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BP Amoco Will Acquire Arco for $27 Billion


BP Amoco has agreed to buy Atlantic Richfield Co. in a stock swap worth about $27 billion that will fold the Los Angeles oil company into a new global energy giant capable of exploring all corners of the planet--but thousands of Arco employees probably will not be a part of it.

The two companies are expected to officially unveil the deal this morning in London.

If the transaction goes through, Arco, the seventh-largest U.S. oil company, would join an oil titan that was created only three months ago through the $48-billion marriage of British Petroleum of London with Amoco Corp. of Chicago. BP Amoco is the world's third-largest publicly traded oil company.

Details of the agreement were not yet available, but analysts are estimating that BP Amoco will aim to cut $1 billion a year in costs, which could mean huge layoffs, perhaps 2,000 or more.

Arco Chairman and Chief Executive Mike R. Bowlin is not expected to remain with the company.

Arco's workers, who number 18,000 worldwide, can expect to suffer the same fate as the Amoco work force, which is bearing the brunt of the 10,000 job cuts resulting from that merger. In fact, BP Amoco Chief Executive John Browne has been likened to a neutron bomb for his cost-cutting zeal: Often called "Neutron John," he gets rid of the people while preserving the hard assets.

The combination of Arco and BP Amoco has been hailed by energy experts as a near-perfect fit with only few areas of overlap to alarm regulators. Arco would bring BP Amoco a leading position in the huge and lucrative California gasoline market. Arco's dowry includes oil fields in Alaska, where BP Amoco already is the dominant player, oil production in the Gulf of Mexico and natural gas fields in Asia.

"This is tremendous for BP Amoco," said Fadel Gheit, an energy analyst with the Fahnestock & Co. investment firm in New York.

"Arco's motive is very simple. It's almost like a shotgun wedding," Gheit said. "Lower oil prices dealt Arco a tremendous blow."

These mergers are part of an oil industry consolidation that is fed by the need to cut costs in the face of 18 months of rock-bottom oil prices brought about by overproduction and falling demand. Two of the largest deals occurred in December, with Exxon Corp. and Mobil Corp. announcing a $48-billion merger and French oil company Total agreeing to buy Belgian refiner Petrofina for $11.8 billion.

With Arco spoken for, other mid-sized oil companies become even more vulnerable. Companies such as San Francisco-based Chevron Corp., Texaco of White Plains, N.Y., and Unocal Corp. and Occidental Petroleum Corp., both of Southern California, could be next, analysts say.

Although rumored for months, the sale of Arco is surprising in light of Bowlin's repeated insistence that the company was intent on staying independent.

To that end, Arco launched a restructuring in October with the aim of slashing $500 million in costs through layoffs (eventually reaching 1,200), the closure of 20 foreign offices, the sale of corporate jets and a move out of its Arco Tower home. The company had been based there since 1972, when it relocated to Los Angeles from New York. Headquarters is now at the downtown Hope Street building that houses its Arco Products subsidiary.

What the proposed merger would mean at the gas pump is unclear.

Because of Arco's strong market share--about 20% of the California market where it has 1,200 service stations--the Arco name might be expected to survive on its 1,700 gasoline stations in six Western states. However, BP Amoco does not share Arco's philosophy of being the lowest-priced major retailer in its markets, which could affect future pricing.

One of the few places the two companies cooperate--Alaska's North Slope, where they jointly oversee the United States' most productive oil field--was seen as among the most vulnerable to layoffs.

Arco employs about 1,500 there, nearly two-thirds of them at the wells and processing facilities of the vast Prudhoe Bay and other oil fields.

An Arco executive in Los Angeles noted the two firms share "a lot of overlap" in both their Alaskan and Indonesian operations.

Arco employees across the globe were in shock at the merger with BP, long one of their rivals.

"All Arco employees will bow to the Queen of England and should have her portrait on their wall if they expect any chance in hell of remaining on the payroll after the merger," read a message from one Yahoo subscriber.

Within the company's middle management, executives reserved most of their venom Wednesday for Bowlin, who they said distributed a memo just three months ago saying the company would fight to remain independent.

"We got sold out from under ourselves," one executive said.

Another executive, at an Arco subsidiary, feared a repeat of the "blood bath" that took place at Amoco when BP started to absorb it. He predicted a massive reduction at Arco's Los Angeles headquarters.

"I would doubt there'd be any kind of a corporate office out there" if the BP merger is approved, he said.

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