With rock-bottom oil prices and mergers by
rivals threatening his company last year, Arco chairman and chief
executive Mike Bowlin launched a quiet search for a merger partner.
After unsuccessful overtures to smaller and comparably sized
companies that Arco could acquire, Bowlin changed direction. In
January, he picked up the telephone and called BP Amoco, a huge
multinational big enough to swallow Arco whole and give
shareholders a significant premium in the process.
The fate of Atlantic Richfield Co. was revealed on Thursday when
the two companies announced that BP Amoco acquire Arco in a $25.6
billion stock deal that will create the world's second-largest oil
company.
The deal, expected to save the combined companies about $1
billion a year, would be the eighth merger of the past six months
in an industry shaken by more than a year of plummeting oil prices
and increasing demands for cleaner fuels.
Arco's senior management, including Bowlin, 56, will resign. The
new company will be known as BP Amoco, but the Arco retail gasoline
brand will continue for the time being.
During a news conference Thursday, Bowlin said he was confident
Arco could have survived on its own but the combination with BP
Amoco will be better for shareholders.
"We did this because we think it creates a really terrific
company from our viewpoint, even though it's a bittersweet moment
for us,'' he said.
Shareholders will get .82 share of BP Amoco stock for each share
of Arco, a premium of 26 percent over Arco's price before the
negotiations were made public on Monday.
The value of the deal -- initially pegged at $26.8 billion --
shrank as shares of BP Amoco fell in trading on the New York Stock
Exchange.
BP Amoco plans to sell about $3 billion in overlapping assets.
About 2,000 jobs are expected to be eliminated from a combined work
force of 115,000, mainly in the United States outside Alaska,
officials said.
Idled workers will be able to pick from several severance
options. Bowlin will leave Arco with $3.2 million in salary and
bonuses plus another $29.3 million in exercisable stock options,
according to estimates by Executive Compensation Advisory Services
based on Arco's proxy statements.
As crude prices began to fall in late 1997, Arco was hit harder
than most. Over the past two years the company had shed its
chemicals and coal mining operations, leaving it more dependent on
oil and more vulnerable to price fluctuations.
Worried about Arco's ability to compete, Bowlin last year began
looking at possible mergers.
In January, he called his old friend, BP Amoco chief executive
John Browne.
"I phoned him in his office and said, 'We ought to get together
and talk about ways we could cooperate. He said, 'OK,' '' Bowlin
said.
Only weeks earlier, British Petroleum had acquired Chicago-based
Amoco in a $57.6 billion deal. But Browne jumped at the opportunity
to deepen his reach in the United States by picking up Arco's
Alaskan oil and gas reserves and its West Coast refining and
retailing operations.
Together Arco and BP Amoco operate the giant Prudhoe Bay field
in Alaska. Also, Arco expects to have its 360 million-barrel Alpine
field operating in about two years.
The nation's largest oil producer would be created by combining
Arco's dominant West Coast business with BP Amoco's Midwest and
East Coast operations.
BP Amoco also will obtain Arco's natural gas interests in Asia,
which include up to 8 trillion cubic feet in Indonesia. Arco also
has gas reserves in Qatar and oil interests in Algeria, Venezuela
and Russia.
Browne's interest in developing natural gas as a cleaner
alternative to petroleum was another element that attracted Bowlin
to BP Amoco, the Arco chief said Thursday.
In a February speech to a Houston gathering of oil industry
leaders, Bowlin said the demand for oil would diminish in the next
century as the demand for low-polluting energy grows.
"Nations of the world that are striving to modernize will make
choices different from the ones we have made. They will have to.
And even today's industrial powers will shift energy use
patterns,'' he said.
Bowlin's outlook probably stemmed in part from Arco's growing
vulnerability, said Fadel Gheit, an analyst with Fahnestock & Co.
in New York.
"In order to grow the company, he didn't have the financial
flexibility that was needed,'' Gheit said. "He was already talking
to BP so he knew the end was near.''
Bowlin made the right move in initiating the merger, said Eugene
Nowak, a New York-based analyst with ABN Amro Inc.
"Combined, it provides a greater opportunity for the growth of
Arco,'' he said. "Obviously, Arco is very leveraged with oil
prices. I think (prices) dropped to the point where CEOs -- not just
Mike Bowlin -- were rethinking their strategy.''
