Occidental Petroleum Co. will acquire MidCon Corp. in a cash and stock transaction of at least $3 billion and become the nation's 12th-largest industrial corporation, the two energy firms announced yesterday.
Dr. Armand Hammer, Occidental chairman and chief executive officer, said the acquisition of "the premier company in the gas transmission business" is "a wonderful deal," partly because it will increase the domestic share of Occidental's earnings to 75 percent from 50 percent.
"It's a great way to start the New Year," Hammer said in a telephone interview from Los Angeles.
The merger, unanimously approved Tuesday by Occidental's board in Los Angeles and by MidCon's board in Lombard, Ill., defeated a hostile takeover bid by WB Partners. Occidental recently became cash-rich by selling oil assets in Colombia and Libya.
[The Associated Press reported that sources close to the talks, speaking on condition they not be identified, indicated that MidCon invited Occidental to become a "white knight" to protect it from WB Partners. Hammer refused to confirm that, saying only: "Mutual contacts were made. We are very honored they selected us."]
WB Partners, formed by Wagner & Brown and Freeport-McMoRan Inc., recently offered $2.7 billion for MidCon, which rejected the deal about two weeks ago. By contrast, Hammer said, "Occidental undertakes only friendly mergers" and seeks only companies with "outstanding management."
On Tuesday, after a leak about Occidental's planned bid, WB increased the $2.7 billion offer to about $2.91 billion by proposing to pay $70 rather than $62.50 a share in cash. Late in the day, speculation sent MidCon's stock up $3.12 1/2 a share to $69.50 in active trading, while Occidental's fell $2 to $31.
The merger, which is subject to the approval of MidCon's stockholders, should be completed "within two months," Occidental President Ray R. Irani said in a telephone interview. Hammer said that Occidental, "probably No. 15" in sales among U.S. industrial corporations before the merger, would move up to 12th, with combined sales of about $22 billion.
"Occidental will promptly commence a tender offer for approximately 50 percent of MidCon's common stock at $75 cash per share," Hammer and MidCon chairman and chief executive officer O. C. Davis said in a joint announcement. "This is to be followed by a merger in which Occidental will exchange 2.2472 shares of its common stock for each remaining share of MidCon stock."
As part of "the definitive acquisition agreement," they continued, "Occidental received an option from MidCon to purchase 51 percent of the outstanding voting power of the capital stock of Natural Gas Pipeline Co. of America, a wholly owned subsidiary of MidCon. MidCon also granted Occidental an option to purchase approximately 7.2 million shares of MidCon common stock."
"We anticipate significant financial and operating benefits from the merger," Hammer said. "We expect that MidCon will quickly contribute major new net earnings and cash flow to Occidental after all acquisition costs." The acquisition is not expected to dilute Occidental's future earnings per share, he added.
Hammer pointed out that Occidental's $4 billion acquisition of Cities Service two years ago gave it 2.5 trillion cubic feet of natural-gas reserves. But a large part of this vast asset "is shut in because we have no markets for it," he said. Because MidCon "has room in its pipelines, the synergy is perfect," Hammer said. "Occidental will have new markets for our gas which will add greatly to the company's profits. That's why we fit so well."
MidCon, which operates about 30,000 miles of interstate and intrastate pipelines, "is one of the largest, most flexible and lowest cost pipeline marketing systems in the nation, with access to a wide range of gas supplies and market areas," the announcement said. "MidCon is ideally positioned for the new gas pipeline environment." MidCon is expected to "remain headquartered in Lombard and . . . retain its corporate name as a wholly owned subsidiary of Occidental."
Hammer also said that MidCon's $1.2 billion, mid-December acquisition of United Energy Resources "has greatly strengthened the competitiveness of MidCon, opening new markets for its gas operations."
Davis said, "We are confident that this agreement provides a fine opportunity for our shareholders while recognizing the outstanding reputation of our pipeline system."
Davis will remain as chairman and CEO of MidCon under a long-term agreement, Hammer said. "Mr. Davis has built MidCon into a major factor in the gas pipeline business," he said. "We are particularly pleased that he and his team will remain in place and become part of the Occidental family.
"Our recent successes in Colombia in financial restructuring of the company enabled us to take advantage of the opportunity to acquire MidCon," Hammer said. Occidental sold half its Colombian oil holdings to Royal Dutch-Shell for $1 billion and one-fourth of its Libyan oil operation to the Austrian state oil company for an undisclosed price