doubt among analysts that despite its restructuring and the recent increase in its share price, Arco remains a prime takeover target. "They probably remain on a lot of people's shopping list," said Michael Wang, an analyst at John S. Herold Inc. in Stamford, Conn.
Wang and other analysts point out that Arco has two primary assets that would attract a buyer: large oil and natural-gas reserves in Alaska and Indonesia and an extensive refining and distribution presence in the Western United States.
Also, Arco has rid itself of some less-profitable parts of its business by selling its coal operations to St. Louis-based Arch Coal Inc. for $1.14 billion, and by selling its 80 million shares in Arco Chemical Co. to Houston-based Lyondell Petrochemical Co. for $3 billion. Both transactions took place in June.
With revenues of close to $19 billion, Arco is the perfect size for a mid-sized oil firm that is attempting to propel itself into the realm of the giants in a single deal, Wang said.
"This would catapult someone into the major leagues," he said. "If you are Chevron Corp., Texaco or Mobil Corp., you would be able to compete against Royal Dutch Petroleum, Exxon Corp. and British Petroleum."
And the firm's West Coast presence is another appealing characteristic.
"The West Coast is the most profitable gasoline market in the world," said Fade Gheit, an analyst at Fahnestock & Co. "It's like money in the bank."
Analysts estimate that, based on Arco's assets, the company is worth between $85 and $95 a share putting a total purchase price for an acquirer at $27.3 billion to $30.5 billion. By comparison, British Petroleum paid $48 billion in stock for Amoco.
Arco shares closed on Oct. 15 at $70.81, giving the company a market capitalization of $22.7 billion. If there were a takeover attempt, analysts predicted that a bid of up to $105 a share or $33.7 billion would be possible. Such a price would be hard for shareholders to refuse.
"If you look at this restructuring, they are acting like they are going to be there forever," Gheit said. "But sometimes it is not in the hands of the management. The market will dictate."
In a move related to last week's announced layoffs and something that could make Arco even more attractive to an acquirer the company is considering consolidating its downtown offices by moving out of Arco Plaza.
It occupies 12 floors in Arco Tower, also known as Arco Plaza South, at 515 S. Flower St. Arco Products Co., the refining and marketing division, occupies 11 floors at 333 S. Hope St.
"We're looking right now if we can't consolidate our office space," Bowlin said. "An option will be to no longer be in Arco Plaza, and to consolidate our space on Hope Street or another location. That decision has not been made to date, but once we get our plans together, that is an option."
Bowlin said he expects the decision to be made by the end of the year.
For reprint and licensing requests for this article, CLICK HERE.