Oil Merger: Phillips Buys Tosco for $7B

N E W  Y O R K, Feb. 5 -- With its $7 billion stock purchase of ToscoCorp., Phillips Petroleum Co. added considerable heft to itsrefining operations at a time when the oil industry is focused onexploration and production.

Crude prices have remained high since summertime, trading atnearly $30 a barrel on the wholesale market, and because of thatoil companies have profited mightily from their drillingoperations. The acquisition of Tosco on Sunday, however, positionsPhillips as the No. 2 refiner in the nation, adding balance to theBartlesville, Okla.-based company’s revenue stream on a long-termhorizon.

“What the company has done is akin to an investor spreadinghimself out in the stock market,” said Peter Beutel, president ofCameron Hanover, an energy risk management firm in New Canaan,Conn.

“Exploration is today’s hot topic. But crude prices will be alot lower in a couple of years and the action will be inrefining,” Beutel said. “These companies are breaking the moldand looking ahead.”

12,000 Gas Stations

The transaction, which also creates a gasoline retailer withmore than 12,000 stations, was approved by the boards of bothcompanies on Sunday and is expected to be completed by the thirdquarter of 2001.

Phillips is offering 0.80 of one of its shares for each share ofTosco, valuing Tosco shares at $46.50, a 34 percent premium. Sharesof Tosco closed Friday at $34.61 on the New York Stock Exchange.Phillips also will assume approximately $2 billion in Tosco debt.

Now a more fully integrated oil company, Phillips and Tosco jointhe ranks of other industry powerhouses formed by similar mergers:Exxon Mobil Corp., Chevron Texaco, Royal Dutch/Shell Group and BPAmoco Plc.

The merger, which is subject to approval by federal regulatorsand shareholders, is expected to be accretive to earnings pershare, Phillips said in a press release.

“We now have positioned our business to fully compete in thedomestic [refining, marketing and transportation] marketplace,which, when combined with our strong [exploration and productionoperations, puts us among the leaders in the integrated oilindustry,” Phillips Chairman and CEO Jim Mulva said in astatement.