A Lure for Pure

"We expect 1964 to be a difficult year," admitted Pure Oil Co. President Robert L. Milligan recently. He was more prescient than he suspected. Last week Pure Oil's board faced the difficult question of what to do about an attempt by a group of celebrated outsiders to buy the 50-year-old company for a walloping $700 million. Milligan and his managers are understandably apprehensive. The mechanics of the transaction are intricate, and how many of Pure Oil's present managers would stay on is uncertain.

High-Note Trio. For six months, reports of heavy secret purchases and an impending offer have swirled from Wall Street to Houston, pumped up Pure's stock from 41 to 54. Last week the identity of the bidders was finally disclosed when the offer was made to Pure Oil--without the usual advance sounding-out of the current management. Leading a syndicate of three major companies is Wall Street's Carl M. Loeb, Rhoades & Co., which is headed by canny John Loeb Sr. The other two participants are: 1) Chairman George Love's profitably diversifying Consolidation Coal Co., which also owns a dominant 8% of Chrysler Corp., and 2) President Chester Brown's Allied Chemical Corp., the nation's fifth largest chemical producer. Having discreetly bought up almost 10% of Pure's scattered stock, Loeb, Rhoades is by far the biggest shareholder in the oil company, with an interest now worth $54 million.

The company that the syndicate is after has more promise than profit. Though Pure's sales in the last decade have almost doubled to $733 million, earnings have not kept pace with the general boom in the oil industry. Last year profits increased less than 3% to $30 million, and in this year's first quarter they were off 50% because of slow heating-oil sales and high charges for servicing the company's debt.

Crude Shortage. Pure Oil's problem has been too little production, too many gasoline wars. As old wells thinned out and not enough new ones were brought in to replace them, the company was forced to turn to competitors for two-thirds of the supplies for its gas stations. At the retail level, Pure also had to cut oil and gas prices to match competitors.

Chief Executive Milligan, 63, has been correcting the imbalances. In the last five years, Pure Oil has spent $230 million searching for oil from Beirut to Brisbane, has increased production 17%. Last year it brought in about two-thirds of the 137 wells it drilled.

While building production, Milligan has been reducing costs. He has chopped Pure's marketing staff by 37%, shuttered or sold 1,800 unprofitable gas stations (leaving 16,300), and concentrated on selling such higher-profit products as premium gasoline and jet fuel.

Clever Plan. Now Milligan and his board are being asked to recommend that Pure's shareholders sell out. What the Loeb-Consolidation-Allied group hopes to bring off is a deal that is complex but fairly common in high finance. First, the group would buy Pure's assets for $700 million, using those same assets as collateral for loans to finance the transaction. Pure then would take the $700 million, use $90 million to pay off its funded debt, and distribute the rest to holders of its 10 million shares on a $60-per-share basis. Result: a form of liquidation. The Loeb group would set up a new company, with the shares divided equally among Loeb, Consolidation and Allied. By effecting the transfer of power in that way, Pure would not have to pay a corporate capital gains tax on the money it collects from the Loeb group.

Whether this clever deal will come off depends on the answers to three questions: Will stockholders bite? Will Milligan fight? If he does, how successful will he be? Waiting for the outcome, the bidders are bullish. "You know what they say about the oil business," grinned Joseph Oliver, a Consolidation vice president. "When it's good, it's great; and when it's lousy, it's still pretty darned good."

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