Posted on: Tuesday, April 5, 2005
No. 2 oil firm set to buy rival
By Michael Liedtke
Associated Press
SAN RAMON, Calif. — ChevronTexaco Corp., the nation's second largest oil company, is buying smaller rival Unocal Corp. for about $17 billion, hoping to further accelerate its already surging profits by boosting its energy supplies in Asia.
The deal announced yesterday proposes to unite ChevronTexaco, which trails only Exxon Mobil Corp. in the U.S. oil business, with Unocal, the nation's ninth biggest oil and gas production company.
With histories dating to the late 19th century, the two companies once competed fiercely in the West Coast gasoline market, but that rivalry ended nearly a decade ago when Unocal sold its retailing and refining assets for $2 billion.
ChevronTexaco initially valued its acquisition price, consisting of stock and cash, at $62 per share, nearly 4 percent below Unocal's market value before the deal was announced.
The offer disappointed investors, who had driven up Unocal's stock by 20 percent since the media reported ChevronTexaco was discussing a possible takeover a month ago.
Unocal's shares slipped $4.75, or 7.4 percent, to close at $59.60 yesterday on the New York Stock Exchange, while ChevronTexaco's shares fell $2.33, or 3.9 percent, to finish at $56.98. Unocal shares rose 3 cents to $59.63 in after-hours trading.
As part of the deal, ChevronTexaco will assume $1.6 billion of Unocal's debt and sell about $2 billion in assets.
ChevronTexaco Chairman David O'Reilly said yesterday that he expects the proposed takeover to receive the required regulatory approvals so it can be completed before year's end.
Based on the two companies' most recent results, ChevronTexaco would have annual sales of about $163 billion after the acquisition is completed. That means the combined company still would be far smaller than Exxon Mobil, which rang up nearly $300 billion in revenue last year.
Excluding assumed debt, the $17 billion combination between ChevronTexaco and Unocal is the second biggest U.S takeover negotiated so far this year, according to Thomson Financial. It would be the sixth largest takeover in the U.S. oil industry's history, Thomson said.
ChevronTexaco completed one of the bigger deals 3ý years ago when it bought Texaco Inc. for $39 billion, a takeover that has been delivering hefty returns after a rocky start.
Unocal has been considered an attractive takeover target for years, largely because of its valuable cache of natural gas in Asia and oil holdings in the Gulf of Mexico. The company reportedly drew interest from the China National Offshore Oil Corp., a large state-owned company, and Italian oil company Eni SpA before settling on a sale to ChevronTexaco.
Founded as Union Oil by three partners in 1890, Unocal opened its first gas station in downtown Los Angeles 92 years ago.
The company eventually grew into one of the largest gasoline retailers in the West, dotting the landscape with the bright orange 76 signs that many consumers still associate with Unocal. The 76 stations are now owned by ConocoPhillips.
With 25,000 stations worldwide, ChevronTexaco remains one of the largest gasoline merchants.
ChevronTexaco prizes Unocal for its natural gas supplies in Asia. That rapidly growing part of the world could shape up as a potential gold mine for ChevronTexaco. China and India are consuming more energy to fuel their bustling economies, a phenomenon likely to drive up prices for years to come.
