Alaskan Objections Threaten BP's Acquisition of Arco.

One of L.A.'s few remaining blue-chip corporate citizens agrees to be taken over by an out-of-towner, only to have the mega-deal unravel at the 11th hour over antitrust concerns.

That scenario unfolded in the summer of 1998 when Bethesda, Md.-based Lockheed Martin Corp.'s planned acquisition of L.A.-based Northrop Grumman Corp. collapsed.

It may be replayed, as the state of Alaska last week raised strong objections to the pending merger between BP Amoco Plc. and L.A.-based Atlantic Richfield Co. The Federal Trade Commission reportedly has objections as well.

Just as the Lockheed/Northrop marriage was scuttled over concerns about monopolization of defense electronics, the BP/Arco deal is being threatened by concerns over monopolization of Alaskan crude and West Coast gasoline.

Analysts disagree over whether Arco's Alaskan assets are sufficiently, important to cause BP to drop its takeover bid rather than divest those assets. But several analysts agreed that, if the deal goes through, it will now cost BP more than originally anticipated.

BP's decision to force the FTC's hand by activating the so-called 20-day clock, which requires the commission to either approve a merger or to take the companies to court to prevent it, ended up backfiring.

"The companies may have misjudged the FTC," said Fadel Gheit, an analyst with Fahnestock & Co. in New York. "They've created havoc by laying down an ultimatum, and they will suffer for it, because it will create costly delays and uncertainty. And if there is one thing investors don't like, it is more uncertainty in an already uncertain market."

Arco stock has fallen 8.5 percent since reports began circulating early last week about problems with the merger, and American depository receipts of BP Amoco on the New York Stock Exchange lost 6.1 percent.

Alaska Gov. Tony Knowles publicly urged the FTC to block the deal, which in turn forced the companies to back down and continue negotiating.

Industry insiders consider the decision to invoke the 20-day clock as an indication of BP's -- and, in particular, its strong-willed chief executive, Sir John Browne's -- frustration with the slow pace at which the FTC is reviewing the merger.

Neither company officials nor the FTC would comment on specific issues regarding the negotiations.

At stake are deep-seated concerns that the merger would give the combined companies a virtual monopoly on the exploration and development of the oil reserves on Alaska's North Slope, as well as of pipelines that transport the oil across Alaska to Anchorage. Whereas Knowles is looking after Alaskan jobs and economic interests, the FTC is concerned that the concentration of the primary source of crude oil for the West Coast's gasoline market in the hands of one company could lead to even higher prices.

All this raises the question of how important Arco's Alaskan operations are for BP Amoco and whether an FTC demand to divest a good portion of these operations might scuttle the deal.

Some see the Alaskan assets as quite important because the consolidation of the two companies' resources would represent significant cost-saving benefits in one of the most expensive areas to extract oil.

"One of BP Amoco's main reasons to acquire Arco is to reduce the cost of their own operations on the North Slope," said Albert Anton, a partner with Carl H. Pforzheimer & Co., a New York investment management firm. "Whether this merger will go through will depend on how much they are asked to divest."

Others see the possible forced Alaskan asset divestiture as less dire to the deal.

"It is no significant stumbling block," said Bruce Lanni, an analyst with investment bank CIBC World Markets. "When you boil it down, Arco's attractive assets are its downstream refining and marketing operations on the West Coast and its natural gas and oil leases in the Asia-Pacific region. Alaska is secondary, because these are declining assets and they are not going to be a make-or-break issue."

Anton said BP Amoco should have anticipated intense scrutiny by the FTC, given that the company will control more than 70 percent of Alaskan crude and more than 70 percent of the pipeline infrastructure. But the company might not have counted on the state of Alaska taking such an aggressive stance.

Another point of concern is the fact that London-based BP is a foreign company.

"Alaska is very concerned about a non-U.S. company controlling the oil industry there," said John Parry, a vice president with oil-industry research firm John S. Herald Inc. in Stamford, Conn. "The companies may have to make some concessions to the government of Alaska, which will mean that some of the benefits of the merger will be mitigated by political interference and some of the synergies might not materialize."