Associated Press...ChevronTexaco to Buy Unocal in $16.4B Deal
Monday April 4, 1:06 pm ET
By Michael Liedtke, AP Business Writer
ChevronTexaco Is Buying Rival Unocal for About $16.4 Billion in Cash and Stock
SAN RAMON, Calif. (AP) -- ChevronTexaco Corp., the nation's second largest oil company, is buying smaller rival Unocal Corp. for about $16.4 billion, hoping to further elevate its recently soaring profits by tapping into another vein of oil and natural gas.
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The deal announced Monday proposes to unite San Ramon-based ChevronTexaco, second only to Exxon Mobil Corp. in the U.S. oil business, with El Segundo-based Unocal, the ninth biggest U.S. oil and gas production company.
ChevronTexaco initially valued its acquisition price, consisting of stock and cash, at $62 per share, nearly 4 percent below Unocal's closing price last week. Unocal's shares dropped $3.99, or more than 6 percent, to $60.36 during Monday's early trading on the New York Stock Exchange, where ChevronTexaco's shares, fell $1 to $58.31.
Unocal's shares had climbed by more than $11, or 20 percent, since ChevronTexaco's interest in a takeover was reported in the media about a month ago.
As part of the deal, ChevronTexaco also will assume $1.6 billion of Unocal's debt and plans to sell about $2 billion in assets.
Unocal has been considered an attractive takeover target for years, largely because of its valuable cache of oil and natural gas in the Gulf of Mexico and the Asia Pacific. The company reportedly drew interest from the China National Offshore Oil Corp., a large state-owned company, and Italian oil company Eni SpA before settling on a sale to ChevronTexaco.
While the Gulf of Mexico supply would cater to North America, Unocal's pool of Asian assets could be parlayed to capitalize on the increasing thirst for oil in China and India.
In a conference call with analysts Monday, ChevronTexaco Chairman David O'Reilly predicted Unocal would "fit like a glove" with his company.
"I am very excited about this transaction, both for the immediate and long-term benefits," O'Reilly said.
Like other major oil companies, ChevronTexaco already has been flourishing, thanks largely to a rapid run-up in oil prices that's pushing U.S. gasoline prices well over $2 per gallon, squeezing consumers and businesses alike.
ChevronTexaco earned $13.3 billion last year, the most profitable year since its inception in 1879. Unocal earned $1.21 billion last year, nearly doubling its profit from the previous year.
ChevronTexaco is betting it will be able to make even more money by drawing up Unocal's energy supplies and refinery operations.
An extensive round of cost cutting also is expected to lift profits. ChevronTexaco hopes to realize $325 million in annual financial benefits from the deal, with about two-thirds of that amount, or roughly $215 million, coming from cost reductions.
Those projections make mass layoffs likely, although O'Reilly didn't provide a breakdown of anticipated job cuts during Monday's conference call with analysts.
ChevronTexaco employs 47,000 workers while Unocal has about 6,000 employees.
The bid to buy Unocal marks the second major acquisition negotiated by O'Reilly since he became ChevronTexaco's CEO in 2000. The company bought Texaco Inc. for $39 billion 3 1/2 years ago, a deal that resulted in thousands of layoffs.
ChevronTexaco hopes to complete the Unocal takeover by the end of this year.
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