ChevronTexaco to buy Unocal for $16.4 billion
Mon Apr 4, 2005 11:06 PM BST
NEW YORK (Reuters) - ChevronTexaco has won a close race to scoop up smaller
California rival Unocal for about $16.4 billion (8.7 billion pounds),
pocketing
prized assets in Asia and expanding its reach in the Gulf of Mexico.
The deal -- rumours of which had set shares of No. 9 U.S. oil and gas producer
Unocal ablaze since December -- gives ChevronTexaco a production portfolio
that
stretches from the waters off Indonesia and Myanmar to Congo and Brazil.
Analysts hailed the deal as a good fit for the No. 5 global oil company's
strategy to grow and a boost for its efforts to compete on the same playing
field as much larger rivals like Exxon and BP.
"This points to something very important -- a strategic change from a focus on
returns to a focus on long-term growth," said A.G. Edwards senior energy
analyst
Bruce Lanni. "Chevron needs to be in a competitive position with companies
like
Exxon, BP and Shell and the areas they were not the strongest were
Asia-Pacific
and the deep waters of the Gulf of Mexico."
The deal, subject to regulatory and shareholder approval, came as oil prices
surged to a fresh all-time high above $58 a barrel on Monday, after a steady
ascent in recent months.
Surging prices have showered a cash windfall on oil companies, but declining
exploration opportunities coupled with limited access to oil-rich regions such
as the Middle East and Russia have left many searching for acquisitions to
grow.
TURNING A CORNER
Of particular interest to Western majors is Asia, a region that has reshaped
the
energy landscape over the past year because of its burgeoning demand for oil
--
and one in which Unocal has the largest exposure to among its U.S. peers.
"If you look at where all the assets are they are pretty close to hot
markets,"
said Morgan Keegan analyst Subash Chandra. "It's just a substantial oil
company
that is up for sale and that is rare in this business."
Despite its enviable presence in the East, Unocal has historically
underperformed peers and struggled with production declines. But booming oil
prices helped it post record earnings in 2004, giving Wall Street a sense that
its performance had finally turned a corner.
Last month, Unocal also settled lawsuits that accused it of ignoring human
rights abuses including slave labour and murder during the construction of a
pipeline in Myanmar, closing the chapter on a dispute that had blemished its
reputation.
In the end, ChevronTexaco had to beat out Italian oil group Eni, China
National
Offshore Oil and other rumoured suitors to acquire Unocal.
ChevronTexaco remains fifth among top oil majors even with a combined $140
billion market capitalization, behind Exxon -- the largest with $390 billion
in
market cap -- and followed by BP, Shell and France's Total.
SHARES SINK
The deal, structured as 75 percent stock and 25 percent cash, offers value of
about $62 per share based on ChevronTexaco's April 1 closing share price.
Unocal
investors can opt for 1.03 shares of ChevronTexaco stock or $65 in cash for
each
share they hold.
ChevronTexaco will also assume about $1.6 billion in debt.
Shares of Unocal, which surged nearly 60 percent since December on
expectations
of a takeover, fell more than 7 percent on Monday -- based on a lack of
premium
in the deal from Friday's closing price.
"The stock has a 15 percent to 20 percent premium in it because it's been
rumoured to be for sale," said James Halloran, analyst with National City
Private Client Group, which manages $33 billion in assets. "Basically,
ChevronTexaco paid the premium that the market anticipated."
ChevronTexaco expects production in 2006 to average about 3 million
oil-equivalent barrels per day, while its reserve base as of the end of 2004
is
expected to rise by about 15 percent.
It also expects proceeds of more than $2 billion from asset sales after the
deal
is closed, but declined to specify what would be shed. The deal will largely
be
neutral to earnings.
ChevronTexaco sees annual savings of more than $325 million from cost cuts.
There will be job cuts, as it consolidates its headquarters, but it did not
specify how many. The companies expected to be fully integrated in six months.
Lehman Brothers was ChevronTexaco's financial adviser, while Morgan Stanley &
Co. advised Unocal.
ChevronTexaco shares closed down nearly 4 percent, or $2.33, at $57.43 a share
while Unocal shares dropped $4.75 to $59.60 a share.
U.S. Federal Trade Commission chairwoman Deborah Majoras on Monday recused
herself from the antitrust review of deal, saying her husband is a lawyer at
the
firm Jones Day, which has a client involved in the transaction, Judy said.
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