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Oxy May Realize $1 Billion on Complex IBP Stock Deal : 49% of the Meat Packer Would Be Offered to Public, Then the Firm Would Pay Its Parent a $960-Million 'Dividend'

August 20, 1987|DONALD WOUTAT | Times Staff Writer

Occidental Petroleum told the government Wednesday that it expects to realize nearly $1 billion, more than outsiders had expected, from a complex deal centered on the sale of 49% of its meatpacking subsidiary to the public.

In a registration statement with the Securities and Exchange Commission confirming that it is proceeding with plans for a public offering, Oxy said it will offer up to 23.5 million shares in IBP Inc. at an estimated price range of $19 to $22 per share.

While the sale itself would raise up to $517 million for IBP, the deal also calls for the meat unit to pay Los Angeles-based Occidental a $960-million "dividend" with borrowed funds. Once an existing internal debt is cleared up, Oxy said, it would realize $870 million to $940 million.

Used to Pay Debt

As set out in the SEC filing, IBP expects to borrow to pay Occidental the $960 million before the public offering. The borrowings would include a $400-million term loan from a syndicate headed by Bank of America, with repayment guaranteed by Oxy. The syndicate would also provide $100 million in revolving credit. The proceeds of the public offering would then be used to reduce the debt IBP had taken on.

FOR THE RECORD
Los Angeles Times Friday August 21, 1987 Home Edition Business Part 4 Page 2 Column 1 Financial Desk 2 inches; 57 words Type of Material: Correction
A headline in Thursday's Business section misstated the anticipated chronology of a proposed transaction involving Occidental Petroleum and its IBP meatpacking subsidiary. As the article itself correctly said, IBP will borrow to pay Occidental a $960-million "dividend," then shares worth 49% of IBP will be offered to the public, with the proceeds being used to reduce the meatpacking firm's debt.

As Occidental had previously indicated, most of its proceeds would be used to pay off debt. The action, welcomed in the investment community, is seen by some analysts as a prelude to Oxy selling IBP altogether and concentrating on the energy business. For now, however, Oxy would retain 51% ownership of the company.

IBP, formerly called Iowa Beef Processors, is based in Dakota City, Neb., and is the nation's biggest meatpacker. Occidental bought it in 1981 for about $800 million in stock. The unit accounted for nearly 45% of Oxy's revenue last year, far more than was contributed by Oxy's core oil and gas business.

However, IBP's importance to Occidental last year was inflated by the collapse in oil prices, which drove down overall sales and profit. Agribusiness operations, mostly IBP, contributed about one-third of Occidental's sharply lower net income in 1986.

Repeated Labor Troubles

Many analysts had trouble understanding why Occidental Chairman Armand Hammer moved to acquire Iowa Beef in the first place. In addition to management turmoil at Occidental precipitated by the purchase, IBP has more recently been the source of labor problems and public embarrassment for Oxy.

After repeated labor troubles at the Dakota City plant, one of its 15 Midwestern facilities, IBP last month was fined a record $2.6 million by the Occupational Safety and Health Administration for alleged unsafe working conditions at the plant.

The registration document filed with the SEC on Wednesday reveals financial and other details about IBP. Among other things, it said IBP earned $70 million last year, a leap of 35%. Previously, Oxy had said only that its overall agribusiness operations earned about $58 million.

The material also said IBP is being investigated by the U.S. Labor Department for its payroll practices at an Emporia, Kan., plant, and that a similar investigation is being conducted by the Illinois Labor Department at a Joslin, Ill., plant. Also, a "routine" audit by another U.S. government agency of IBP's hiring practices has turned up possible "deficiencies in its hiring and other practices" at two plants that could require cash settlements to employees.

An IBP spokesman said he could not elaborate on the investigations. Government spokesmen were not available for comment. The registration material said management believes the matters "can be resolved without a material adverse effect on IBP's financial position," but that it cannot be sure.

Separately, the registration material said that, as part of the deal, the employment contract proposed with IBP Chairman and Chief Executive Robert L. Peterson calls for him to receive $4 million over five years, including a $1-million salary advance. Peterson was paid $463,000 in salary and bonus for 1986.

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