By JASON BOOTH
Atlantic Richfield Co. shareholders are expected to approve the company's takeover by BP Amoco in less than a month, leading to a question with heavy implications for Los Angeles: How much of the Arco empire will remain?
The question became all the more pressing after BP announced on July 15 that it plans to lop $4 billion off its annual costs worldwide and sell assets worth $10 billion.
While the Arco name will likely disappear into history, several key pieces of its empire will likely remain intact, say equity analysts, union leaders and oil-industry consultants.
"I don't expect BP will change much on the West Coast," said Bruce Lanni, oil analyst at CIBC Oppenheimer in New York. "Refining and marketing has been Arco's biggest success. That's most of what you have in Los Angeles, and that's what will remain."
The exception is the 700-member workforce at Arco's downtown headquarters. BP spokesman Jim Fair said the oil giant typically does not operate regional headquarters, so it almost certainly won't retain operations in Los Angeles.
Still, those people who are likely to be laid off because of the merger won't be short of money.
Chairman Mike Bowlin could receive a severance package of as much as $28 million. And even employees well down the totem pole can expect to receive handsome payoffs if they lose their jobs.
According to Arco spokeswoman Linda Dozier, severance packages range from a low of six months' pays for employees with only a couple of years of seniority up to as much as three years' pay.
What BP-Amoco will likely keep is the refinery in Carson, where there are 900 workers, and marketing operations based in La Palma, which has a combined workforce of around 500. In the oil business, "marketing" refers to the process of selling finished gasoline at stations, as well as other products.
"Arco's refining and marketing operations are the jewels in the crown of this deal," said Jay Wilson, an analyst at J.P. Morgan Securities Inc. in New York.
The value of those operations became even more apparent last week after Arco posted strong second-quarter earnings. Chairman Mike Bowlin said the results were due largely to the "outstanding" performance from the refining and marketing operations, which earned $206 million, an increase from $97 million in last year's second quarter.
Besides Carson, Arco operates a second refinery near Seattle. The future of both refineries is almost guaranteed by the fact that, with the exception of a smaller facility in Utah, BP-Amoco has no refining capacity west of the Rockies.
"As for unionized workers, we don't expect a great deal of change. BP doesn't have a refinery in California, so we think we will be left alone," said Dave Campbell, executive officer for the Los Angeles chapter of the Paper, Allied-Industrial, Chemical and Energy Workers International Union, known as PACE, located in Carson.
He said Arco has already reduced the number of unionized workers over the last year, so there is little fat to cut. And while there have been concerns that BP may try to shift Arco workers to BP's lower pay scale, pay cuts among union members aren't likely any time soon, he said.
That's because unionized workers are operating under a contract that doesn't come up for negotiations until 2002. BP has pledged to honor that contract, he said.
A bigger question involves the future of Arco's 3,000 gasoline stations up and down the West Coast.
Some analysts believe that BP will not tinker with the Arco name, at least in California, where there is strong brand recognition. They point out that BP has not converted the gas stations of Amoco, which it acquired almost a year ago. They have even considered converting BP stations in the Midwest to Amoco.
Others are not so sure.
"The Arco brand name isn't what it used to be," said Tim Hamilton, an oil-industry consultant based in Olympia, Wash. "They used to be way out in front of the competition. But the competition caught up."
He believes BP could easily replace existing gas stations with higher-priced BP or Amoco outlets without too much backlash. That is particularly true in the suburbs, where Arco's no-credit-card policy was less popular.
Some Arco franchisees hope that the acquisition might help return the franchise to the glory days it enjoyed in the 1980s.
"Arco was the best of the best until the start of the 1990s," said Charlie Mulcahy, owner of an Arco franchise in Wilmington and former vice president of the Automotive Trade Organization of Southern California. "Since then it's been a shambles."
He said that most of the Arco stations were built in the 1960s and '70s, and are in desperate need of upgrades. In recent years, as Arco has faced financial difficulties, the price difference between Arco gasoline and its competitors has narrowed from around 20 cents per gallon a few years ago to as little as 2 or 3 cents today, he added.
"We as dealers are hoping that BP will give us a shot in the arm," he said.
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