Stock of the Month

With only 72 employees and revenues of about $17 million a year, Dallas-based Aztec Oil & Gas Co. seemed an unlikely candidate for widespread investor interest. But as far back as 1971, the company's stock began fluctuating sharply on the New York Stock Exchange. Activity became hectic last year, and in January Aztec became a full-fledged high flyer on the Big Board.On nine days it hit the most-active list: trading volume one day exceeded 400,000 shares, easily outpacing such giants as AT&T and General Motors. More than 3 million Aztec shares changed hands in January--57% of the total outstanding. The price more than doubled, from $15.63 on Dec. 30 to a close last week of $32.50.

Why the frenzy? Mainly a natural gas producer, Aztec supplies several major pipeline companies, including El Paso and Southern Union. Anticipating deregulation of gas prices, which now seems close (the Senate has passed a bill), the company allowed some of its supply contracts to expire and then bargained to get the highest price possible. Aztec thus 1) positioned itself to cash in on its large untapped gas reserves in New Mexico when prices go up, and 2) put itself a giant step ahead of competitors who are locked into long-term contracts and must deliver at current prices for a while even after they are freed from federal control.

Flocking Suitors. In Wall Street jargon, Aztec had become a highly desirable "special situation," offering solid reasons for expecting big increases in profits. Total deregulation of gas prices could mean for Aztec a price of about $1.50 per 1,000 cu. ft. of gas--almost four times its current average. Nearer term, Aztec is suing Southern Union to force it to pay the fair value price for the portion of its gas not subject to federal regulation. A compromise has been proposed that could mean a substantial immediate cash inflow to Aztec.

With so much going for it, Aztec became a ripe candidate for takeover by other companies. The first attempt came on Jan. 2: Mesa Petroleum offered Aztec shareholders $22 a share. Aztec executives resisted, saying that the offer was too low. Aztec solicited other suitors, among them Southland Royalty Co. and Houston Natural Gas, which between them shoved the bidding to $32. Then Houston dropped out, leaving Aztec to Southland, a Fort Worth oil and gas distributor with annual revenues of $65 million. At week's end at least 90% of Aztec's shares had been tendered to Southland, giving Aztec a new majority owner and enriching investors who bought the stock early. But there could be problems. Late in the week, the Big Board said it was considering suspending trading in Aztec because Southland's new large holdings left only about 600,000 shares of Aztec outstanding.

This file is automatically generated by a robot program, so viewer discretion is required.