Chevron to Buy Texaco in $35 Billion Deal

Chevron is acquiring Texaco for $35 billion, creating the world’s fourth-largest oil company.

The combined company will be called ChevronTexaco Corp., and joins the ranks of other industry powerhouses formed by similar mergers: ExxonMobil, Royal Dutch/Shell Group and BP AmocoBP Amoco.

The boards of both companies approved the transaction on Sunday and made the announcement early this morning.

No. 4 in the World

The latest proposed deal unites the No. 2 and No. 3 U.S. oil companies to create the world’s fourth-largest producer of oil and gas. A combined Chevron and Texaco would have $66.5 billion in revenue, based on 1999 figures.

Chevron’s top executive David O’Reilly, 53, will be chairman and chief executive officer of ChevronTexaco, which will be based in San Francisco, while Texaco CEO Peter Bijur, 58, will be vice chairman.

“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 O’Reilly.

Under terms of the deal, Chevron will pay roughly 0.77 of one of its shares, worth $64.87 based on Friday’s closing price, for each share of Texaco — an 18 percent premium. Chevron also will assume roughly $8 billion of Texaco’s debt.

Shares of Texaco closed down $1.88 to $51.13 in trading Friday on the New York Stock Exchange, where shares of Chevron were down $3.06 to $84.25.

Closing the Oil Gap

Chevron, based in San Francisco, and Texaco, based in White Plains, N.Y., had talked of a marriage last year, but those discussions broke off over price.

The deal would close the gap between the combined company and the largest U.S. oil company, Exxon Mobil Corp., which had 1999 sales of $160.9 billion. Chevron had 1999 sales of $31.5 billion, while Texaco had sales of $35 billion last year.

Some 4,000 jobs, or 7 percent of the 57,000 combined jobs at Chevron and Texaco, will be eliminated as a result of the deal, which will result in annual savings of $1.2 billion, the companies said.

Chevron and Texaco still need to get approval from their respective shareholders as well as federal regulators.

Antitrust concerns are likely to be raised regarding the merger because the combined company would have an interest in roughly 40 percent of the retail gasoline market and one-third of refining capacity on the West Coast.

Exxon agreed in 1998 to acquire Mobil for $81 billion, combining the biggest U.S. oil companies and reuniting two of the biggest pieces left by the 1911 government breakup of John D. Rockefeller’s Standard Oil empire.

That deal was approved last November.