Chevron, Texaco to merge in $36 billion deal
Chevron Corp. today confirmed widely rumored speculation over the weekend that it and fellow US oil company Texaco Inc. were about to tie the knot with its announcement of a $36 billion all-stock deal that will create an energy combine with a market capitalization at some $100 billion.
LONDON�Chevron Corp. today confirmed widely rumored speculation over the weekend that it and fellow US oil company Texaco Inc. were about to tie the knot with its announcement of a $36 billion all-stock deal that will create an energy combine with a market capitalization at some $100 billion.
ChevronTexaco Corp., as the combined company is to be known, expects yearly cost savings of "at least $1.2 billion" within 6 to 9 months of the merger's completion. The new combine said its enlarged global operations would represent reserves of 11.2 billion boe, daily production of 2.7 million boe, and assets of $77 billion.
In the US, according to ChevronTexaco, the company will be the third largest producer of 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.
Under the terms of the agreement, Texaco shareholders will receive 0.77 of a share of Chevron for each share of Texaco stock. Based on Chevron's price of $84.25 at 4 p.m. EDT Friday in New York Stock Exchange composite trading, the offer values Texaco at $64.87 a share, an 18% premium to its price of $55.13 at 4 p.m. Friday.
Current Chevron Chief Executive Officer Dave O'Reilly will serve as chairman and CEO of ChevronTexaco, which will be headquartered in San Francisco. Peter Bijur, Texaco chairman and CEO, will become a vice chairman of the combined company with responsibility for downstream, power, and chemicals operations, while Richard Matzke, Chevron vice-chairman for upstream operations, will retain those responsibilities in the combined company.
The merger, the latest in wave of takeovers that formed the likes of energy giants ExxonMobil Corp. and TotalFinaElf SA, was described by O'Reilly as "good news" for the US, as it positioned ChevronTexaco as a "much stronger US-based global energy producer better able to contribute to the nation's energy needs. That's good news for the country because the United States will have an additional top-tier energy company better positioned to compete effectively with the international majors.
O'Reilly said the new company's shareholders would see more robust financials both through "significant" cost reductions, and "because [ChevronTexaco will] have a much broader mix of quality assets, skills, and technology."
Bijur added, "Texaco and Chevron are natural partners, whose historic relationship and operational fit are highly complementary. We know each other well, and we already have long, highly productive experience working together in both the upstream and downstream, giving us an advantage in integrating the companies."
Cost-cutting remains 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.
Some 4,000 jobs worldwide�representing a 7% reduction of the present workforce of some 57,000�will be made redundant through the merger.
In the upstream sector, said ChevronTexaco, the combination would "significantly strengthen positions in core producing areas in North America and the North Sea [and] create an outstanding portfolio of growth opportunities in Latin America and the Asia-Pacific region."
Downstream, by integrating the operations of Caltex, the 65-year international refining and marketing joint venture between Chevron and Texaco, the new company said it would "realize efficiencies from streamlined decision-making and management."
ChevronTexaco said the merger would also allow for "an enterprise approach" to lubricants�including its Havoline and Delo brands, trading, international markets and customers, and would build on existing fuels and marine marketing joint ventures.
The new company hopes to capitalize on the merged strength of Texaco's power and gasification business, with equity interests in 3,500 Mw of power operating or under construction, and Chevron's 26% stake in Dynegy, Inc., to give itself a leg up in the fast-growing power and energy convergence businesses.
A combination of the two giants is foreseen, too, to create a new company with "leading technologies in its core businesses." ChevronTexaco will also benefit from an enlarged portfolio in advanced technologies, e-business ventures, and alternate energy, such as fuel cells and gas-to-liquids conversion.