Going, going gone? Bidding for Conoco heats up

By , Business and financial correspondent of The Christian Science Monitor

How much do I hear for Conoco Inc., the nation's 14th-largest company? A kind of auctioneer's cry may soon decide who wins Wall Street's high-stakes bidding game to take control of the second-largest coal reserves in the United States, as well as large oil and natural gas fields spread around the globe.

The bidding, begun by Seagram and Du Pont, is becoming furious. Now, Mobil Oil, the nation's second-largest company, has announced that it, too, will enter the fray. Mobil's chairman, Rawleigh Warner Jr., said the company in preliminary studies has decided a Conoco- Mobil merger "would not create difficulties under existing antitrust guidelines." Mobil said it was lining up bank loans, led by Citibank, and has retained an investment banker, to help it make a bid for Conoco.

And Texaco, the nation's fourth-largest company, armed with $3 billion in cash, is said to be preparing an offer for Conoco as well. So far, notes Monte Gordon, research director for the Dreyfus Group of mutual funds, "there are at least five companies running around with $15 billion looking for a home."

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If these two oil giants enter the picture, as Wall Street analysts expect them to, the bidding for Conoco is likely to soar to even dizzier heights. Already, the Montreal-based Seagram, run by Edgar M. Bronfman, has topped Du Pont's $87.50-a-share offer for 40 percent of Conoco's shares. Over the weekend Mr. Bronfman, the Montreal distillery king, offered $85 a share, or $3.77 billion in cash, for 51 percent of Conoco. Du Pont's offer was for cash and stock, totaling $7 billion.

According to Larry Wachtel of Bache Halsey Stuart Shields Inc., the final offer for Conoco could come in at around $90 a share, or $8.4 billion. "We add up all the assets," Mr. Wachtel explains, "and then discount it by 70 percent." The book value of Conoco's assets, according to one study done by John S. Herold Inc., is $138 a share, or $12 billion.

These assets include ownership of Consolidation Coal Company, the nation's second- largest coal company. Last year, Consolidation mined 44.9 million tons of coal. Internationally, Conoco produced 240,000 barrels of oil a day. It has an interest in the North Sea which produced 22,000 barrels of oil a day.

In the United States, Conoco produced 133,000 barrels of oil a day and 778, 311 million cubic feet of gas a day. If Texaco makes a bid for Conoco, it could use the crude production since it doesn't produce enough crude oil to fill its refining needs. Mobil, on the other hand, is known as a crude-rich company, producing more oil than its refineries can process. If Du Pont remains in the bidding war, which is not expected, it could use Conoco's production for its chemical factories. Mr. Bronfman is said to be mainly interested in Conoco's coal interest.

If Texaco made a successful bid for Conoco, it would move past Mobil, becoming the nation's second-largest industrial corporation. If Mobil is successful, it would have sales of $77 billion and remain behind Exxon Corporation, which had $100 billion in sales last year.

The bidding for Conoco, Mr. Wachtel pointed out, has been sparked by the six- month slide in the value of oil and gas companies. "We looked at such companies as Union oil, Pennzoil, and Cities Service," he says, "and found most of them are selling at about one-half to one-third of their appraised value. Now they are in a very attractive buying range."

Some of these companies have come to the same conclusion. Pennzoil, for example, said on July 10 that it had arranged a $2.5 billion line of credit with a group of 24 banks, led by citibank, so it could "act quickly" on any merger opportunities. Conoco likewise announced last Friday that it had arranged for a of its $3 billion cash horde.

Du Pont, if its merger plans go forward, plans to borrow $3 billion in cash, while Seagram has nailed down a $3 billion Eurocredit loan on top of its $500 million in cash.

Almost all of these loans are being made at or near the record high prime interest rate of 20.75 percent.

This new interest in giant mergers, Mr. Gordon points out, has also been sparked by the change of administrations in Washington. "There is no way these mergers would have been made under President Carter," the analyst says, noting that businessmen feel they will get a sympathetic hearing from President Reagan.

However, in Washington, a spokesman for the Justice Department's antitrust division told the Monitor that "any significant merger would be looked at by either the antitrust department or the Federal Trade Commission's Bureau of Competition."

Earlier reports indicated the two were warring over who should examine the mergers, and a spokesman for the Justice Department said discussions were still going on, "with each agency being made aware of the expertise of the other one." In the case of a Conoco-Mobil merger, the spokesman said, a new round of negotiations would be needed to determine which agency would review the mega-merger.

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