Features

Chevron, Texaco merger awaits shareholders’ approval

By Jennifer Loven Associated Press Writer
Saturday September 08, 2001

WASHINGTON — The only remaining barriers to Chevron Corp.’s $39 billion acquisition of fellow oil titan Texaco Inc. is a nod from shareholders — and a hefty sale of assets that federal regulators made a condition of their approval Friday. 

The Federal Trade Commission voted 4-0 to approve the merger, which would create the second-largest oil company in the nation and the world’s fourth-largest. Chairman Timothy J. Muris recused himself from the vote. 

San Francisco-based Chevron agreed to buy Texaco in October 2000 in a stock deal now valued at $39.3 billion, plus the assumption of about $6 billion in debt. Chevron will be renamed ChevronTexaco Corp. and will trade on the New York Stock Exchange under the new ticker symbol CVX. 

Holders of Texaco stock will receive 0.77 shares of ChevronTexaco for each share of Texaco they own. 

Chevron shares closed Friday up 65 cents to $92.40 on the NYSE, where shares of Texaco rose 58 cents to $70.68. 

Now-No. 3 Chevron had $48 billion in revenue last year. The No. 2 White Plains, N.Y.-based Texaco posted revenue of $51 billion last year. 

Still, the combined company will lag far behind the so-called “super” majors — Exxon Mobil Corp., Royal Dutch/Shell Group and BP PLC, which have muscled up through huge mergers in recent years. 

Chevron plans to take control of Texaco Oct. 9, the same day the two companies’ shareholders are to vote on the deal. The FTC also will decide on that day, after receiving public comment, whether to make its merger approval final. 

European regulators have already granted approval, and the companies announced in a statement they also have negotiated a consent decree with the attorneys general of 12 states. 

“Today marks a critically important milestone as we move to establish a premier energy company with the world-class assets, talent, financial strength and technology to achieve superior results,” said Chevron Chairman and Chief Executive David J. O’Reilly, who will lead the new company in the same capacity. 

To satisfy the FTC’s concerns that the merger, as originally proposed, would violate antitrust law, Texaco agreed to divest its U.S. refining and marketing affiliates. Texaco refines crude oil in the United States under two separate affiliates, Equilon Enterprises and Motiva Enterprises. The company owns a 44 percent interest in Equilon, with the rest belonging to Shell Oil Co. Texaco and Saudi Refining Co. each own 35 percent of Motiva; the rest is owned by Shell. 

Texaco also will sell its one-third interest in the Discovery natural gas pipeline system in the Gulf of Mexico, a Texas plant, and its general aviation businesses in 14 states, the FTC said. 

“In markets where competitive concerns were identified, those problems have been addressed, with the result being a continuation of the competitive balance that existed in the pre-merger environment,” said Sean Royall, the FTC Bureau of Competition Deputy Director. 

Texaco Chairman and Chief Executive Glenn F. Tilton said the companies will comply with all the conditions of the consent order with the FTC. Tilton, along with Richard H. Matzke, vice chairman of Chevron, will serve as vice chairman of ChevronTexaco. 

Though the divestiture requirements were expected from Day One, they threaten to drag the company down by forcing it to focus on completing the deal while it needs to put all its energy toward succeeding in a cutthroat competitive environment, analyst Fadel Gheit, with Fahnestock and Co. in New York, said. 

“They are getting married. The wedding date has not changed. But now unfortunately it is cloudy, it is not as sunny as everyone would have liked,” Gheit said. 

However, consumers will benefit from the new company’s economies of scale and strengthened ability to compete, he said. 

Analysts regard Chevron and Texaco as a good fit because they have many complementary operations internationally, including in West Africa and Brazil, home to some of the world’s largest new oil fields. 

Although rivals, the two companies have a long business relationship. 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 in 1999, but those talks unraveled over disagreements about price and issues of control. 

When Chevron’s then-CEO, the often acerbic Kenneth Derr, retired at the end of 1999, O’Reilly took over, paving the way to reopen talks with Texaco. Texaco’s stock also had been lackluster since breaking off its talks with Chevron. 

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On the Net: 

Federal Trade Commission: http://www.ftc.gov 

Chevron: http://www.chevron.com 

Texaco: http://www.texaco.com