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Occidental Petroleum to take over Citigroup's Phibro investment unit

L.A.-based Occidental estimates a net investment of $250 million in the deal, which will double its energy trading business. Phibro has turned a profit every year since 1997.

October 10, 2009|Martin Zimmerman

Occidental Petroleum Corp. said it would buy embattled Citigroup Inc.'s commodities trading division, which has drawn fire for compensation practices that could pay the unit's top executive $100 million this year.

Occidental, based in Westwood, said its net investment in Citigroup's Phibro unit would be about $250 million, which represents the difference in value between the trading firm's assets and liabilities. Phibro's assets consist primarily of cash and marketable securities, Occidental spokesman Richard Kline said.

Adding Phibro to its stable would, in essence, double the size of Occidental's energy trading business, Kline said.

"It brings us added trading scope and depth," Kline said.

It also would bring a good chance for increased profit. Phibro has averaged pretax earnings of $371 million annually over the last five years and has turned a profit every year since 1997.

The deal is expected to close by the end of the year.

Analysts said acquiring Phibro would give Occidental insights into global crude markets that it may have lacked in the past.

"It would've cost Oxy a lot to build it up on their own, and this was a way to get it on the cheap," said Michael Jacobs, vice president of research at energy investment bank Tudor, Pickering, Holt & Co. Securities Inc. in Houston.

Occidental said it would retain Phibro's management team and workforce, headed by star trader Andrew Hall.

That would help Citigroup get rid of a nagging executive compensation issue. Hall reportedly was entitled to a pay package worth as much as $100 million -- an arrangement that drew criticism in part because Citigroup is one of the banks that received a taxpayer-funded bailout.

Occidental said that Phibro's senior management team had agreed to make "a significant investment" in the trading unit and that "significant portions of current and future bonuses will be deferred and retained by Phibro and paid out in future years."

Occidental's pay practices also have drawn criticism. Chief Executive Ray R. Irani received $60.5 million in total compensation last year, according to Los Angeles Times research. That made him the highest-paid executive of a public company in California, even though his pay package was down 22% from 2007. One reason for the drop was that part of Irani's pay was based on shareholder returns, which shrank last year.

Under pressure from investors, the oil company agreed this year to give its shareholders a limited voice in deciding how much the company pays its top executives.

After gaining in early trading Friday, Occidental's stock closed at $79.54, down 55 cents. Citigroup shares fell 2 cents to $4.63.

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martin.zimmerman@latimes.com

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