SAN FRANCISCO & NEW YORK Chevron Corp. is acquiring Westchester-based Texaco Inc. for $35 billion, creating the worlds fourth-largest oil company. The combined company will be called ChevronTexaco Corp., and joins the ranks of other industry powerhouses formed by similar mergers: Exxon Mobil Corp., Royal Dutch/Shell Group and BP Amoco PLC.
The boards of both companies approved the transaction on Sunday and made the announcement Monday morning. The latest proposed deal unites the No. 2 and No. 3 U.S. oil companies to create the worlds fourth-largest producer of oil and gas. A combined Chevron and Texaco would have $66.5 billion in revenue, based on 1999 figures.
The merger joins two leading energy companies and long-time partners to create a U.S.-based, global enterprise that is highly competitive across all energy sectors. ChevronTexaco will have world-class upstream positions in reserves, production and exploration opportunities; an integrated, worldwide refining and marketing business; a global chemicals business; significant growth platforms in natural gas and power; and industry leading skills in technology innovation.
The combined company expects to achieve annual savings of at least $1.2 billion within six to nine months of the mergers completion. The merger, to be accounted for as a pooling of interests, is expected to become accretive to the new companys earnings and cash flow per share upon realization of the savings. The company also expects to improve capital efficiency by funding the best growth opportunities of Chevron and Texaco, resulting in improved return on capital employed over time.
The new company will have reserves of 11.2 billion barrels of oil equivalent (BOE), daily production of 2.7 million BOE, assets of $77 billion, and operations throughout the world. In the United States, ChevronTexaco will be the nations third largest producer of oil and gas, with production of 1.1 million BOE per day, and will hold the nations third largest reserve position, with 4.2 billion BOE of proved reserves.
Chevrons top executive David OReilly, 53, will be chairman and chief executive officer of ChevronTexaco, which will be based in San Francisco, while Texaco CEO Peter Bijur, 58, will be vice chairman. This merger positions ChevronTexaco as a much stronger U.S.-based global energy producer better able to contribute to the nations energy needs, said OReilly.
Chevron, based in San Francisco, and Texaco, based in White Plains, N.Y., had talked of a marriage last year, but those discussions broke off over price. The deal would close the gap between the combined company and the largest U.S. oil company, Exxon Mobil Corp., which had 1999 sales of $160.9 billion. Chevron had 1999 sales of $31.5 billion, while Texaco had sales of $35 billion last year.
Some 4,000 jobs, or 7 percent of the 57,000 combined jobs at Chevron and Texaco, will be eliminated as a result of the deal, which will result in annual savings of $1.2 billion, the companies said. It was not clear how Texaco workers in White Plains would be affected.
Chevron and Texaco still need to get approval from their respective shareholders as well as federal regulators. Antitrust concerns are likely to be raised regarding the merger because the combined company would have an interest in roughly 40 percent of the retail gasoline market and one-third of refining capacity on the West Coast.
Exxon agreed in 1998 to acquire Mobil for $81 billion, combining the biggest U.S. oil companies and reuniting two of the biggest pieces left by the 1911 government breakup of John D. Rockefellers Standard Oil empire. Under terms of Mondays deal,Texaco shareholders will receive .77 shares of Chevron common stock for each share of Texaco common stock they own, and Chevron shareholders will retain their existing shares.
The exchange ratio represents approximately $64.87 per Texaco share based on Chevrons closing stock price of $84.25 on October 13, 2000. The exchange ratio represents an 18% premium based upon Texacos closing share price on October 13, and a 25% premium based upon the two companies average relative share prices during the 30-day period through October 13. As a result of the merger, Chevron shareholders will own approximately 61 percent of the combined equity, and Texaco shareholders will own about 39 percent. The combined company would have an enterprise value of more than $100 billion.
