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Chevron clinches $34 billion deal for Texaco, though hurdles remain Combined company will be fourth largest in industry; analysts predict some divestitures will be required for regulatory approval Michael Liedtke Associated Press Business Writer
Chevron Corp.’s proposed $34 billion purchase of Texaco Inc. will create the world’s fourth-largest publicly traded oil company, though not before the combined entity makes a number of significant divestitures in order to satisfy regulatory concerns.
“There are going to be some considerable challenges to getting this deal done” because of antitrust concerns, predicted Tyler Dann, an oil industry analyst with Banc of America Securities in Houston. “They need to take a pre-emptive strike and sell assets to satisfy regulators as soon as possible or it could turn into a real political football.”
Dann and other industry analysts still expect the new company, dubbed ChevronTexaco Corp., to win regulatory approval in six to 12 months after selling several refineries and hundreds of gas stations, primarily in the West and the South.
Without divestitures, ChevronTexaco would control about 36 percent of the West Coast retail market, according to the Camarillo, California,-based Lundberg Survey, and one-third of the region’s refinery capacity. Savings of $1.2 billion projected The new company will also trim about 7 percent of its work force — about 4,000 workers — to help it achieve what it estimates are annual savings of $1.2 billion.
Assuming the deal goes through, San Francisco-based Chevron and White Plains, New York,-based Texaco will still lag far behind the so-called “super” majors — Exxon Mobil Corp., Royal Dutch/Shell Group and BP Amoco PLC, which have muscled up through huge mergers in recent years.
Analysts suspect ChevronTexaco will find the rules of the game have changed dramatically since the first wave of oil industry deals in 1998.
Back then, oil prices were declining to their lowest levels in a generation. Through most of this year, oil prices have been climbing steadily, driving gas prices to record highs in some parts of the United States and resulting in increased political pressure to get things under control.
“The pressure is building on oil companies. This deal is going to get a lot of scrutiny,” said Stephen Smith, an analyst with Dain Rauscher Wessels in Houston. “The amount of attention given a merger when gas is $1.20 per gallon is not the same amount of attention given when it’s approaching $2 per gallon. It’s going to be a much tougher climate.”
When regulators finally approved Exxon Mobil last year, it had to sell nearly 2,500 gas stations, primarily in the East, and a large oil refinery in Benicia, California. BP had to sell prized holdings in Alaska to buy Atlantic Richfield Co.
Chevron chairman David O’Reilly, who will be CEO of the combined company, said executives are prepared for an extensive government review of the merger and will cooperate with antitrust regulators.
He thinks the soaring cost of gasoline improves prospects for quick approval because recent shortages of demonstrated “the acute importance of energy to the United States’ well-being.”
“I think this is a politically good time to address the issue,” O’Reilly said Oct. 16 during a news conference. “We will be able to provide energy to U.S. consumers in a better way than we could have done separately.”
Analysts regard Chevron and Texaco as a good fit because they have many complementary operations internationally, including West Africa and Brazil, home to some of the world’s largest new oil fields.
Although rivals, the two companies have a long business together. For the past 65 years, they have co-owned a joint venture called Caltex Corp., which sells 1.8 million barrels of crude oil and petroleum products per day and operates in 55 countries.
Chevron tried to buy Texaco last year, but those talks unraveled over disagreements about price and issues of control.
O’Reilly, 53, will be chairman and chief executive officer of ChevronTexaco, which will remain based in San Francisco. Texaco CEO Peter Bijur, 58, will be vice chairman.
In trading Oct. 16 on the New York Stock Exchange, Chevron’s stock fell $2.25 to $82 while Texaco’s shares gained $3.88 to $59, lowering the value of the deal from its initially announced $35 billion.
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