Occidental Director Buys Big Near Low

LOS ANGELES —  Occidental Petroleum Corp. director John Kluge, the billionaire who heads up the telecommunications and entertainment company Metromedia International Group Inc., bought $24 million in Occidental stock in early December just as the shares approached an 11-month low.

Kluge’s purchases, for a million shares at about $24 each, give him 0.31%, or 1.02 million shares, of the oil company’s stock. Ahead of him is Chairman Ray Irani, who has about 1.6 million shares.

It’s a big gamble for Kluge. In 1996, Occidental’s shares rose only 8%, compared with 20% for the Standard & Poor’s index of domestic integrated oil companies, and 19% for the S&P; 500 Index.

Occidental’s performance has been hurt by its heavy reliance on chemicals for earnings. Last year, 40% of Occidental’s profits came from chemical operations, which have been squeezed by rising raw material costs and an unwillingness of customers to pay more for products. By contrast, rival Exxon’s chemical unit brought in about 18% of the company’s profit in 1996.

So far, Kluge’s purchases have paid off handsomely. Since Dec. 10, Occidental is up 14% to 26 1/4--partially because institutional investors are mimicking Kluge’s move. That’s a paper profit of more than $3 million for Kluge.

“Kluge’s buying indicates he sees some value there that the rest of the market hasn’t seen,” said Kenneth Enright, manager of the MFS Managed Sectors Fund, which holds 400,000 Occidental shares, according to SEC filings.

After hitting a 52-week-high of 27 last April 25, Occidental fell 19% to 21 7/8 on Dec. 17. Much of that was a continuation of a sell-off that began after Nov. 21, when Occidental announced the start of an employee stock ownership plan at its MidCon natural gas pipeline subsidiary, said Mark Hastings, an analyst with Merrill Lynch & Co.

The announcement dashed expectations that the company would sell the unit to focus more on exploration and production.

The stock rebounded later as investors realized the stock plan didn’t preclude a possible joint venture, spinoff or sale of the unit, Hastings said, estimating MidCon could fetch more than $3 billion.

Occidental says it’s taking steps to turn around. For one thing, the company is downplaying chemicals and focusing more on oil and natural gas, because prices for both are rising rapidly.

To boost chemical profits, Occidental wants to increase the specialty-chemicals side of its business, generally considered less cyclical than commodity chemicals.

Occidental has also paid down debt with profits it earned during an advance in the chemicals industry in 1994, and by selling off non-core chemical divisions in 1995.

In November, Occidental said it expected long-term debt to fall to $4.5 billion by the end of 1996, down from $8 billion at the end of 1990. The company has also said it hopes to lower interest expense to about $400 million in 1997, compared with about $550 million in 1995.

Kluge, an Occidental board member since 1984, declined to comment on his stock purchases. Worth $7.2 billion, according to Forbes magazine, Kluge is also chairman of WorldCom Inc., the nation’s No. 4 long-distance company. Metromedia’s assets include Orion Pictures and Samuel Goldwyn Co.