By the OGJ Online Staff
HOUSTON, Feb. 25 -- Tesoro Petroleum Corp. amended terms for its purchase of the 168,000 b/d Golden Eagle Refinery and 70 associated retail stations in California from Valero Energy Corp., paying an additional $50 million at closing in lieu of contingency payments of up to $150 million that would have been spaced over 5 years.
That will boost the total closing price of that package to $1.25 billion from the previously agreed $1.075 billion, said officials of the two San Antonio, Tex., companies.
Under the original sales agreement, the package price for the refinery and stations was $945 million plus the value of inventory at closing, estimated at $130 million. Additional contingency payments up to $150 million were to be paid if annual California refining industry spreads exceeded the 1997-2001 averages during a 5-year period starting in 2003 (OGJ Online, Feb. 5, 2002).
Company officials cited "possible concerns" among the Federal Trade Commission and state regulators about the proposed contingency payment. A more expedient transaction is in the best interests of all parties, especially the employees, they said. The sale is expected to close in April.
Divestiture of the Golden Eagle refinery and associated retail stations was mandated last year under consent orders by the FTC and state regulators in California and Oregon as a condition for Valero's merger with Ultramar Diamond Shamrock Corp. (OGJ Online, Jan. 2, 2002).
The acquisition expands Tesoro's combined refining capacity more than 40% to nearly 560,000 b/d. Its branded retail network will expand to 750 locations, including nearly 100 stations in California.
Tesoro officials have said the acquisition will be immediately accretive to earnings exclusive of synergies of $30-50 million/year. The company will fund the acquisition through a combination of debt and equity to fund the transaction.
The Golden Eagle refinery produces some 105,000 b/d of gasoline, about 70% of which is California Air Resources Board (CARB) Phase II reformulated gasoline. It is the largest producer of CARB diesel. A project is under way to increase CARB production at the plant.
Valero has said it plans to use proceeds from the sale to pay down debt and buy back stock.
