Arco board weighs BP Amoco offer today

Latter's directors reportedly OK deal

April 01, 1999|By BLOOMBERG NEWS

LONDON -- BP Amoco PLC's board approved a plan yesterday to buy Atlantic Richfield Co., the eighth-largest U.S. oil company, for as much as $28 billion, a person familiar with the situation said.

Arco's board is meeting today to consider the offer. Analysts expect the transaction to value Arco's shares at $75 or more each. That is about a 20 percent premium to their price last week, before the companies said they were in talks.

The combination would create the largest oil producer and refiner in the United States. Los Angeles-based Arco is the largest gasoline retailer in California, with about a quarter of the market. London-based BP Amoco's U.S. fuel stations are mostly in the Midwest and eastern United States.

BP Amoco, the third-largest publicly traded oil company, is trying to cut costs because a slump in oil prices has slashed industry earnings. Buying Arco could save it $1 billion a year, analysts said. Arco, meanwhile, sold its coal and chemical businesses last year and is more dependent on oil prices than rivals such as Exxon Corp. and Chevron Corp., analysts said.

"The advantage of the deal would be to reduce costs substantially," said Jack Aydin, an analyst at McDonald Investments Inc. with "hold" ratings on both companies.

Arco's shares fell $1.50, to $73.125, yesterday while BP Amoco's American depositary receipts fell $2.3125, to $101.

BP Amoco was formed in December, when British Petroleum Co. completed its $62 billion purchase of Chicago-based Amoco Corp. The August announcement of that transaction was followed by Exxon's agreement to buy Mobil, now valued at $79 billion, and France's Total SA's $11.6 billion buyout of Petrofina SA of Belgium.

More consolidation is likely, analysts said, even though oil prices have rallied more than 40 percent in recent weeks.

The companies would dominate oil production in Alaska. Combined, they accounted for about two-thirds of the state's output last year, with BP Amoco producing 450,000 barrels a day and Arco 347,000 barrels a day.

BP Amoco and Arco own 870,000 acres of undeveloped land in Alaska. Within three months of merging, they'd have to sell more than 40 percent of it because a state law prohibits a company from owning more than 500,000 acres either onshore or offshore, said Ken Boyd, director of Alaska's oil and gas division.

Pub Date: 4/01/99

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