FTC Blesses Chevron-Texaco Merger


Chevron and Texaco have cleared the major regulatory hurdle to their $34.4 billion merger and have now committed Texaco to divesting its interests in the Equilon and Motiva partnerships.

Texacos partners, Shell Oil Co. and Saudi Aramco, appear to be the leading candidates to acquire those interests.

In announcements Monday of a consent order from the U.S. Federal Trade Commission, Chevron and Texaco said they expect the two companies to become one Oct. 10, the day after scheduled votes for shareholders to approve the marriage. Before that date, Texaco would either sell its interests in Equilon and Motiva or place them in a trust, one of several conditions for the FTCs approval.

Both companies were formed in 1998 under agreements that allow theshares of any partner leaving the enterprises to be purchased by the remaining partners for 10 percent less than fair market value. Texaco officials have acknowledged being in negotiations with the other partners but say that they have failed to agree on prices.

Shell and Saudi Refining issued a statement on the heels of the Chevron-Texaco announcement, indicating that they want to acquire Texacos interests.

Shell and (Saudi Aramco subsidiary Saudi Refining Inc.) remain the natural buyers of Texacos interests and we remain open to discussions… to accomplish these acquisitions, the statement said. It added that the two partners are pleased that the plan to place Texacos interests in trust requires sale within eight months and that it sets no minimum price.

A Norwalk, Conn., research and consulting firm for the energy industry agreed that Texacos partners will probably acquire its interests.

Other potential buyers are already maxed out with other acquisitions, said Lysle Brinker, senior vice president and senior analyst with John S. Herold Inc. Plus I think Shell, especially, is glad to end a venture that has not been as successful as they had hoped. Eliminating a partner makes it easier to make business decisions.

Brinker also predicted that Texaco will receive approximately $4.2 billion for its interests, not counting debt, which Herold has calculated to be the net equity of its shares.

I think the trust provision simply delays the inevitable, Brinker said, although it may give Texaco a little bit better bargaining position. Shell probably wants to avoid having the shares put into trust because that just creates additional legal expenses. I think theyll push to complete a deal soon.

Equilon Enterprises LLC combines the Midwest and Western refining and marketing businesses of Texaco and Shell, along with their nationwide transportation and lubricants activities. Among the refineries it owns are base oil refineries in Deer Park, Texas, and Martinez, Calif., with total capacity of 15,200 barrels per day. Shell owns 56 percent of the company, Texaco 44 percent.

Motiva Enterprises LLC includes Shell and Texacos Eastern and Gulf Coast refining and marketing operations. Shell owns 35 percent of the venture, while Texaco and Saudi Aramco each own 32.5 percent. Together, the ventures own seven lube blending plants, in Charleston, S.C., River Rouge, Mich., Wood River, Ill., Metairie, La., Galena Park, Tex., Los Angeles and Seattle.

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