Updated from 8:07 a.m. EDT
( CHV) Monday announced that it had agreed to purchase
for about $35 billion in stock, creating the world's fourth-largest publicly traded oil company.
Under the terms of the deal, San Francisco-based Chevron will pay 0.77 share for each Texaco share. The deal values Texaco, based in White Plains, N.Y., at $64.87, or an 18% premium to Friday's closing price. The combined company, to be called
, will realize cost savings of about $1.2 billion within six to nine months after the deal's close and have a market capitalization of around $95 billion. The combined company will shed about 4,000 of its 55,000 jobs and Chevron will assume about $7.1 billion of Texaco debt. It will also take approximately $1 billion in charges associated with the job cuts. The new company will have reserves of 11.2 billion barrels of oil equivalent, daily production of 2.7 million barrels, and operations throughout the world.
In afternoon trading Monday, shares in Chevron were down $4.69, or 6%, at $79.56, while Texaco shares gained $2.38, or 4%, to $57.50.
Once the deal is completed, Chevron shareholders will own approximately 61% of the combined company's equity, while Texaco shareholders will own about 39% of the equity.
News of the pending deal was widely leaked to the
press over the weekend.
"This merger positions ChevronTexaco as a much stronger U.S.-based global energy producer better able to contribute to the nation's energy needs," said Dave O'Reilly, Chevron's chairman and chief executive, in a statement. "That's good news for the country because the United States will have an additional top-tier energy company better positioned to compete effectively with the international majors."
O'Reilly will be chairman and chief executive officer of the combined company, while Peter Bijur, Texaco's chairman and CEO, will be vice chairman of ChevronTexaco.
A little over a year ago Texaco rejected an offer of $70 a share from Chevron, not far from the price announced Monday.
"Although the acquisition price is similar to Chevron's earlier offer, it appears to be more attractive compared to a year ago given Texaco's efforts to divest some less-profitable non-core oil and gas properties," said Christopher Stavros, an analyst at
who covers Chevron, in a report released Monday.
Stavros predicted that the deal will be highly scrutinized by U.S. antitrust regulators and said the companies will probably be required to divest some assets in U.S. refining and marketing before being granted approval. Specifically, he noted that a Chevron-Texaco combination would set off regulatory alarms in California, where the companies either jointly own or operate five refineries and have a 25% share of the state's retail gasoline market. In addition, the companies would have a retail gasoline market share of over 20% in Texas, Louisiana and Mississippi. In his report, Stavros reiterated both his attractive rating and 12-month price target of $98 per share.