Lukoil acquires Getty in first deal of its kind for a Russian firm
Lukoil, Russia's largest oil company, is acquiring Getty Petroleum Marketing Inc., one of the largest independent US marketers of gasoline and petroleum products, in a $71 million cash deal. The transaction marks the first acquisition of a publicly-held US company by a Russian corporation and the first step in Lukoil's proposed expansion into the US market, officials said.
Russia's largest oil company, OAO Lukoil, is acquiring Getty Petroleum Marketing Inc., one of the largest independent US marketers of gasoline and petroleum products, in a $71 million cash deal.
"This is the first acquisition of a publicly-held American company by a Russian corporation, and it is the first step in our expected expansion into the US market," said Ralif Safin, first vice-president of Lukoil, in a written announcement Friday.
"It is an excellent opportunity for Lukoil because it gives us entree into the vast American market in partnership with a highly regarded brand. In the future, we may seek to supply the Getty stations with our own petroleum products," he said.
The deal will give Lukoil "a step-up on the learning curve" in its push to expand outside of its native Russia, said George Gaspar, energy analyst at Robert W. Baird & Co.
However, Gaspar said, "The US oil industry is asleep to allow this to happen. It is another example of losing a marketing opportunity that someone here should have grabbed onto."
He said, "The US oil industry has been losing capacity for years. As it has come out of each of the four (business) cycles since 1980, the industry has lost a little more of its ability to perform."
This is Lukoil's second run at the downstream US market. An earlier attempt to establish retail gasoline outlets at supermarket locations failed to materialize, other company officials said.
Lukoil currently is negotiating with US and European companies to supply refined products for its US operation. In time, the Russian firm hopes to acquire US refining capacity through one or more acquisitions or joint ventures with US refiners.
Getty serves retail customers through some 1,300 gasoline stations located in 13 Northeastern and Mid-Atlantic states. It also markets heating oil in the New York Mid-Hudson Valley and is a wholesale distributor of a variety of petroleum products through its East Coast petroleum storage and distribution network.
Under the definitive merger agreement signed by the two companies, Lukoil will pay $5/share for Getty's common stock�a 54% premium over Wednesday's closing price of $3.25/share, officials said. Several principal shareholders, who collectively own about 40% of Getty's common stock, have already agreed to tender their shares, subject to certain conditions.
The all-cash transaction is structured as a first step tender offer followed by a cash merger to acquire all remaining shares of Getty common stock, depending on a majority of the outstanding stock being tendered, officials said.
As part of that deal, Getty Petroleum Marketing will sign an adjusted initial 15-year lease agreement with Getty Realty Corp. for a substantial number of the branded gasoline stations, with renewal options through 2049.
Lukoil officials said no layoffs of Getty employees are expected and that most, if not all, of the company's current management would be retained. Getty's headquarters will remain in Jericho, Long Island, New York.
"The combination of Getty's strong presence in the American market with Lukoil's capabilities as a world class integrated oil company is going to create a formidable new company," said Leo Liebowitz, Getty Petroleum chairman and CEO, in the joint statement.
"We anticipate a smooth transition and expect that Lukoil will immediately benefit from the outstanding infrastructure, knowledge, and experience that Getty Petroleum Marketing brings to this outstanding, world-class organization," he said.
Lukoil is Russia's largest vertically integrated oil company, active in oil and gas exploration and production, refining, sales, and transportation. It has operations in 40 regions in Russia and in 25 other countries. It employs more than 120,000 people.
Lukoil's combined reserves were recently calculated by Miller & Lents Inc., a US engineering firm, at some 23 billion bbl of oil and 6.6 tcf of gas (OGJ Online, Sept. 5, 2000). More than 60% of those reserves are concentrated in Western Siberia, with another 30% in the European part of Russia and 10% outside that country.
Lukoil's subsidiaries and dependent companies last year produced 75.6 million tons of crude, about 24% of Russia's total oil production, said company officials. It also accounted for 12% of Russia's total oil refining in 1999 and exported a total of 30.5 million tons of crude in 1999.
The company has more than 1,000 retail gasoline stations and a market capitalization in excess of $10.5 billion, officials said.