FTC finally clears way for $35 billion Chevron-Texaco merger

Sam Fletcher
OGJ Online

HOUSTON, Sept. 7 -- The US Federal Trade Commission (FTC) finally approved a consent order clearing the way for Chevron Corp. and Texaco Inc. to complete their merger into ChevronTexaco Corp. through a $35 billion stock-swap, company officials said Friday.

The new company, headquartered in San Francisco, will be the third largest producer of US oil and gas, with production of 1.1 million boe/d, and will hold the nation's third largest reserve position, with 4.2 billion boe of proved reserves.

As expected, the FTC stipulated that Texaco first must divest its interests in the US downstream joint ventures Motiva Enterprises LLC and Equilon Enterprises LLC.

Equilon and Motiva were created in 1998 by the combination of the US refining and marketing businesses of Shell Oil Co., Texaco, and Star Enterprises -- a joint venture between Texaco and Saudi Refining Inc. Shell and Texaco own 56% and 44%, respectively, of Equilon. Shell, Texaco, and SRI own about a third each of Motiva.

Shell and SRI are expected to buy Texaco's interests in Equilon and Motiva. While the companies have been negotiating for months, Texaco apparently has not yet agreed on a price (OGJ Online, June 1, 2001).

If Texaco cannot complete a sale of its Motiva interests to Shell and SRI; and its Equilon interests to Shell prior to the merger, it will place the stock of Texaco subsidiaries holding those interests into a divestiture trust for sale within 8 months of the merger.

Subject to certain conditions, Texaco also will extend its name brand license to Equilon and Motiva on an exclusive basis until June 30, 2003, and on a non-exclusive basis until June 30, 2006.

The consent order also stipulates that ChevronTexaco must divest Texaco's current interest in the Discovery Pipeline System within 6 months of the merger. Texaco will resign as operator of that system.

Within that same period, ChevronTexaco must also divest Texaco's interest in the Enterprise Fractionating Plant in Mont Belvieu, Texas.

Texaco also must divest a portion of its US general aviation fuel market as part of the merger agreement, FTC officials said.

Even after those divestitures, ChevronTexaco will have a combined enterprise market value of more than $100 billion, assets of $83 billion, net proved reserves of 11.5 billion boe, daily production of 2.7 million BOE, and operations throughout the world.

Its Chevron, Texaco and Caltex petroleum products will be marketed in 180 countries. Caltex is a 50:50 refining and marketing joint venture started by Chevron and Texaco in

1936, with operations in Asia, Africa, and the Middle East.

"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 CEO David J. O'Reilly, who will lead the new company in the same capacity. "Our integration planning since announcing the merger last October has gone exceptionally well. Upon receiving stockholder approval, we will be ready to start operating effectively as one company."

The merger proposal will be submitted to Chevron and Texaco stockholders Oct. 9 at separate meetings in Houston.

"We are fully prepared to comply with all of the conditions of the consent order and look forward to completing the merger and creating a great new energy company," said Texaco Chairman and CEO Glenn F. Tilton who, along with Richard H. Matzke, vice chairman of Chevron, will serve as vice chairman of ChevronTexaco.

In the interim, the companies successfully negotiated with the attorneys general of 12 states to obtain consent decrees to their merger. They also obtained regulatory approvals from the European Union and several countries where the two companies have major operations.

Under the merger agreement, Texaco stockholders will receive 0.77 shares of ChevronTexaco common stock for each share of Texaco common stock they own. Chevron stockholders will retain their existing shares.

Corporate officials expect yearly cost savings of "at least $1.2 billion" within 6 to 9 months of the merger's completion (OGJ Online, Oct. 16, 2000).

Company executives said in October that cost-cutting was the paramount reason for the merger, with some $700 million of the anticipated $1.2 billion in cost savings coming from more efficient exploration and production activities, and another $300 million shaved through the consolidation of corporate functions.

They said some 4,000 jobs worldwide representing a 7% reduction of the present workforce of some 57,000 will be made redundant through the merger.

Contact Sam Fletcher at Samf@OGJonline.com

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