Newspaper article THE JOURNAL RECORD
Some Analysts Concerned over Phillips/Tosco Deal
NEW YORK (AP) -- Phillips Petroleum's proposed $6.87 billion acquisition of Tosco has some analysts worried the company is shifting away from profitable oil exploration and production opportunities in its bid to become the country's No. 2 refiner.
"You either like it or you don't," said Stephen Smith, an oil analyst with Dain Rauscher Wessels in Houston.
Smith, who was surprised but supportive of the move, said the Tosco acquisition would add balance to Phillips long-term revenue stream, and give it refineries across the nation. Phillips' refineries are primarily in the Midwest, while Tosco has operations on both coasts.
But the purchase cuts into Phillips' focus on production of crude oil, which is trading at nearly $30 a barrel on the wholesale market and giving oil companies huge profits from their drilling operations.
"I just don't see the justification for the deal," said Mark Gilman, an oil analyst at ING Barings in New York.
Phillips is offering 0.80 of one of its shares for each share of Tosco. Phillips also will assume about $2 billion in Tosco debt.
The transaction will also create the fifth-largest gasoline retailer in the nation with more than 12,000 stations. The deal was approved by the boards of both companies on Sunday and is expected to be completed by the third quarter of 2001.
Company officials and analysts do not expect resistance from federal regulators who must approve the deal. A Phillips spokeswoman said there are no plans to sell assets of either company, but that company officials would reconsider if required by the Federal Trade Commission.
Phillips, based in Bartlesville, is the top oil producer in Alaska. The acquisition would give it five refineries on the West Coast and 15 percent of the retail gas market in California, Oregon and Washington state.
In late trading in the New York Stock Exchange, shares of Phillips were down $4.78, or 8 percent, to $53.35, pushing the value of the deal lower from its original $7 billion. Shares of Tosco were up $5.58, or 16 percent, to $40.19, also on the NYSE.
Most analysts were caught off-guard by the announcement because they thought Phillips would try to reduce its refining and retailing operations while expanding its exploration business. …