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Occidental Will Sell Its Stake in Iowa Beef Unit

September 05, 1991|MICHAEL PARRISH | TIMES STAFF WRITER

Occidental Petroleum Corp., in yet another swift step to shed ancillary businesses, said Wednesday that it will sell its 51% interest in IBP Inc., the nation's largest producer of beef and pork products.

The move--an expected part of a restructuring announced in January--will reduce the energy company's debt by $760 million, achieving in the first nine months most of its goal of erasing $3 billion in debt over two years, according to Oxy Chairman Ray R. Irani. The sale will be in the form of a rights offering to Oxy shareholders.

"I would say they are in the home stretch now," said Eugene L. Nowak, senior oil analyst at Dean Witter Reynolds in New York. "I think it's clear that they will exceed their goal rather handily."

Industry observers had doubted Occidental's ability to easily trim such assets when the debt-reduction program was announced earlier this year.

That program is one of several shifts since the 1990 death of eclectic Oxy patriarch Armand Hammer.

Hammer bought the former Iowa Beef Processors in 1981 from Los Angeles investor David Murdock, then IBP's largest shareholder, after the two returned from a trip to Russia to buy a horse. Analysts and some senior Oxy executives did not see IBP as a logical fit even at the time.

"Oxy was in fertilizers, and IBP in meat products," Nowak said. "Hammer thought there was some synergy, but there isn't."

IBP, with corporate headquarters in Dakota City, Neb., was founded in 1960 and now employees 26,000 in its slaughterhouses, hide plants, tanneries and tallow refineries. The company pioneered "meat factories"--the centralized, assembly-line processing of meat. Instead of shipping whole beefs to market chains, it ships cut-up sections that came to be known as boxed beef. But the company has had its share of problems over the years.

While IBP's 1990 sales of $10.2 billion were roughly half the total of parent Occidental, the meatpacker's profit performance has been weak. IBP had also been subject to a string of labor battles and investigations by federal and state labor agencies. In 1987, the company was fined a record $2.6 million by the Occupational Safety and Health Administration for alleged unsafe working conditions at the plant.

Occidental sold 49% of its IBP in a common stock offering in 1987.

In the current sale, Oxy shareholders will be offered rights to buy 24 million shares of IBP common stock. First Boston Corp. and Donaldson, Lufkin & Jenrette Securities Corp., underwriting the offer, will buy at $15 a share all IBP shares not bought by the expiration of rights on Sept. 27.

"From Oxy's standpoint, this is a done deal," Nowak noted. "This has the beauty of being a guaranteed transaction."

Occidental stockholders will receive one right for each 13 shares of Oxy common stock owned as of the close of business on the deal's record date, Sept. 13. The right entitles a shareholder to subscribe for one share of IBP at an "exercise price" of $15 a share. The rights are transferable.

Nowak expected "lots of activity in these rights," which are expected to be traded beginning today on the New York Stock Exchange.

On the New York Stock Exchange Wednesday, IBP stock closed at $19, down 37.5 cents a share.

"If the rights are at $15, there will be some value," Nowak said.

Occidental's stock closed Wednesday at $24.625, up 37.5 cents on the NYSE.

The sale will rid Occidental of $500 million in long-term debt, according to Irani, and will allow the company to focus on its core oil, gas and chemicals interests.

Occidental announced its restructuring last January. Since then, the company has sold numerous holdings, including:

* Its 25% interest in China's largest open-pit coal mine.

* Its liquid natural gas business to a joint venture, a deal completed Tuesday.

* North Sea oil fields and other holdings.

* An industrial phosphate and phosphoric acid business.

* Half interest in a Belgian liquid natural gas terminal.

* A small interest in Church & Dwight, makers of Arm & Hammer baking soda.

* Perchloroethylene contracts to Vulcan Chemical for $5 million.

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