Occidental Petroleum, rebuffed once before in a $3-billion bid to acquire Diamond Shamrock, said Wednesday that it is joining with an investment house to buy Shamrock's profitable chemical subsidiary for $800 million.
Oxy also said it will sell about 6,000 oil and gas wells for $500 million to financier Marvin Davis and Apache Petroleum. The reserves in the central United States recently became Occidental property when it acquired Midcon, a large natural gas pipeline company.
Few details were divulged on either deal, and analysts were leery about judging them. However, the purchase of Shamrock's chemical unit was seen as significantly bolstering Occidental's presence in the chemical industry at an opportune time.
The separate transactions, the latest in what has been a busy deal-making season for the Los Angeles-based company, were announced at Occidental's annual shareholders meeting in Santa Monica. As is customary, the meeting was held on the birthday of Armand Hammer, Occidental's 88-year-old chairman and chief executive.
Shareholders were also greeted by members of Greenpeace, the environmentalist group, who parked two trucks at the entrance to the Santa Monica Civic Auditorium and tried to deliver what they said were barrels of toxic waste as a "birthday present" to Hammer in a protest against Occidental's alleged mishandling of toxic materials.
Venture With Drexel Burnham Lambert
Six people were peaceably arrested on misdemeanor charges of transporting toxic materials, but a Santa Monica Police spokesman said later that the small amounts of liquid in the barrels didn't appear to be toxic. The substance is still being examined, he said.
Hammer said the purchase of Shamrock's chemical operations will be carried out by a 50-50 joint venture of Occidental and Drexel Burnham Lambert, the New York investment house. It will buy the stock of Diamond Shamrock Chemicals Co. for "in excess of" $800 million, consisting of cash and the assumption of $110 million of debt, according to an announcement by Occidental.
Oxy's own chemical subsidiary, Occidental Chemical, will then buy the industrial chemicals division from the venture. Oxy will manage the rest of the chemical properties acquired from Shamrock, some of which will be sold off, the announcement said.
Hammer said the company will put up "comparatively little cash," with the balance of the $800 million to come from Drexel Burnham. Hammer also indicated that Occidental will keep Shamrock's chlorine and caustic soda production, commenting that the acquisition will make Occidental Chemical "a close second to Dow Chemical" in the chlorine and caustic soda business.
Analysts said $800 million was a premium price for the chemicals company, reflecting the improved fortunes of the chemical industry in times of lower prices for oil, an important raw material. The Diamond Shamrock subsidiary's 1985 operating profit was $128 million.
Hammer appeared to take some satisfaction in acquiring a piece of Shamrock after the Dallas-based company's board suddenly backed out of a full-fledged merger with Occidental in early 1985. He told shareholders Wednesday that the chemical subsidiary "was the main reason we wanted to make the deal" in the first place.
Many analysts believe that Shamrock made a serious error in squelching the takeover by Occidental, a deal that offered about double today's price for a share of Shamrock stock. However, they doubted that the chemical subsidiary, as opposed to Shamrock's oil and gas holdings, was the major reason that Occidental wanted to buy the entire company.
"They say that in retrospect because oil prices have gone to hell in a hand-basket since then," said oil analyst M. Craig Schwerdt of Morgan, Olmstead, Kennedy & Gardner in Los Angeles.
Leslie Childress, who follows both companies for Murphy Favre Inc. in Spokane, Wash., said he hopes that Diamond Shamrock will use most of the proceeds to pay down its $1.4 billion in long-term debt.
"The business they sold is a very solid business," Childress said. "But Diamond needed the cash. They are very leveraged."
Meanwhile, the recent collapse in oil prices created the environment for financier Davis and Apache Petroleum, both based in Denver, to acquire Occidental's oil and gas exploration and production subsidiaries. None of the parties would say how much oil and gas was involved, however, so it wasn't clear whether the nose dive in prices made for a bargain-basement deal.
"We see this as an opportune time to be acquiring well-situated oil and gas reserves," Davis said through a spokeswoman. The 50-50 joint venture will be managed by Apache, a limited oil and gas partnership.
Schwerdt speculated that the scattered oil and gas properties, an incidental piece of Occidental's purchase of Midcon, "probably didn't fit" Oxy's current plans.