Midcon's stock soared to a 52-week high in heavy trading Tuesday on the strength of reports that Los Angeles-based Occidental Petroleum, possibly playing the role of white knight, was preparing an offer of more than $3 billion for the Illinois-based natural gas pipeline company.
Midcon's shares rose to $69.50, up $3.125, on a volume of 1.98 million shares, fourth busiest on the New York Stock Exchange, while Occidental's stock fell $2 to $31 on a volume of 577,100 shares.
Sources on Wall Street said Occidental was preparing to offer at least $74 a share for Midcon, which has 41.5 million shares outstanding. That means the deal would be worth at least $3.07 billion.
Spokesmen for both companies declined comment. "We're under legal bounds not to say anything at this point," an Occidental spokesman said.
Sources close to Occidental, however, confirmed that the oil company's board of directors was meeting late Tuesday "to study the situation" and suggested an announcement was possible as early as today.
It would be Occidental's first big acquisition since a planned $3.3-billion merger with Diamond Shamrock, a Dallas-based oil company, fell through last January. It has since received a major cash infusion with the sale of half of its interest in a big oil find in Colombia for $1 billion.
The latest deal appeared to make sense because Midcon, the nation's fourth largest pipeline company, is struggling to ward off an unwanted suitor named WB Partners.
"Midcon has been looking for a white knight for some time," said Ed Robinson, an investment banker in the Los Angeles office of First Boston Corp.
WB Partners was formed earlier this year by Freeport-McMoRan of New Orleans and Wagner & Brown, a private company based in Midland, Tex.
The partnership said Tuesday that it was prepared to sweeten its original $2.7-billion offer--a proposal that comes one day after it won a temporary court order blocking Midcon from complicating the takeover attempt by purchasing a small utility.
Under terms of its latest offer, WB Partners said it would offer $70 a share in cash and stock, up from the first offer of $62.50 a share. The second offer was valued at about $2.91 billion.
Midcon spokeswoman Pat Wees said the company had received a telex outlining the latest offer but had no comment on it. Midcon rejected the initial offer on Dec. 22 and offered to pay $75 in cash and securities for each of up to 10 million shares of its own common stock in a defensive move.
The unfriendly takeover attempt has spawned lawsuits in New York, Illinois and Delaware, but WB Partners has won the important early battles.
Midcon was spun off in 1981 from Peoples Energy Corp., a major natural-gas utility in the Chicago area, as a separate gas pipeline and oil and gas exploration firm. Analysts say the company has a reputation for reliability among both producers and users, and a major acquisition of its own has diversified Midcon's markets.
Midcon on Dec. 11 completed the purchase of Houston-based United Energy Resources for $1.2 billion. That brought to about 30,000 miles the length of pipelines operated by Midcon from Texas to the Upper Midwest, including Chicago, and from Denver to northern Florida.
It earned $156 million, or $5.12 per share, in the fiscal year ended Sept. 30, up 6.8% on essentially flat revenue of $4.1 billion. Gas transmission accounted for more than 90% of Midcon's revenue last year.
Those results don't include a one-time $86-million charge for the write-off of Midcon's portion of the controversial Great Plains coal-gasification plant in Beulah, N.D. Among Midcon's partners in that venture was Pacific Lighting, the parent of Southern California Gas.