Trying to Hammer a Deal

SIX times in the past six months, a grandfatherly, supremely confident executive has swooped into Moscow aboard his private Gulfstream jet for talks with the highest Soviet trade officials. This week Armand Hammer, the 74-year-old chairman of Los Angeles' Occidental Petroleum, is scheduled to fly there again, with bright hopes of finally signing a major East-West trade deal. It would be an arrangement for Occidental to ship up to 1,000,000 tons of fertilizer per year to the Soviet Union in exchange for urea and ammonia that the company would sell in the U.S. That, Hammer predicts, would lead to a whole series of metal, gas and construction deals with the U.S.S.R. that could run into billions of dollars. He told TIME Correspondent Patricia Delaney that he expects to sign the Soviets to contracts for all these transactions this year.

If Hammer succeeds, he will give a spectacular push to the movement toward greater trade between the U.S. and the Soviet Union. In particular, his version of a plan to import vast quantities of Siberian gas may eventually help relieve the American energy shortage. But a growing legion of skeptics among investment analysts and fellow businessmen will be astonished if Hammer can come back with any major agreement -and even more surprised if he can arrange the financing to carry out his part of a big deal. They note that Occidental, one of the growth wonders of the 1960s, already carries a load of almost $900 million in long-term debt, and has been forced by a deep profit slump to suspend dividends on its common stock for the past year. In their view, Hammer is trying to pull a rabbit out of an astrakhan hat in order to revive his company's fortunes.

Hammer's expeditions have been surrounded by the most extensive publicity to attend any talks between the Soviets and a U.S. businessman in years, no small amount of it generated by Hammer himself. In the West, he has given glowing descriptions of his negotiations; in Moscow, his aides have telephoned American newsmen with breathless accounts of his progress. His Soviet trips have won extremely rare recognition in Pravda and Izvestia, favorable editorials in the New York Times and the Washington Post, and a pair of red-white-and-blue enamel cuff links presented by President Nixon.

To date, though, even Hammer claims only one hard deal: an agreement to barter $40 million worth of U.S. machinery for Soviet nickel over the next five years. That works out to a not overly impressive $8,000,000 a year. The only exchange that he has already concluded involved neither money nor commercial products but art works. He donated a Goya portrait to the Hermitage museum in Leningrad and received in return an abstract painting by Kasimir Malevich, whose work is in such deep disfavor among Soviet officials that it has not been exhibited in more than 40 years.

Food for Furs. Still, it would be grossly premature to count Hammer out, if only because his history of friendly dealings with Soviet authorities goes back half a century. The son of a Russian emigre, Hammer was educated at Columbia as a doctor but never practiced medicine; even as a student he spent most of his time helping to run his family's profitable drug-wholesaling business. He went to Russia in the 1920s, intending to set up a field hospital. But he quickly realized that the Russians needed food more than medicine and arranged to import grain from the U.S. in exchange for Soviet furs, hides and caviar. His success won him an introduction to Lenin, who granted the young American a pencil-manufacturing concession. In 1930, after the climate for Western capitalists had turned increasingly cold, he sold off his thinning enterprises to the Soviet government and left the country with a fortune in czarist art treasures that he had bought with his profits.

Back in the U.S., Hammer went on to make more millions manufacturing beer barrels, distilling whisky and raising cattle. In 1956 he retired to California but got restless; the next year he bought control of Occidental, then a company with sales of only $274,000. Through a combination of luck, brass and shrewd management, he had built the company by 1970 into a behemoth earning $175 million on sales of more than $2 billion. Major factors in the rise: oil strikes in California and above all in Libya (one on land that Mobil Oil had abandoned because it produced nothing but dry holes) along with diversification by acquisitions into fertilizers, coal and chemicals.

Troubled Time. In the past two years Occidental has fallen into trouble. Production in Libya, the backbone of its operations, has been on a roller coaster and has never reached the mil-lion-barrels-a-day level that Hammer once forecast. The Libyan government ordered it cut from a high of 800,000 bbl. daily early in 1970 to 320,000 bbl. now. The revolutionary government of Colonel Muammar Gaddafi has been distressed by charges cited in a lawsuit filed in the U.S. that Occidental had won its concessions partly by f unneling money to officials of deposed King Idris, one a former minister who is now in jail. In 1971 Occidental lost $88 million on a mistimed tanker charter venture: it chartered a fleet of tankers when rates were rising sharply, then found that it did not need so many and was stuck with high-priced ships as rates collapsed. The company has since renegotiated many of the charter contracts. Angry shipowners charge that the company got them to agree to lower rates by unilaterally canceling the old charters. Hammer replies that the renegotiation was "amicable" and that "there has been no litigation."

