Federal Trade Commission approves Chevron/Texaco merger

Sep 12, 2001 02:00 AM

The only remaining barriers to Chevron's $ 39 bn acquisition of fellow oil titan Texaco is a nod from shareholders -- and a hefty sale of assets that federal regulators made a condition of their approval. The Federal Trade Commission voted 4-0 to approve the merger, which would create the second-largest oil company in the nation and the world's fourth-largest. Chairman Timothy J. Muris recused himself from the vote.
San Francisco-based Chevron agreed to buy Texaco in October 2000 in a stock deal now valued at $ 39.3 bn, plus the assumption of about $ 6 bn in debt. Chevron will be renamed ChevronTexaco. Holders of Texaco stock will receive 0.77 shares of ChevronTexaco for each share of Texaco they own.
Now No. 3, Chevron had $ 48 bn in revenue last year. The No. 2 White Plains, NY-based Texaco posted revenue of $ 51 bn last year. Still, the combined company will lag far behind the so-called "super" majors -- ExxonMobil, Shell Group and BP, which have muscled up through huge mergers in recentyears.

Chevron plans to take control of Texaco Oct. 9, the same day the two companies' shareholders are to vote on the deal. The FTC also will decide on that day, after receiving public comment, whether to make its merger approval final. European regulators have already granted approval, and the companies announced in a statement they also have negotiated a consent decree with the attorneys general of 12 states.
"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.
To satisfy the FTC's concerns that the merger, as originally proposed, would violate antitrust law, Texaco agreed to divest its US refining and marketing affiliates. Texaco refines crude oil in the United States under two separate affiliates, Equilon Enterprises and Motiva Enterprises. The company owns a 44 % interest in Equilon, with the rest belonging to Shell Oil. Texaco and Saudi Refining each own 35 % of Motiva; the rest is owned by Shell.

Texaco also will sell its one-third interest in the Discovery natural gas pipeline system in the Gulf of Mexico, a Texas plant, and its general aviation businesses in 14 states, the FTC said. "In markets where competitive concerns were identified, those problems have been addressed, with the result being a continuation of the competitive balance that existed in the pre-merger environment," said Sean Royall, the FTC Bureau of Competition Deputy Director.
Texaco chairman and CEO Glenn F. Tilton said the companies will comply with all the conditions of the consent order with the FTC. Tilton, along with Richard H. Matzke, vice chairman of Chevron, will serve as vice chairman of ChevronTexaco.
"Though the divestiture requirements were expected from Day One, they threaten to drag the company down by forcing it to focus on completing the deal while it needs to put all its energy toward succeeding in a cutthroat competitive environment," analyst Fadel Gheit, with Fahnestock and Co. in New York, said. "They are getting married. The wedding date has not changed. But now unfortunately it is cloudy, it is not as sunny as everyone would have liked," Gheit said. However, consumers will benefit from the new company's economies of scale and strengthened ability to compete, he said.

Analysts regard Chevron and Texaco as a good fit because they have many complementary operations internationally, including in West Africa and Brazil, home to some of the world's largest new oil fields. Although rivals, the two companies have a long business relationship. For the past 65 years, they have co-owned a joint venture called Caltex, which sells 1.8 mm bpd of crude oil and petroleum products and operates in 55 countries. Chevron tried to buy Texaco in 1999, but those talks unravelled over disagreements about price and issues of control.
When Chevron's then-CEO, the often acerbic Kenneth Derr, retired at the end of 1999, O'Reilly took over, paving the way to reopen talks with Texaco. Texaco's stock also had been lacklustre since breaking off its talks with Chevron.

Source: AP Online
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