Overall, the company reported a loss of $67 million for 197 1, and in the first nine months of last year it did little better than break even; operating profit was $10.7 million, but currency-exchange losses reduced net to $764,000. Prospects are looking better now. Oil demand is booming in Europe, the company's prime market. Occidental has made new oil discoveries in Nigeria and Peru, and last week a consortium that it heads brought in its first well in the North Sea-a promising development, although the potential cannot now be accurately assessed. On the other hand, the Libyan government is moving to acquire 50% of all Western oil interests in the country, an action that would hurt Occidental badly.

Hammer promises that the company will report a profit for 1972, though he refuses to even estimate how large. But Occidental's stock has dropped from a high of 55 in mid-1968 to 12% last week. Market analysts worry, among other things, about what will happen when the septuagenarian Hammer eventually leaves the scene. The company has gone through two presidents and a number of vice presidents in the past four years, and no clear successor seems ready to take over from Hammer, a boss who sometimes insists on deciding the most minute details. Clearly, Occidental could use a spectacular coup like its Libyan discoveries-and what is more natural than that Hammer should seek it in the Soviet Union, scene of his first youthful triumphs?

Bravura Act. In negotiating with the Soviets, Hammer has shown all of his drive, determination and actor's ability to cry or laugh as the occasion seems to demand. He gave a particularly bravura performance during a series of July conferences in which he was determined to get Soviet signatures on some kind of official document. He reminded Soviet officials of the way he had made a fortune in their country in the 1920s, saying: "I have a great debt to the Russian people, and though I am an old man with not many years left, I will pay it." Topping all, Hammer claimed that Lenin had died looking at a present from him. When the flabbergasted Soviets asked how he could possibly know that, Hammer blandly replied that Lenin had died at his desk, on which there was only one object: a bronze statue, given by Hammer, depicting a monkey sitting on a book by Darwin and gazing at a skull.-

Just as Hammer was about to leave, Dzherman Gvishiani, a top Soviet science official, produced an untranslated draft of a pact that he suggested Hammer take back to the U.S. to study. Instead, Hammer flipped through it for 30 seconds and changed just one word, scratching out "draft" and substituting "agreement." Then he signed it and handed it back to Gvishiani. When the Russian began to hem and haw, Hammer asked in mock amazement how the Soviet official could possibly object to signing his own draft. After those theatrics, the agreement was an anticlimax: it is a nebulous "technical cooperation" that commits neither Occidental nor the Soviets to anything except consultations between their experts.

The consultations eventually are supposed to hatch three main deals: 1) the fertilizer transaction; 2) development by the Soviets, with the help of U.S. technology and capital, of natural gas fields around Yakutsk in Siberia; and 3) construction by Americans of a hotel and trade center in Moscow. All three projects face high hurdles. The hotel-trade center deal is rather vague, but Hammer hopes to put together a U.S. consortium that would arrange all design, construction and financing and turn over completed buildings to the Soviets. The fertilizer transaction, by his estimate, would require an investment of $100 million for an Occidental fertilizer plant in Florida. Counting the cost of tankers to carry the products, the total U.S. investment might have to be $400 million; who would raise the money, how and where is most unclear.

Development of gas from the field around Yakutsk would require Occidental and a partner, El Paso Natural Gas, to supply technological help and money to build pipelines and tankers to carry liquefied natural gas to the U.S.; Occidental would take payment in gas, which it would sell in America. Hammer himself concedes that at least $3 billion in American money will be needed, but insists that Washington will guarantee the necessary loans. His logic: "We in the U.S. need the gas, or else we just face having more brownouts." But within the Nixon Administration, officials are debating whether the U.S. really does need Soviet gas or can make do with fuel from other sources. James Akins, a White House consultant who is helping to draft President Nixon's message on energy policy, says that the Administration is considering guaranteeing loans to finance two Soviet gas deals, but he adds that Occidental is not involved in either one.

Undeterred, Hammer vows to keep visiting Moscow "until we get them [the Soviets] all signed up." Perhaps he will one day achieve the biggest breakthrough toward expanded East-West trade. But he has yet to prove that his ability to conclude firm deals matches his talent for generating publicity.

-In fact, Lenin died in bed at his home in Gorki, and his Kremlin desk, which is shown to tourists supposedly in the state he left it, is crowded with all manner of objects.

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